Third world–also known as underdeveloped–countries are the kings of small business. They teach stellar small business lessons, as they make do with limited resources and still manage to become successful entrepreneurs. Kiva, a microlender that provides loans to entrepreneurs in poor countries, reports a whopping 98.94 percent repayment rate—a statistic that would stagger any American lender. Small businesses in America face a host of recurring challenges, but small business owners in Africa, Asia and Arkansas may have a surprising amount in common. Forget Harvard and its small business crash course: let’s take a look at the small business lessons offered from underdeveloped countries.
3 Small Business Lessons From Third World Countries
Tap your alternate networks
Third world nations often have informal, social networks to replace the lack of government and institutional resources. For example, a community without private day care may create informal child care schedules. These strongly embedded connections end up translating to small business success.
However, as expected, developing nations often face high business risks. In Ethiopia, common risks include harvest failures and policy shocks, according to a study by Oxford University. To mitigate these losses, the communities share the labor and enter into cooperative agreements—loss is distributed throughout the neighborhood. So if one farmer loses crop, the other has agreed to provide crops in exchange for another type of labor, such as wood gathering. As such, they become one another’s informal insurance policies, making sure that the each member of the network will be secure. The study reports that formal credit and insurance policies barely mitigate the risks, but these informal agreements can be effective in helping cope.
American businesses are lucky enough to have a range of public services, including the government’s very own Small Business Administration. However, with the explosion of social media, small businesses are starting to witness the worth of alternate networks. Of many small business lessons, third world countries teach us that alternate networks can help small businesses in all their endeavors—from financing through crowdfunding to greater spending power with purchasing co-ops.
Sell an essential service
Ideally, small businesses everywhere have one important priority: provide people with a service or product they need. It would be shortsighted to simply jump on a bandwagon of trendy services or products.
The MicroLoan Foundation helps finance small businesses run by women in sub-Saharan Africa. Of many, a wonderful success story is Elena, who owns a bicycle repair shop in Malawi. Most people in Malawi live on less than $2 a day, making vehicle transportation prohibitively expensive. By discovering and addressing this market gap, Elena, with her bike shop, developed a successful small business and helped her local economy tremendously. Other small business owners could transport their goods more cheaply and healthcare workers were able to travel with greater ease.
Elena’s small business lessons are provided thanks to her ability to implement an important service. She teaches us how a creative and valuable concept lays the foundation for a successful business plan.
One of the most need-to-knows in small business lessons is that digging into too much debt can lead to high interest payments and a dreaded cash crunch. Basic financial literacy is essential for any small business owner, but balancing credit cards, startup loans, a business line of credit, invoice factoring and so on can just be flat-out confusing. We can look to third world countries for a little bit of clarity.
According to the Global Development Research Center, 13 million microcredit borrowers have $7 billion in outstanding loans. Most of these loans will be repaid. In addition to Kiva’s staggering success, MicroLoan Foundation reports an equally amazing 97 percent repayment rate. The magic may lie in the “micro.” Many loans make a profound impact at under $1000. Small business owners usually know exactly why they are borrowing. For example, Kiva borrower Mirian is applying for exactly $625 to purchase a milk cow and startup a small dairy farm.
In part due to conversion rates, a thousand dollars goes much further in poorer nations. Nonetheless, this small-scale financing means streamlined and straightforward debt—an important small business lesson for a business owner anywhere in the world.