A Friend's Support Can Make Women Better Entrepreneurs

A Friend’s Support Can Make Women Better Entrepreneurs - HBR 6/22/15 10:13 AM

ENTREPRENEURSHIP A Friend’s Support Can Make Women Better Entrepreneurs by Erica Field, Seema Jayachandran, Rohini Pande, and Natalia Rigol

JUNE 19, 2015

The people we choose to surround ourselves with often matter a great deal to our success — especially when we are trying to thrive as entrepreneurs. That’s because spending time alongside other motivated and successful people can have positive effects on our own

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success. For instance, a 2014 study found that communication with motivated and successful nearby leaders can lead to higher aspirations and better investment behavior. But for women in the workplace—especially those in low-income developing countries—it can be harder to find other successful women to learn from and collaborate with, since social norms often restrict their mobility and opportunities to interact with one another.

In many developing countries, small family businesses, or “micro-enterprises,” run by women are very common. In India, for example, these home-based businesses are usually comprised of one or two family members and specialize in trades such as making incense sticks, vegetable vending, and construction work. There have been many efforts to increase business success among these low-income entrepreneurs through business training and counseling programs—but they have yielded mixed results.

It seems that simply training men and women in good business practices is not always sufficient to improve business outcomes. In light of this, researchers have searched for other factors that can impact the success of micro-enterprises. One such factor is peer interaction, but the evidence around peer effects at work is limited. A 2013 study found that having peers with prior entrepreneurial experience reduces the likelihood of future business failure. But this connection has yet to be studied extensively in the context of developing countries, or specifically with female entrepreneurs. If entrepreneurs do benefit from having friends at work, then the real culprit behind the low income and growth for female micro-enterprises could be the lack of established female micro-entrepreneurs in the business network.

We sought to explore this in a recent study. Working with Self-Employed Women’s Association (SEWA) Bank, the largest women’s bank in India, we created a unique two-day business counseling program for women ages 18 to 50 who had actively saved or borrowed from the bank between December 2004 and January 2006. The program, led by bank staff

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who had been training similar groups for years, taught women basic financial literacy and business skills and showed them a film showcasing successful role models in their community. We also paired them with a trainer to help them set a medium-term financial goal and identify steps to achieve it. Approximately 57 training sessions were conducted from September 2006 to April 2007. Each two-day class had 10-12 participants, drawn largely from the pool of SEWA members who own a small business (e.g., vegetable vendors, tailors, etc.) or are engaged in home-based work (e.g., embroidery, rolling bidis, etc.).

More than 400 women were randomly invited to attend the training program, while a group of more than 200 women served as the control group and were not. And unlike other business counseling programs, half of the women in our treatment group received invitations not just for themselves, but also for a female friend or family member of their choice. The friend would support the participant and receive training as well. Four months after the training, striking differences surfaced between the two groups of women who were invited.

Although both sets of women were more likely, on average, to take out loans than other clients of the bank who weren’t in the program, what they did with the loans turned out to differ quite a bit too. The women who were invited without a friend mostly used their loans for home repair largely unrelated to their businesses. Women who were asked to bring a friend along, on the other hand, were more likely to use their loans specifically for business purposes. You can see the levels in the graph below. Notice that invited alone and the control are never significantly different.

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And not only were funds spent differently, but the women who brought friends also reported having a higher volume of business than those women trained alone—and they had specific plans to increase revenues.

Perhaps most strikingly, women who were invited to the training with a friend had significantly higher household income and consumption levels four months later, and were less likely to report their occupation as housewife.

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These findings suggest that having a friend present during training can be an important factor in laying out and ultimately achieving business goals. And there are several possible reasons behind why this could be: Having a friend around may create a more supportive business environment, leading to greater business confidence. Alternatively, the presence of a peer could also create a sense of competition, which can lead to better business outcomes. And having a friend as a training partner may strengthen the social network that a woman relies on for support after the training is over. This support could include financial assistance, information, or even just ongoing encouragement.

However, evidence from our study seems to suggest a different explanation. Women invited to the sessions with a friend actually set very different goals—more ambitious goals—for themselves compared to women who attended alone. It appears that having a friend around actually changed the aspirations of women to be more business-oriented, not just their

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ability to meet the goals. For instance, women in the peer treatment group were more likely to state that their goal was to open a small shop, while the women trained alone were more likely to state a goal of saving money for their child’s education.

The improvement of business outcomes was especially salient for women in castes or religious groups that impose more restrictions on whether women can move about the community and interact with others unaccompanied. Socially restricted women who attended the training with a friend were 400% more likely to take out a loan than women in the control group and work nearly 14 more hours per week on average. This makes sense considering that heavily restricted women would ordinarily struggle to form strong professional networks with other female entrepreneurs and would likely not know about the success of female peers, given constraints on their mobility and interactions with others.

The key limitation of our study is that while the evidence on goal-setting is enticing, we cannot know exactly how peer effects operate. Our experiment was not designed to tease apart the specific channels through which a friend’s support boosts entrepreneurial outcomes, so more research is necessary to fully understand what’s behind our findings.

Nonetheless, these results show that peer encouragement really does have a positive influence on female business decisions and outcomes—which has wide-reaching implications. We should take the lack of peer interactions in business seriously if we want to close the entrepreneurial gender gap that exists in many developing countries. Strengthening peer networks can significantly raise women’s aspirations for themselves and their businesses.

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Erica Field is an Associate Professor of Economics and Global Health at Duke University specializing in the fields of Development Economics, Health Economics and Economic Demography. She is a Faculty Research Fellow at the National Bureau of Economic Research, a research affiliate of the Bureau for Research in Economic Analysis of Development, and a member of the Jameel Poverty Action Lab at MIT.

Seema Jayachandran is an Associate Professor of Economics at Northwestern University. She specializes in the economics of developing countries; her current research focuses on health and gender equality. She also serves on the Board of the Abdul Latif Jameel Poverty Action Lab and Bureau for Research and Economic Analysis of Development.

Rohini Pande is an economist and the Mohammed Kamal Professor of Public Policy at Harvard Kennedy School. She co-directs the Evidence for Policy Design (EPoD) Initiative (@EPoDHarvard).

Natalia Rigol is a Ph.D. candidate in economics at MIT. She received her B.A. in economics with minors in mathematics and Slavic languages and literature from Harvard University. She is a National Science Foundation Graduate Fellow and a USAID Research and Innovation Fellow. Her research has focused on microentrepreneurship, microfinance, financial inclusion, and health in India.

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