This research seeks to address a significant constraint to performance among businesses in emerging markets: marketing skills. Improvements in marketing skills offer the possibility of increased growth and prosperity, however, there exists substantial evidence that it is not abundant among small businesses. We present evidence from the first randomized controlled trial to examine the impact of marketing skills, relative to finance skills, on firm performance. The empirical setting of the study is among small business owners in urban and slum neighborhoods across Cape Town, South Africa. We offer intensive marketing and sales training to one randomly selected group of firm owners, intensive finance and accounting training to another randomly selected group of firm owners, and no training to a control group. For the next eighteen months, we measure the effects of the interventions on the practices and performance of these small businesses. Our findings are threefold. One, marketing skills and finance skills each have a positive and significant effect on firm performance, including increases in: survival, employment, sales, and profits. Two, the pathway to profits differs for marketing relative to finance: profit effects are roughly equal across the two interventions, yet entrepreneurs who receive marketing training tend to achieve these gains by increasing sales and hiring more staff (i.e. growth focus) while those who receive the finance training tend to enhance profits by decreasing costs (i.e. efficiency focus). Three, the returns to business skills training differ depending on individual characteristics. Consistent with a ‘growth focus’ explanation, marketing/sales training appears to be most beneficial to small business owners who (ex ante) have been less exposed to different business contexts. By contrast, and in line with an ‘efficiency focus’ explanation, entrepreneurs who have been running more established businesses (prior to training) tend to benefit more from finance/accounting skills.
Firm Performance: Survival, employees, sales, profits. Firm Policies: Change in sales, change in employees, change in costs, change in outputs-to-inputs. Firm Practices: Market research, marketing tactics, sales tactics, tracking finances, analysing finances, planning finances.
Firm Performance: Both marketing training and finance training led to significant and positive improvement in firm survival. Firms in the marketing group were 9.7% more likely to survive than those in the control group while firms in the finance training group were 12.7% more likely to continue in business compared to the control group. Both treatment groups increased the number of paid employees compared to the control group, who tended to decrease paid staff. The effect of the treatment was thus positive and significant. The impact of the marketing training on employment is nearly double to that of the finance training intervention. Both interventions had a positive effect on sales compared to control group. While for the marketing intervention the effect is significant, for the finance group the effect is only significant when the 14 largest firms are included in the sample. In both groups stronger positive and significant effect can be seen for participants who attended more training sessions. Both trainings appear to result in greater profits for treatment firms. Firm Policies: A positive and significant effect of the marketing training can be found on sales growth and on employment growth. For firms in finance training, there is no significant impact on change in sales, but there is a significant impact on employee growth. For firms in the financial training group that survived, a significant decrease in costs can be seen. Firms in the marketing treatment group show an increase in costs, but this is not significant. Both treatment group significantly increased their output-to-input ratio, although this effect is much stronger in the finance treatment group. Firm Practices: For the marketing treatment group, positive significant effects are found on market research, market tactics and sales tactics. The finance training group showed no significant effect on market research or marketing tactics, but a positive significant effect on sales. Overall the effect on these three composite variables was stronger for the marketing training group. The data also shows positive significant effect on financial practices overall for both marketing and financial training groups, although much stronger for the finance training treatment group. The marketing training had insignificant effects on financial tracking but significant positive effects on financial analysing and financial planning. For the financial training group, positive significant effects are noted for financial tracking, financial analysing and financial planning. Further data showed that the marketing training most benefited firm owners who had less exposure to different business contexts while the financial training most benefited firm owners with established businesses.