BUSINESS DEVELOPMENT SERVICES

WORKING GROUP

Literature Review on
Growth-oriented Microenterprises

November 2008

This paper was written by Meldy A. Pelejo for the PinoyME Business Development Services Working
Group. Any part of it may be quoted or reproduced provided the source is acknowledged and for non-
profit educational purposes only.

1
 Literature Review on Growth-oriented Microentrepreneurs

TAKING MICROENTERPRISES TO THE NEXT LEVEL

The Challenges, Barriers and Factors in Developing

Growth-Oriented Microenterprises

Introduction

Helping the poor build successful or profitable business enterprises so they

could become economically self-sufficient is the key to moving them out of poverty,
Datar et al. posited.1 In the past, most microfinance institutions (MFIs) operated on
the assumption that providing microentrepreneurs loans without articulating “how
microfinance would work, for whom it could work, where it would work and when it
would work” would help the poor. Over the years, however, MFIs have realized that
access to credit alone will not move the poor out of poverty. Thus, from being a
single-service provider of credit and nothing more, MFIs have shifted to providing
what is now commonly referred to as business development services (BDS).

From the late nineties to the present, the provision of non-financial services or
business development services to client-borrowers has become a component of the
various MFIs’ range of products and services. Notwithstanding this fact, however,
MFIs admit that only 1 to 2 percent of their client-borrowers with microenterprises
have been able to “graduate” their businesses into small- or medium-scale enterprises.
The rest or some 98 percent of the MFI clients’ businesses remain at the micro level.2
A study by the United Nations Conference on Trade and Development (UNCTAD)
study echoes this finding: majority of micro and small enterprises in developing
countries fail to move to higher levels of enterprise activity that would enable them to
contribute to economic growth and job creation.3

Given that microenterprises in the Philippines make up the bulk of enterprises

in the country, and have the potential to contribute significantly to employment
generation and poverty reduction, MFIs and development organizations (DOs) would
like to find out: What makes the few microentrepreneurs succeed? What factors
facilitate the growth of microenterprises into small- or medium-scale enterprises?

At present, MFIs, DOs, and other BDS providers have yet to find an effective
and efficient business model for providing BDS. As providing BDS is quite expensive
per se, it has become imperative for MFIs and DOs to come up with very strategic
BDS interventions for its client borrowers, strategic especially in terms of cost and
quality.

1
Srikant M. Datar, Marc J. Epstein and Kristi Yuthas, “In Microfinance, Clients Must Come First,”
Standard Social Innovation Review Winter 2008. Leland Stanford Jr. University, 2007
(www.ssireview.org), pp. 38-39.
2
PinoyME, “Taking Microenterprises to the Next Level,” Business Development Workshop, Bacolod
City, May14-16, 2008
3
“Growing Micro and Small Enterprises in LDCs. The ‘missing middle’: Why micro and small enterprises
are not growing.” UNCTAD/ITE/TEB/5 (www.unctad.org/en/docs/poitetebd5.en.pdf)

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 Literature Review on Growth-oriented Microentrepreneurs

Through a survey of literature this paper looks into the nature of

microenterprises, the challenges and barriers to successful entrepreneurship, as well
as the key factors behind the microenterprises that have successfully grown to higher
levels of enterprise activity. It focuses on the qualities or traits and skills of successful
entrepreneurs based on a content analysis of documented stories, case studies or
profiles identifying their traits and skills at various stages of the development of their
enterprises.

The results of this literature review are expected to help identify the type or
kind of microentrepreneurs who manifest greater potential to grow their businesses
into SMEs. In turn, identifying their type should guide MFIs and DOs in crafting the
BDS interventions needed to bring these microentrepreneurs to the next level. The
findings from this paper are also expected to help draw up the variables that will form
part of the parameters for the research survey on successful client-borrowers of
participating MFIs.

Entrepreneurship and economic growth

Owing partly to the success of microfinance, great hopes are pinned on their
helping microenterprises grow to become small or medium enterprises. Such hopes
are not without basis. A United Nations study in 2002 declared the existence of
“growing evidence of a significant causal relationship between entrepreneurship,
economic growth and poverty reduction. Small and medium-sized enterprises (SMEs)
are often the backbone of the private sector in the developing world, creating jobs and
providing a tax base for local government.”4 In fact, Morris (2001) asserted that
“higher levels of entrepreneurship in developing countries would significantly
improve economic performance and raise incomes.”5

Micro, small and medium enterprises (MSMEs) make up the vital engine of
the Philippine economy. Being largely poor and lower-middle class, the composition
of the Philippine population is vastly reflected in the makeup of the economy.

According to the National Statistics Office (NSO), 99.64 percent of all

registered businesses nationwide, which number 783,9236 are classified as micro,
small and medium enterprises. Ninety-one (91.02%) percent of these businesses or
some 713,565 are considered microenterprises. Small enterprises comprise 8.2
percent (64,501), while medium enterprises account for 0.38 percent (2,980). Large
enterprises make up 0.36 percent (2,865) of the total number of businesses in the
country.

The MSMEs’ potential for value addition and employment generation is

considered enormous given that the total number of registered MSMEs account for 32
percent of total value added to the Philippine economy and 60 percent of all exporters.

4
“Supporting Entrepreneurship in Developing Countries: Survey of the Field and Inventory of Initiatives,”
Bridges.org report for the Business Enterprise and Entrepreneurship Working Group of the UN ICT Task
Force, May 7, 2002 (as cited in Geoffrey Jones and Alexis Lefort. “Female Entrepreneurship in
Developing Countries,” Harvard Business School, 9-807-018, November 9, 2006).
5
Michael H. Morris, “Entrepreneurship is Development is Entrepreneurship (editor’s letter),” Journal of
Developmental Entrepreneurship 6 (3), 2001 (as cited in Geoffrey Jones and Alexis Lefort. “Female
Entrepreneurship in Developing Countries,” Harvard Business School, 9-807-018, November 9, 2006).
6
Numbers may not add up due to suppression

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 Literature Review on Growth-oriented Microentrepreneurs

MSMEs likewise employ 70 percent of the labor force. Majority of the MSMEs are
located in the national capital region (NCR) and in nearby Region IV-A, while the
remaining are found in the rest of the regions.7 Moreover, according to a study made
by Professor Ronald Chua, almost 60 percent of household incomes are derived from
the microenteprise activities of low-income households.8

A look at the registered SMEs by industry sector (see Figure 1) in 2005

showed that more than half (50.4%) of the total number of registered SMEs was into
wholesale and retail trade. Manufacturing made up 15 percent, followed by hotels and
restaurants at 12.3 percent. The community, social and personal service sector
comprised 5.9 percent; real estate, renting and business activities, 5.6 percent; while
others made up the rest (10.8%).

Figure 1
Philippine SMEs by Industry Sector

Hotels &
Manufacturing Restaurants
15% 12.3%
Other community,
personal & social service
5.9%

Real Estate, Renting

& Business Activities
5.6%

Others 10.8%

Wholesale &
Retail Trade
50.4%

Source: National Statistics Office, 2005

The bulk or 47 percent of SMEs in manufacturing were into the production of

food products and beverages, followed by other commodities at 18 percent.
Meanwhile, wearing apparel and fabricated metal products, excluding machinery and
equipment, comprised 14 percent and 11 percent of the manufacturing sector,
respectively. The manufacture and repair of furniture followed at 6 percent, while the
manufacture of non-metallic mineral and other products took up 4 percent.9

Strategies in microenterprise development would do well to take note of this

composition.

7
National Statistics Office, 2005
8
Prof. Ronald Chua, Asian Institute of Management. PinoyME: Year 2, 2007
9
National Statistics Office, 2005

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 Literature Review on Growth-oriented Microentrepreneurs

Meanwhile, the Global Entrepreneur Monitor Philippine Report estimated that

4 out of every 10 adult Filipinos aged 18 to 64 years or about 19 million, were
engaged in business, thereby placing the country second among those countries with
the most number of individuals owning a business. About 10 million of these
enterprises in the Philippines were in the early stage of entrepreneurial (TEA) activity,
while the remaining 9.5 million were established businesses (EB) as of 2006.10
Filipino women owned 44 percent of the microenterprises, over 80 percent of which
were in the rural areas.11

Given the discrepancies in the numbers owing to the fact that most
microenterprises were not registered plus the fact that official statistics on
unregistered microenterprises was lacking, it is possible that the MSME sector could
contribute much more to generating the needed jobs, increasing incomes and reducing
poverty. A number of obstacles have to be battled with in the process, however, and
in order to understand these obstacles it is necessary to have an appreciation of the
nature of microenterprises and why most remain at the micro level.

Understanding microenterprises: Their nature

Chua12 (2004) defines microenterprises as activities in which the poor are

engaged. Most of these activities are small in scale--hence, “micro”--in terms of
inputs, processes, outputs and markets. The non-crop production activities of the poor
require few inputs in terms of labor, capital and equipment or assets. The processes
for the poor’s enterprise are also normally simple in terms of technology, skill and
manpower. The volume of goods and services they produce are similarly small.

Since microenterprises serve low-income markets the number of customers

they have and their geographical scope are limited. Few microenterprises serve
markets beyond their immediate barangay and rely mainly on a network of loyal
buyers or suki [loyal customers]. The neighborhood sari-sari store, the fish and other
food vendors or repair shop are some examples.

Chua categorized the focus of microenterprise activities as follows:

• Trading – refers to buy and sell activities; stationary vending (such as
that done in sari-stores) or ambulant vending activities such as market
vending, street vending of fish ball, taho, etc.
• Basic processing – e.g., food processing resulting to such products as
smoked fish, baked goods, tocino and ham, fruit preserves. Other
examples include sewing, repacking of rice, spices, etc. and handicraft
making.
• Service – includes home service activities like manicure, pedicure,
hairdressing, vulcanizing, shoe and electronic repair shops, tailors,
small eateries
• Transport – examples include tricycles, FX taxis or private cars, boats
10
Imelda Madarang and Cielito Habito, Global Entrepreneurship Monitor Philippine Report 2006-2007.
11
“Unleashing Entrepreneurship, Making Business Work for the Poor,” Report to the Secretary General
of the United Nations, March 1, 2004. (as cited in Geoffrey Jones and Alexis Lefort. “Female
Entrepreneurship in Developing Countries,” Harvard Business School, 9-807-018, November 9, 2006).
12
Ronald R. Chua, “Micro-enterprise Development: A Primer for Provincial Planners”. Unpublished
material developed for the Utilization-Workshop on Enhancing Capabilities of Provinces for Effective
Planning funded by GTZ. October 2004

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 Literature Review on Growth-oriented Microentrepreneurs

• Agri-based microenterprises – These do not refer to crop production

but to business activities arising out of the trade, sale and processing of
agricultural products.

The aforementioned are the most common focuses of microenterprises in the

rural and urban areas.

Microenterprises possess other dominant characteristics. First, most

microentrepreneurs operate their microenterprises in their residences (e.g., sewers
and other home-based craft manufacturers, sari-sari storeowners) while others do not
have fixed locations (e.g., ambulant fish or food vendors).

Second, most microenterprise activities are seasonal due mainly to the fact
that the supply of raw materials or the demand for their products is also seasonal, e.g.,
smoked and dried fish. When fresh fish are scarce, the demand for smoked or dried
fish goes up.

Third, microenterprises “have short cash cycles (from sourcing of money, to

sale of goods or services, to collection and to paying back of the money), [ranging]
from one day to several weeks.”

Fourth, “microenterprise activities are relatively easy to engage [in] and also
to exit from.” This is because the enterprise activity, as Chua pointed out and which
one could easily validate, is simply the poor’s attempt to utilize the resources
available, for them to earn an income.

Fifth, microenterprises, in general, show very high rates of return vis-à-vis the
low level of investment needed. A fish vendor, for instance, could realize a return of
25 percent per day, like if he buys five kilos of fish at Php80/kilo then sells this at
Php100/kilo. From such the vendor would earn Php100. Such high rates of return may
be the underlying reason for the microentrepreneurs’ choosing informal moneylenders
to be their source of capital despite the high interest rate charged by the latter.

Although microenterprises require little in terms of capital, skills, and assets,

and thus permit the poor to enter or exit the sector easily, microentrepreneurs actually
generate only small value added for each business activity. These same features tend
not just to foster intense competition due to the proliferation of microenterprises but
also limit the microenterprises’ potential for growth, Chua explained.13

Microenterprises in the Philippines are sometimes referred to as the “informal

sector.” The two terms differ only in terms of the perspective by which economic
activities are viewed. Most microenterprises lack the aspect of “formality” in terms of
registration, organization, work and management arrangements within the enterprise.

The National Statistics Coordination Board (NSCB) officially defines the

informal sector as consisting of “units engaged in the production of goods and
services with the primary objective of generating employment and incomes to the
persons concerned in order to earn a living. These units typically operate at a low

13
Ibid.

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level of organization, with little or no division between labor and capital as factors of
production. It consists of household unincorporated enterprises that are market and
non-market producers of goods as well as market producers or services.
Microenterprises are identified on the basis of their size---assets, income, or
employment. There is a huge overlap between informal sector enterprises and
microenterprises. Most microenterprises are informal and most informal sector
enterprises operate at a very small scale and are therefore, microenterprises.”14

Microenterprises in the Philippines are officially defined in the Barangay

Micro Business Enterprises (BMBEs) Act of 2002 or Republic Act (R.A.) No. 9178
as:
• Any business enterprise engaged in production, processing or manufacture of
products or commodities, including agro-processing, trading, and services15

• With total assets of not more than P3.0 million (‘Assets’ include all kinds of
properties, real or personal, owned and/or used by the BMBE and used for the
conduct of its business. Such assets shall include those arising from loans but
not the land on which the plant and equipment are located.)

• May be single proprietorship, partnership, corporation, cooperative, or

association

Types of microenterprises

In his study of microenterprises in the Philippines, Chua (1996) cited the need
to differentiate microenterprise development approaches according to the two types of
microenterprises determined by Ghate, et al. (1993).16 The first type is simply a
livelihood activity, directed mainly towards meeting consumption needs; the second
type is the growth-oriented microenterprise, one with aims for expansion.

Each type of enterprise has a role to play. Livelihood enterprises add to the
family income and lessen the poor household’s vulnerability to crises such as
accidents, loss of job or income by a family member, and so on. Overall, livelihood
activities contribute to alleviating poverty. Microenterprises, on the other hand,
augment family income and help generate jobs outside for non-family members.

The two types of enterprises could also be differentiated in terms of their

objectives. Livelihood activities aim at providing more employment for family
members or increasing income sources through additional income-generating
activities (IGAs). In contrast, microenterprises aim at growth or expansion and the
formalization of the business. The enterprise’s activities are focus on increasing the
value added as well as increasing jobs generated through business expansion.

14
Ronald T. Chua. Learning material on Micro-enterprise Development developed for the Utilization-
Workshop on Enhancing Capabilities of Provinces for Effective Planning with funding from GTZ.
October 2004.
15
Per R.A .9178 “services” shall exclude those rendered by any one, who is duly licensed by the
government after having passed a government licensure examination, in connection with the exercise of
one's profession.
16
Ronald T. Chua, “Microenterprises in the Philippines” (Asian Institute of Management, 1996).

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The table (see Table 1) below summarizes the characteristics of the two types
of microenterprises.
Table 1
Microenterprises: A Classification by Growth Potential

Enterprise Type Livelihood Microenterprise

Characteristics
Reason for entry Pushed into it for Pulled by profit
lack of potential and
alternatives choice
Activities Multiple, one of Main activity
many
Importance of Supplements family Main source of
income from income family income
activity
Skills Low, rudimentary Require more
requirements experience and
skills
Capital Low Higher
requirements
Use of net Sustenance, Savings for
earnings survival expansion
Potential for Little/none High
growth
Source: Ronald T. Chua (2004)

This same classification provides a clue to why many microentrepreneurs do

not progress to become small- or medium-scale entrepreneurs. Microfinance
practitioners observe that majority of their client borrowers tend to prioritize food
security, the schooling of children, medical expenses followed by home improvement,
and lastly, asset acquisition as they progress from one loan cycle to the next (see
Figure 2).17 The survey results of an impact study of an MFI on its client-borrowers
attest to this.18
Figure 2
Microentrepreneurs’ Ladder of Progress

Asset acquisition

Home improvement

Education, health

Food consumption

17
PinoyME, Workshop on Successful Microentrepreneurs, Seameo-Innotech, Diliman, Quezon City,
October 10, 2008
18
Antoinette Bolaños, People’s Alternative Livelihood Impact Assessment Project, September 2005

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While most microentrepreneurs are content once they are able to provide for
their children’s education and the family’s health needs, there are some client-
borrowers who do not follow the ladder of progress model and tend to prioritize asset
acquisition over education and health. These microentrepreneurs, microfinance
practitioners concur, are the growth-oriented ones.19

Thus, the above classification could serve as an initial guide for BDS
providers and MFIs in identifying the microentrepreneurs with greater potential to
grow their enterprises, thereby benefiting more through the provision of BDS.

What further distinguishes a livelihood activity from a growth-oriented

microenterprise is the nature of the market they serve since the market and its
demands are what determine the potential for growth. Chua contends that the
characteristics of microenterprises and livelihood activities result from the situation
and constraints of the enterprise operators’ household. What characterize the
enterprise operators also characterize the enterprise. In other words, enterprise
activities reflect the attempts of the microenterprise or livelihood operators to
optimize their limited resources in order to meet the demands of the market and
thereby earn in the process. A fish vendor, for instance, has access to only a small
amount of capital with which to buy the fish he or she could sell. Whether the vendor
sells in the market or goes around his or her village selling, this enterprise requires
little in terms of skills and assets.
“There is a match or fit made between what the business requires or the
chosen livelihood activity requires and the resources available to the household and
the capability of the operator.”20 Chua (1996) arrived at this conclusion after studying
several microentrepreneurs: smoked fish vendor, shell craft manufacturer and seller,
feather duster maker and bakery operator. An examination of some profiles of
successful clients of an MFI revealed the same trend.

Chua’s other significant finding was that microenterprise operators whose

enterprises showed greater profitability, though over a longer payback period, were
those who knew how to shift to value-adding activities and had learned to build their
assets over time.

By tabulating the estimated incomes of the different livelihood operators---one

was into smoked fish processing and vending, while another was only engaged in
smoked fish/dried fish production; one was a bakery operator while the other was in
the feather duster business---Chua showed the wide variations in their incomes per
day. Consider the case of the two smoked fish processors. The main disparity between
them was that the first had invested in a stove and a big cooking kettle that allowed
her to produce bigger volumes of smoked fish and thus, to sell to other vendors. The
second was satisfied with processing only as much smoked fish as she could sell.
Moreover, the latter used an ordinary stove since she could not accommodate a bigger
one in her house. “These operational differences,” Chua pointed out, “spelled the
difference in their incomes and rates of return. These characteristically high rates of
return and short payback but at times low absolute returns are common among most
livelihood activities with low capital requirements and short gestation periods.”21

19
PinoyME, Workshop on Successful Microentrepreneurs, October 10, 2008
20
Ronald Chua, Microenterprises in the Philippines.
21
Ibid.

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Growth-oriented microentrepreneurs

Documented profiles of successful clients of an MFI affirmed that value

adding and asset building were among the characteristics exhibited by growth-
oriented microentrepreneurs. Chita Yalong, Lolita Agnote and Cynthia Relato were
microfinance clients engaged in fish vending but at different enterprise levels.22

These entrepreneurs knew how to diversify and make effective use of assets.
They could quickly spot business opportunities. They were ready to take risks and
knew how to generate surplus. The profiles of these successful client-borrowers
showed that they utilized their loans to grow their business (building up their assets
such as buying fishing boats, motors, etc.) and took advantage of the business support
offered by the MFI (e.g., access to capital, values formation).23

These successful client-borrowers shared other common characteristics. First,

they gained early exposure to business from helping out their families in a livelihood
enterprise during their childhood. Second, even without the benefit of higher
education, these microentrepreneurs showed mastery of the logic of their chosen
businesses, though not without the costs of trial and error. To illustrate, Chita had to
endure losses when she started shipping the fish catch that she could not sell in
Mamburao to other trading centers. But she persevered despite her initial failure.
Further, by using short message services (SMS), she was able to check on the market
situation, i.e., the market prices of fish, before shipping the excess catch to Batangas.
In so doing, she avoided losses.24 Being technology capable is likewise a desirable
entrepreneurial trait.

So far, several features that differentiate growth-oriented microentrepreneurs from

those simply engaged in livelihood enterprises had been identified. The more
significant ones were: having the know-how to shift to value-adding activities and to
invest in building their enterprise’s assets, and being technologically capable. How
else can growth-oriented microentrepreneurs be identified?

Growth-oriented entrepreneurship

Autio (2007) and Fabe (2002) offer two other possible indicators of growth-
oriented entrepreneurs: growth-expectations and entrepreneurial behavior.

A study by the Global Entrepreneurship Monitor25 (GEM) revealed an

interesting relationship between high-expectations and high-growth entrepreneurship.

22
Antonette Bolaños, “Chita Yalong: Fish Trader and Vendor. Profile of a Microentrepreneur” (Asian
Institute of Management, 2007); Antonette Bolaños, and Meldy Pelejo, “Cynthia Relato: Amassing
Assets Bit by Bit” (Asian Institute of Management, 2007). Meldy Pelejo, “Lolita Agnote: Financing the
Family’s Fishing Business” (Asian Institute of Management, 2007).
23
Meldy Pelejo, “Lolita Agnote: Financing the Family’s Fishing Business”..
24
Antonette Bolaños, “Chita Yalong: Fish Trader and Vendor.”
25
Spearheaded by Babson College and by the London Business School, GEM is a global research
initiative aimed at analyzing the levels of entrepreneurial processes across different countries. Its major
activities have been to create a large data set and construct harmonized measures of entrepreneurial
activity using adult population surveys, national expert interviews and standardized cross national data
sourced from the World Bank (WB), the International Monetary Fund (IMF) and from the United Nations
(UN).

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The study by Autio (2007) related high-growth expectations to the level of expected
job creation. Autio found that, “as many as 70 percent did not expect any job creation
at all. And only some 32 percent of all start-up attempts expected to generate 50 or
more jobs.”26

Moreover, only a few nascent and new27 firms or about 7.4 percent expected
to create 20 or more jobs. However, the expected jobs these new firms were projected
to create represented 73 percent of the total jobs to be created by the whole group. In
contrast, early stage entrepreneurs (92.6%) contributed only 27.4 percent of the jobs
whose creation was expected. Meanwhile, early stage entrepreneurs expecting more
than 100 jobs represented only 1.75 percent, although they did expect to create nearly
half of the total jobs within the cohort. Meanwhile, those expecting to generate 50 or
more jobs, or about 3.4 percent of the respondents expected to create 60 percent of the
total expected jobs.

Even if high-expectation entrepreneurship is not usual, the expected job

creation is significant, Autio pointed out. “Even though growth expectation does not
necessarily lead to growth, growth very rarely occurs by accident, or without
aspiration… Even though aspiration is an important precondition of growth, it needs
to be complemented by data on realized growth to provide a more accurate picture of
growth potential.”28 High expectations, in fact, could be considered an important
indicator or trait of a growth-oriented microentrepreneur.

The decision to start a business is normally affected by contextual factors (i.e.,

the budding entrepreneur’s environment) and an entrepreneur’s personal skills and
characteristics.29 Moreover, “growth expectations and realized growth may be
influenced by individual’s characteristics and it may be possible, at least to some
extent, to identify characteristics associated with high-growth expectations and
realized entrepreneurial growth.”30

Usually, Autio explained, “the size and shape of an ‘opportunity’ and the
related growth expectation [are] not defined by the environment alone, but rather by
the match between opportunity and the personal characteristics of the individual
considering it.”31 In other words, a given opportunity would represent a big growth
potential to those entrepreneurs with the right skills and social capital to effectively
exploit it. Zenaida Aludino-Cagayan is a case in point. Over the years, Zenaida had
built her reputation as a supplier of live lobsters. Starting as a seaweed vendor at the
public market, she moved on to buying and selling fish prior to becoming a boat
owner. While selling in the public market, she made it a point to ask her customers
what else she could provide. Unlike her other co-vendors, Zenaida was persistent in
seeking information about her market. She became a wholesaler of fish, crabs and
lobsters, distributing these to Laoag or Aparri, or Malabon.
26
Erkko Autio, 2007 Global Report on High-Growth Entrepreneurship, p.10.
27
GEM defines Nascent entrepreneur - adults (18-64 yrs) who in the past 12 months tried to start a
new business; personally owns or is part of the new firm; actively engages in the day-to-day
management of the new firm and has not paid salaries to anyone for more than three months; and New
entrepreneur - currently manages a new firm; personally owns all or part of the new firm which should
not be more than 42 months old
28
Shane in Erikko Autio, 2007 Global Report on High Growth Entrepreneurship, p. 19.
29
Ibid., p. 29.
30
Ibid.
31
Ibid.

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Entrepreneurial behavior and essential characteristics

Meanwhile, Fabe in her book,32 which depicted the entrepreneurial journey of

12 of Cebu’s successful businessmen, offered not only actual business insights on
wealth creation but she also summed up what comprise entrepreneurial behavior.
Among the common traits she noted in the 12 successful Cebuano businessmen were
the following:

• They all had small beginnings, that is, they had limited means but had
good business sense.
• They were enthusiastic despite the political and economic crises and were
always on the lookout for new business opportunities
• They worked hard to make their ideas work
• They did not give up despite business failures
• They strove to make their products or services meet market needs
• They created jobs for the community
• They tried to generate new jobs for their community
• They were upright and applied moral values in developing their
businesses
• They innovated to remain the leaders in their business
• They understood their target market
• They made time for personal reflection and spiritual enrichment
• Their parents were their role models

Besides these common traits, Fabe pointed out the essential characteristics33 of
a successful entrepreneur.

a) Discipline, diligence and self-confidence. A keen perception of a market

opportunity and the drive to mobilize resources to meet it. An entrepreneur is
courageous enough to explore a new product and offer it to the market, and is
ready to work untiringly and consistently, from the conceptualization to the
distribution phase.
b) Good knowledge of the product, the market and the technology.
c) Conviction that one’s product or service is unique.
d) Intelligence, innovation and creativity. To remain viable and successful, one
must carve a niche, which is often unperceived by the consumer as well as by
competitors, for the product or service offered.
e) Optimism and the ability to take calculated risks. Taking measured risks is
part of the business. One needs to be strong in the face of difficulties and
discouraging circumstances.
f) Total commitment and having clearly defined goals. Entrepreneurs should
channel all of their time, resources, and talents to the initial stages of the
business. Hard work, energy and single-mindedness are important elements of
an entrepreneur’s profile because one must set specific and time-bound goals
and learn to assess why these goals are not met.

32
Amparo Pamela Fabe, Cebu’s Successful Entrepreneurs: Smiling through the Recession (Cebu,
2002).
33
Ibid.

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g) Honesty and integrity. A good entrepreneur is law-abiding and well known in

the community.
h) Open-mindedness. The ability to adapt and to make quick decisions. An
entrepreneur is aware of the changes in the environment. Sometimes, these
changes could be foreseen. A skillful entrepreneur readily adjusts and plans
his next moves with confidence.
i) A talent for personal marketing. Best results come from personally selling
one’s own product or idea.
j) A global attitude. An entrepreneur is exposed to the advancements in business
in other countries. One can do this by reading, traveling, and by interacting
with others.
k) Perseverance, perceptiveness and the ability to learn from mistakes. An
entrepreneur tackles failures immediately and derives insights from it.

The above-mentioned traits, while not exhaustive, summarize the contributing

factors that facilitate enterprise growth. But for MFIs and BDS providers to be more
strategic in their interventions, it may be more useful to provide them with the
entrepreneurial traits and skills essential for an entrepreneur at each stage of the
enterprise cycle. So far, the sketchy survey of growth-oriented microentrepreneurs has
shown that it is possible to identify those needed traits and skills and directly relate
these characteristics to the level of growth that their particular enterprises have
achieved.

Indeed, Autio was not alone in his observation of the vital role of the
individual entrepreneur’s qualities or traits and their relation to high growth
expectations and realized enterprise growth. Chua34 related growth or enterprise
success not only to individual traits and skills, but also to the market or industry to
which the chosen enterprise belongs and to the entrepreneur’s access to support
services.

He hypothesized that “given a favorable market condition, microentrepreneurs

who are highly skilled, who possess desirable entrepreneurial traits and have high
access to support services will likely succeed” (see Figure 3).
Figure 3

34
PinoyME Focus Group Discussion on Microenterprise Research, Q Bistro, Pasig City, August 7, 2008

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 Literature Review on Growth-oriented Microentrepreneurs

To validate Chua’s hypothesis, a qualitative analysis of profiles of successful

entrepreneurs was undertaken. The analysis identified the traits and skills they
exhibited at various stages of the development of their enterprises. Since this paper set
out only to review the literature available on what makes for successful
microentrepreneurs, the information gathered was not correlated with the services---
financial products and BDS or non-financial services----that these successful
microentrepreneurs accessed, the extent to which they accessed these services and the
market conditions or the state of the industry to which their microenterprises belong.
Validating the conceptual framework would require running a statistical analysis of
the content analyzed. Moreover, the profiles of successful entrepreneurs available do
not provide enough information on the market or industries to which their businesses
belong.

The profiles of 100 “successful” microentrepreneurs were documented stories

contained in “The Micros That Roared,” published by the University of the
Philippines’ Institute of Small Scale Industries (UP-ISSI), in Fabe’s “Cebu’s
Successful Entrepreneurs: Smiling through the Recession” and in the collection of
featured stories of successful microentrepreneurs from different MFIs, rural banks and
other organizations. “Introduction to Entrepreneurship” published by Anvil
Publishing also narrates the stories of successful Filipino entrepreneurs belonging to
the Association of Filipino Franchisers Inc. (AFFI)

The aim of the analysis was to identify the traits and skills exhibited by
successful microentrepreneurs at various stages of the development of their
enterprises that may have contributed to growing their microenterprises to the next
level.

The methodology used was basic content analysis. The information or data
provided in the microentrepreneurs’ profiles were categorized into traits, skills, and
access to support services, and market or industry. Based on Chua’s hypothesis, these
factors helped microentrepreneurs succeed. Family background was added to these
categories to provide a classification for the other data provided in the profiles and to
validate the observation in the preliminary findings that prior exposure to business in
childhood or in a previous job contributed to the entrepreneur’s success.

Following the deductive category development in content analysis, the

categories were defined as follows:

A trait35 is a distinguishing quality (as of personal character); an inherited

characteristic that is stable or relatively permanent.

A skill, on the other hand, is “a learned capacity or talent to carry out pre-
determined results often with the minimum outlay of time, energy, or both. Skills can
often be divided into domain-general and domain-specific skills. For example, in the
domain of work, some general skills would include time management, teamwork,
leadership, self-motivation, and others; whereas domain specific skills would be
useful only for a certain job.”36

35
Merriam Webster’s definition (http://aolsvc.merriam-webster.aol.com/dictionary/traits).
36
http://en.wikipedia.org/wiki/skill

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From the quick survey of the profiles of microentrepreneurs who have

succeeded in moving their enterprises from a livelihood activity to a growth-oriented
one, it is possible to identify certain traits and skills that characterize
microentrepreneurs with potentials for growth and to directly relate these
characteristics to the particular enterprise life-stage or to the level of growth their
enterprises had attained.

Chua identified the four cycles undergone by an enterprise. At each enterprise

cycle, the role of the entrepreneur changes, along with the skills and other
requirements.37

Enterprise Life Cycle &

the Role(s) of the Entrepreneur

Stage of Growth
Start Up Growth Maturity Stability
Crucial Transitions 10 yrs 15 yrs
0-3 yrs 3-4 yrs
No. of Employees 0 0 to 20-25 25-75 75-100+
Core Management Mode Doing Doing Managing Managing

Based on Chua’s enterprise life cycle, three enterprise life stages were used in
the analysis: Start-up, Growing and the Stable stages. Given that the profiles of
successful microentrepreneurs did not provide sufficient information to distinguish
clearly each stage, especially the mature and stable stage, these two were merged into
one.

Findings

At the start-up stage of an enterprise, the microentrepreneurs exhibited the

following traits:
o Confidence (Daring/Courage)
o Hard working attitude (Industriousness)
o Resilience/Persistence (Committment)
o Patience
o Flexibility
o Open-mindedness
o Humility
o Trustworthiness
o Love of family

When starting a business enterprise, it is vital to have a perspective of the

whole business or path that one wants to take, or a clearly defined business model.
Even at the basic level, the various business functions have been considered:
production/operations, marketing, organization and finance.38

37
Ronald Chua, Pearl Project (Canadian International Development Agency 2004).
38
Ronald Chua, Knowledge Forum on Canada Microenterprise Project. March 2004

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An entrepreneur needs courage and mastery of self in order to start an

enterprise. Thus, confidence, which could be used synonymously with daring, is
essential at the start-up stage. At the beginning, too, the start-up entrepreneur is
usually a “jack-of-all-trades,” doing everything from conceptualizing to buying the
raw materials, cutting, pasting or manufacturing the actual product, then marketing,
selling, delivering the finished product, to doing the accounting, etc. The early-stage
entrepreneur has no choice but to work long hours. He or she must also be persistent,
that is, ready to keep going despite failure or setbacks in the business.

Patience is the trait that is related to foresight. Patience must be combined

with biding one’s time, waiting for the opportune moment while preparing for the
future by building one’s business assets such as buying the lot for a future factory,
investing in research, and so on, in order to take advantage of a business opportunity.
It also means delaying gratification, which requires ploughing back the profits into the
business as opposed to spending on consumption or personal needs. Open-mindedness
means the willingness to listen and accept suggestions, advice or help from one’s
business partner/s, to explore and try out new things if something does not work.

In terms of general skills, microentrepreneurs at this particular enterprise life

cycle showed:

o Mastery of product and technology/process

o Strictness with standards and goals
o Marketing skills
o Interpersonal skills

Depending on the particular enterprise in which one is engaged, the

entrepreneur should have mastery of the technology/or process related to the
manufacture of a product. This aspect is very much related to maintaining strict
product standards, which in turn will affect the marketing of the products. At the start-
up stage, interpersonal skills are vital not only to employee relations, but also to
establishing initial business contacts and penetrating markets, and sourcing the needed
financing as well as support from relatives and friends.

Marivic Cordavez of Lumban, Laguna who owns Burda de Filipinas, a small

company involved in the production of intricate embroidery and embroidered
products for which Lumban is famous, demonstrated how vital these general skills
are. As a young girl, she learned to embroider swatches in her aunt’s embroidery
shop. She also became a part-time salesperson for her aunt’s shop when she grew up.
Her previous exposure to the business made it easy for her to attain mastery of the
enterprise once she decided to resign from government work. As soon as she revived
her aunt’s embroidery business, she personally supervised the whole operation—from
design, sewing, marketing and selling---even after the business grew and she was able
to hire two supervisors.39

39
Nimfa Derige-Montes, “A True Child of Lumban” in The Micros That Roared. Dreamers, Doers
Risktakers 3. (Quezon City: Small Enterprises Research and Development Foundation Inc., 2006).

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Miguelito Diestro of SANRAM Agricultural and Farm Machinery believed

that an entrepreneur should start a business that focused on his/her hobby and main
interest, and then nurture this into a business based on expertise. So this was exactly
what he did. The first business he put up was MG Metal Craft that made and installed
automotive mufflers. When he realized that the business needed constant financing,
he closed it and sought employment in two major companies involved in trading,
engineering and motor works so as to gain experience in running a flourishing
business. He also worked for a rice research institute, which exposed him to
agricultural and farm machinery. After this exposure, Miguelito started the
manufacture of power tillers, which were machines used to prepare the land before
planting.40

At the growing stage of an enterprise, the entrepreneurs exhibited the

following traits:

o Keenly observant
o Innovative
o Friendly/Outgoing
o Open (to learning/improving continuously)
o Dedication/passion
o Risk-taker

To keep pace with her growing market and as a result of repeat orders,
Marivic invested in new machines, used the Internet to keep in touch with customers,
negotiate sales contracts and used computers to help monitor and control production
and manage the company’s finances. She innovated on materials, designs and
production methods, and studied design books and magazines, participated in trade
fairs and exhibits to be on top of new product designs and development.41

With regard to skills, entrepreneurs at the growing stage focused on:

o Managing productivity
o Managing quality (product)
o Managing efficiency
o Organizational development
o Financial management
o Budgeting
o Strategic management
o Human resource management

40
Nimfa Derige-Montes, “SANRAM Commits Itself to Agro-Industries” in The Micros That Roared.
Dreamers, Doers Risktakers 3 (Quezon City: Small Enterprises Research and Development Foundation
Inc. 2006).
41
Derige-Montes “A True Child of Lumban”.

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At the growing stage, Miguelito believed that one should invest in training and
exposure, not only to new technologies but also to new business management
practices to support business growth. One should also learn how to look for new
financing sources, budget one’s capital especially when one decides to diversify
business operations. When Miguelito increased his workforce, he made sure to train
his unskilled workers (e.g. helpers) or improve the training of those already skilled
through courses offered by government agencies such as the Technical Education and
Skills Development Authority (TESDA) or the Department of Trade and Industry
(DTI). He ensured that product standards were followed by inspecting the outputs and
supervising the work process daily.42

At the stable stage of an enterprise, the entrepreneurs exhibited the following

traits:

o Creativity
o Openness (to learning/improving continuously)
o Dedication/passion
o Sensitive to opportunities
o Risk-taker
o Magnanimous

Entrepreneurs at the stable enterprise level illustrated they need general skills
similar to those in the growing stage but at a deeper level:

o Organizational strengthening
o Financial management
o Human resource management
o Marketing/Market analysis
o Human resource management
o Mastery of core business
o Product research and development
o Networking
o Diversification/Expansion

The entrepreneurial traits and skills at the stable stage are similar to the
previous stages, but the need for continuous training or education should be
highlighted. Even if it may be true that one continues learning new things that would
help the business outside of the classroom, successful businessmen advised getting a
good education from a good school to shorten the learning curve and have a
competitive edge in the market.43 With growth or expansion, the need for greater
management skills becomes more acute to keep the business on an even keel toward
its direction. Magnanimity or desiring, setting high goals remain a crucial trait. One
must aim for higher goals each time otherwise, the business would stagnate.

The traits identified at each stage of the enterprise cycle are by no means
exclusive to that enterprise stage. The categories simply serve to highlight the
contributing factors essential for entrepreneurs to succeed.

42
Derige-Montes, “SANRAM Commits Itself to Agro-Industries”..
43
Fabe, 2002, p. 122.

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What other studies say

Let’s Go Foundation44 carried out a survey among 100 growing women

entrepreneurs who have been engaged in business for at least two years. The top three
lines of businesses of these respondents were as follows:
distribution/trading/forwarding, commercial services and retailing, from which most
of them earned between Php1 and Php30 million.

The objective of the research survey was to gain insights into the experiences,
problems, successes and attitudes of women entrepreneurs. The survey results
identified key factors influencing success and failure in business.

Highly trained researchers guided by market research guru, Dr. Ned Roberto,
conducted one-on-one interviews. Since the interviews were face-to-face, researchers
had the opportunity to probe and ask follow-up questions. The respondents were
asked 29 questions about their experiences as entrepreneurs.

Majority of the respondents (83%) came from the broad and upper middle
classes, 14 percent from the upper class and 3 percent from the borderline poor. The
survey results showed that 64 percent of the respondents had worked previously in
private corporations before they went into business. In fact, 47 percent had finished a
business-related course. They found their previous work experience very useful in
terms of the training or experience they got on systems and procedures and human
resources management.

When asked in what sense they thought the trainings or seminars on business
to be effective, 43 percent of the women entrepreneurs cited the professors’ teaching,
while 26 percent mentioned the teaching materials used.

The women entrepreneurs also considered the influence of their families a big
factor in their decision to launch a business. Among the respondents, 22 percent had
one parent who was a business entrepreneur, while 53 percent had two parents who
were entrepreneurs. Sixty-one percent attributed their motivation to go into business
to their families.

The top three aspects that respondents found most useful in growing their
businesses were financial management, strategic planning, and market/micro market
analysis.

Among the aspects of running a business that respondents found most difficult
were the following: human resource management, financial planning and budgeting,
industry and competitive analysis and financial management.

Most useful to growing their enterprises were finance (31%), marketing

(26%), and strategic management (23%). The respondents also highlighted the
usefulness of networking skills and considered it a capability to be fostered.

44
Women Entrepreneurship Survey Results Report (www.womentrepreneurship.org/19).

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 Literature Review on Growth-oriented Microentrepreneurs

The results of the above study underlined how possessing the foundation in
the basics of running a business is important to success. In addition, it revealed that
women entrepreneurs who are financially literate, who know their market and have
acquired skills in marketing and strategic management will fare better in managing
their businesses.

Barriers to Entrepreneurship

The Philippine study by GEM confirmed what had been pointed out earlier
with regard to non-growing microenterprises. Many of them remained small (or
micro) since they were put up mainly because of necessity as opposed to the drive to
take advantage of business opportunities. The lack of financial access and formal and
informal training on entrepreneurship also limited the entrepreneurial activity of
women entrepreneurs.45

Among the major challenges faced by entrepreneurs in developing countries

are the following: inadequate infrastructure, shortage of capital, the inability to access
financial services, and weak institutions. Electrical service is sometimes unpredictable
and transport costs are high due to the lack of farm to market roads. Reliable transport
or logistics services are expensive, just as the basic mechanics for starting a business
can also be costly. 46

Even though men worldwide are twice likely to engage in business as women,
there are disparities across countries. In developing countries, female
entrepreneurship is higher than in developed countries. As previously mentioned
compelling factors in the decision to become entrepreneurs are poverty and the need
to augment family income. Thus, women entrepreneurs could be said to have been
“forced” into entrepreneurship as opposed to being “chance” entrepreneurs who start
up an enterprise to keep busy or to engage in a hobby.47

Among the top hurdles women entrepreneurs face are funding or financing,
family support, lack of access to networks of knowledge and business information,
having to play dual roles in the home---as wife/mother and entrepreneur---and the
lack of education.48

Some of the other constraints faced by the MSMEs in the conduct of their
businesses (from profiles and from a study by a microfinance institution of its female
clients engaged in microenterprises) were marketing, product quality (including
packaging design) and development, access to capital and technology as well human
resource management. Often, their products were rejected due to
transportation/handling damage, problems in preservation, product quality, and poor
packaging designs. Most women microentrepreneurs were into manufacturing and
retail trade.

45
Imelda Madarang and Cielito Habito, Global Entrepreneurship Monitor Philippine Report 2006-2007.
46
Geoffrey Jones and Alexis Lefort, “Female Entrepreneurship in Developing Countries,” Harvard
Business School, 9-807-018, November 9, 2006.
47
Ibid.
48
Ibid.

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These same women microentrepreneurs tend not to enter potential markets

because their production capacity is low; they have insufficient capital and lack
marketing support. In the meantime, those who have who have tried penetrating
potential markets stop because of insufficient capital, competition, low production
capacity, poor collection and problems in manpower. In other words, there is a need
to improve product quality, packaging and design; to increase capital for production
and manpower, and to come up with good marketing strategies.49

The above findings matched the gaps outlined by the National Council for the
Role of the Filipino Women.50 Among these were:

Women fare worse than men in industrial-skill competency

assessment and accreditation. Hence, a big potential would be
to enhance their small business management or
entrepreneurial skills and competencies, as they are the ones
generally pushed to start self-employment activities at home.

For the women who managed to build their own enterprises,
the need was to provide more business management skills,
improve value creation capacities…

While some credit programs reached over a million women in
urban and rural areas, including microenterprises and SMEs,
there was little evidence that the loans extended to women were
enough, even for sustainable livelihood activities.

To scale up their enterprises and succeed to the next level, beside specific
skills related to their chosen enterprise, women entrepreneurs need more business
management and entrepreneurship skills, access to capital and technology as well as
marketing support.

Summing up

This paper set out simply to survey the literature available on growth-oriented
microenterprises. Starting with a discussion on the nature of microenterprises the
paper then moved onto distinguish the two types of microenterprises: those that are
focused on livelihood activities and those that have expansion aims and are properly
called microenterprises. Livelihood activities are aimed at meeting the consumption
needs of the low-income household or adding to the household income. In contrast,
microenterprises have increasing family income and generating jobs for non-family
members among its objectives. Based on this differentiation, MFIs and DOs could
start identifying growth-oriented microenterprises.

The literature review also enumerated the other features that characterize
growth-oriented microentrepreneurs. They know how to shift to value-adding
activities. They prioritize asset building or acquisition. They have high expectations,
know how to diversify, are technologically capable and have mastery of the logic of
their chosen enterprise.

49
Marketing Constraints and Opportunities for Women Client-Producers of Taytay sa Kauswagan, Inc.
(TSKI), a microfinance institution based in Iloilo City. It is the the second biggest MFI in the Philippines.
50
Center for Women Entrepreneurship

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The paper also analyzed the traits and skills that growth-oriented
microentrepreneurs possess based on the documented stories or profiles of successful
entrepreneurs. The essential traits and skills were categorized or related to the
enterprise cycle that the entrepreneurs had attained. Statistical analysis was not
employed. Future studies could try to do a rigorous content analysis and validate what
makes for a growth-oriented entrepreneur.

What the paper tried to do was sketch the individual traits and skills growth-
oriented entrepreneurs exhibit. This preliminary sketch could serve as a basis for
screening whom the delivery of BDS should target or who should benefit more from
BDS and other interventions. The sketch of traits and skills could also serve as a
foundation in the development of appropriate entrepreneurial training programs in
order to address the lack of traits and skills, as shown by the results of the research
survey of the Let’s Go Foundation.

Taking off from the findings of the literature review, the Workshop on
Successful Microentrepreneurs51 identified the key drivers or components of
microentrepreneurial growth as follows:

a) Mastery of business as shown in the match the entrepreneur makes between

market demand and personal skills
b) Shift to value-adding activities so that the accruing higher income is translated
to asset accumulation and/or diversification
c) Broader mindset as manifested in risk-taking behavior
d) External assistance or access to support services such as MFIs, government
agencies, BDS providers, etc.

Nonetheless, the challenges remain. These continue to revolve around coming

to an agreement on how to spot the growth-oriented microentrepreneurs and the
sustainability issue.

Among the key questions that MFIs and BDS providers continued to ask were:

a) Given the traits and skills of growth-oriented microentrepreneurs, do loan

officers/account officers or the microfinance staff have the capacity to identify
them in their client-borrowers?
b) Is there a match between BDS providers and the key drivers of
microentrepreneurial growth?
c) How should BDS be sustained?

51
Organized by PinoyME, Seameo Innotech, October 10, 2008

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On the issue of spotting the motivating potential in microentrepreneurs, some

MFIs and BDS providers simply use the loan amount as a screening tool for
extending BDS to their clients, while others use the willingness to pay for BDS as a
sign of growth-mindset. Such entrepreneurs tend to be willing to undergo training
because they are in search of new information or skills, and thus, have a commitment
to grow their enterprise. The search for new information or skills can be taken as an
indicator that the entrepreneur is not satisfied with how the business is being
managed.

With regard to sustaining the provision of BDS, most MFIs and BDS
providers rely on subsidy schemes or on donors, while others outsource. Fees for BDS
are either embedded in some products or services while others charge service fees.

Three things that MFIs and BDS providers agreed on was that it was crucial to
gather client information, adopt or draw up a diagnostic tool for identifying growth-
oriented microentrepreneurs and come up with a tool for tracking the growth of an
enterprise.

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