Is There a “Steel Bullet” for Helping Businesses Grow?

The development industry has been plagued by its share of “silver bullets”— that is, decisive, one-size-fits-all solutions to big, thorny problems, which of course always fail to meet the outsized expectations surrounding them. Instead, I propose developing “steel bullets.”

In my (somewhat tongue-in-cheek) metaphor, a “steel bullet,” unlike the silver kind, is not the perfect solution, but the one that is good enough. It’s cheaper and easier to produce. And to stretch the metaphor even more, steel is an alloy of different metals, and experimentation is needed to get the right combination of ingredients, according to different circumstances. For the thorny problem of helping microbusinesses grow and thrive, I think we may just have found our “steel bullet.”     

Why do we need a steel bullet to help businesses grow?

Microbusinesses seldom grow by themselves. Many of them remain subsistence businesses, making very small margins, sometimes not even breaking even. Only a small percentage of those who start off with one or no employees are able to progress to multiple employees. Small business training programs have attempted to address this issue, but research on these types of programs has shown only a modest impact on microbusinesses’ sales or profits – a 5 to 10 percent increase according to one World Bank meta-study. To make more significant gains, microentrepreneurs clearly need something different.

What do microentrepreneurs need?

So, what is this steel bullet for microentrepreneurs? It has to do with the power of data and ongoing feedback.  My organization, L-IFT (Low-Income Financial Transformation), collaborated with the Financial Access Initiative at NYU on a randomized control trial (RCT) study which tested the impact on microbusinesses of receiving business analytics reports based on their financial diaries data. The research, which will be published later this year, had some very promising findings that have helped us identify a potential steel bullet to help businesses grow and increase profits, especially for women. 

The study authors, Emma Riley from University of Michigan and Tim Ogden of the Financial Access Initiative at NYU, looked at two different interventions on two groups of microentrepreneurs in Kampala, Uganda. Both groups of businesses participated in financial diaries - a form of research that requires participants to report detailed cash flow data on a continuous basis. In addition, one group received feedback based on these diaries, in the form of fortnightly printed business reports which summarize metrics like sales and expenses alongside the entrepreneur's goal for that metric. 

The study authors found significant positive effects for the group that received business reports, including an increase in business sales and profits of approximately 25%.  They also experienced:

• Large improvements in record-keeping and inventory management.
• Reduced likelihood of business closure.     
• Greater likelihood of achieving their business goals, leading them to set higher subsequent goals, generating a positive feedback loop between goal difficulty and achievement.     

L-IFT is excited to see these results, which show the potential for tailored business reports to be the steel bullet we need to help businesses grow and thrive.

Finding the right alloy for our steel bullet

In addition to running the financial diaries and business reports for the Kampala study, L-IFT created FINBIT, an android app that our field researchers used during the study to record data from the businesses. This app can also be used by businesses independently of any research project for what we call “self-reported financial diaries” – bookkeeping, tracking metrics like hours worked, worker pay, customers acquired and more. The app also produces data visualizations in the form of bar charts, pie charts and line graphs which populate the business reports used in the study.     

This app is now helping us find the right mix of ingredients for our steel bullet as we experiment with ways we can improve the reports generated by the app. To do this, we are conducting user tests to see what types of information and visualizations are most useful. For instance, users have requested:

• Reports showing income and expenses together on the same graph, rather than separately, to clearly show patterns in profits. 
• More explanatory text below each graph to help them interpret the numbers. 
• Bar graphs as opposed to line graphs when given the choice. 

For example, the following graph was created based on feedback from our users, showing how expenses and income interact over time within the same graph.      

Figure 1: Graph designed by FINBIT users combining sales and expenses, showing resulting profit month on month.

Our users suggested a similar merging of the savings and loans graphs. For the Kampala study, accumulated savings and outstanding loans were shown separately. The combined graph helped them to directly compare the amounts, which brought clarity about the level of indebtedness. The improved result is shown below in Figure 2, where it is now clearly visible how the outstanding loan amount is relatively small compared to accumulated savings.

Figure 2: Combined graph savings and loans, showing proportions (as designed by FINBIT users)
 

We will continue improving how we visualize and present data to businesses owners using FINBIT. In future rounds of user testing, we plan to delve into how preferences differ according to culture, gender and education level.

Could we move beyond data to provide tailored business advice?

The Kampala study demonstrated how just seeing data about their businesses can help microentrepreneurs grow, presumably because it helps them identify what can be improved.  We also want to explore whether the impact deepens if the reports go beyond simply displaying data to draw some explicit conclusions, such as identifying if a business spends more on site rental than average or if opening the shop on Sunday is loss-making. 

The app could also present some rule-of-thumb business advice that has been proven to be universally effective – such as how it is important to pay yourself a clear salary rather than dip into the business’s cash box. The app could use data from the business’s financial diaries to determine which business advice is relevant at which moment. 

Likewise, based on the diaries data, the report could also direct businesses to relevant digital training and information to address challenges and weaknesses identified from the business’s diaries data, recommending them at the exact moment the business needs them. Being able to access tailored trainings rather than cookie-cutter sequential business training curricula could help entrepreneurs to feel more seen and heard.

Continuous experimentation

We expect to work continuously on our alloy recipe for the steel bullet. With access to the right steel – the best combination of data and business feedback - we hope that all types of microentrepreneurs will be able to grow their businesses and profits, become financially healthy and eventually offer good jobs to others.