Consider Mary, who wants to open a nursery for plants. She has a beautiful garden and loves caring for plants. Now that her community is developing, she senses an opportunity to turn her hobby into a business, catering to both the desire for decorative plants and the need for herbs and vegetables.
She has the basic skills, the demand is there, and she could probably obtain a micro-loan.
But the probability of Mary turning her small plot into a real business capable of sustaining multiple families is slim.
In 2006, the banker Muhammad Yunus was awarded the Nobel Prize for inventing microcredit and microfinance, providing women with modest aspirations like Mary with small amounts of initial capital. His dream was to enable large numbers of people to rise above poverty through tiny loans to would-be entrepreneurs too poor to qualify for regular bank loans.
A decade on, it is becoming clear that his concept was revolutionary, but while it could lift some individuals out of individual dire poverty, it wasn't helpful at the level of the community. Also, even those who were helped, weren't helped to go far.
It seems safer to start small and grow. But the thing about starting small is that usually, it also keeps you small.
Staying alive, barely
If the business opportunity is good, someone bolder will make the move and seize the chance to scale it up. Even if they don't, scaling up in the future is not necessarily easier than doing it in the present. And the fact is, the smaller the business, the greater its chances of failure.
The statistics on the survival rate of small business are known – they're awful. Yet people remain sure that playing it safe requires slow growth.
Sendhil Mullainathan and Eldar Shafir gave us a glimpse into what makes small business so risky and why scaling up is so difficult in their book titled "Scarcity: The New Science of Having Less and How It Defines Our Lives".
A key insight is that when experiencing scarcity, Now always outweighs Later. An intuitive example would be that if you need to care for a child with influenza, you don't go out to irrigate your plants and leave the child unattended for hours on end. If you need money for the doctor, you don't spend it on fertilizers.
The very poor simply don't have options. The better-off don't need to choose as painfully between simple choices. We can hire a babysitter and irrigate and have enough left over to buy medicine and fertilizer. The hurdles it takes to make us fail are higher.
For the poor to succeed, they need space for error, space to overcome the small predictable needs of day-to-day life.
Giving them that space to overcome means first and foremost, recognizing that they need it. They the necessary buffers and "support wheels" need to be added to the various programs.
Say for instance a given vocational training program suffers from a high rate of dropouts. One reason could be that if a class or two are missed, catching up becomes impossible. Allowing people to retake the course, or simply having a backup teacher to help them make up missed classes, could easily resolve the problem.
Other helpful assistance could include a little bit more leverage on missed payments without downgrading one's credit score, genuine solutions for child care, and monitoring applications that could serve as personal guides and help keep us on track to achieve our goals.
Know what you don’t know
Let's assume Mary has access to a bit of land she could cultivate. But creating a business requires not only capital but skills: how to grow plants efficiently for the commercial market, how to market, how to sell, and finally, access to supply and delivery chains and financial management.
Few people anywhere have all these at hand, but people inexperienced in how business works, whether living in a remote village or an impoverished area of a big city, wouldn't have any of it.
Not knowing what you don't know makes acquiring knowledge all the more challenging. And for the extremely poor, hiring expert help – even if the need is recognized - is not an option.
A micro-loan may lift one family from abject poverty, but truly impacting poverty necessarily means scaling up.
Two points need recognizing. One is that to have impact at the level of the community, not the individual household, the aspiration needs to be to help build large businesses, not small ones. Two: eradicating poverty will take a lot more than mere access to capital.
Creating sustainable change at the level of the community requires encouraging talent in multiple vocations, and creating access to high-level professionals as mentors. Bridging the gap of knowledge can enable small, poor and flimsy businesses to become solid and sustainable.
Building larger business attracts both capital and talent. This is no doubt part of the reason larger business are more sustainable than smaller ones.
A different model for bringing talent into smaller companies, for the sake of the greater good, is via combined human resources. One example is that a top-level retired CFO or human-resources manager could give such services to five or 10 smaller companies. As long as they are not competitors, their help would bring obvious added value, helping to create the kind of bigger businesses that help whole communities flourish.