Reached Your Entrepreneurial Limit? Hire a Marketer

New research shows marketing specialists drive growth for small businesses and early-stage ventures.

Based on the research of Stephen J. Anderson

At some point, an entrepreneur can’t do everything necessary for a growing business.

As a business expands, its founder eventually doesn’t have the knowledge, skills, or time to take on every task — a limit that Stephen J. Anderson, marketing assistant professor at Texas McCombs, and David McKenzie, World Bank lead economist, have dubbed the “boundary of the entrepreneur.”

Once that boundary is reached, it’s time to hire workers or pay contractors to provide specialized skills in marketing and sales, finance and accounting, or operations. “Successful entrepreneurs realize early on that they cannot be ‘a jack of all trades’ and still achieve rapid growth,” Anderson says.

“They need to stop managing some business functions and move beyond the entrepreneurial boundary by hiring skilled specialists.” — Stephen J. Anderson

Anderson and McKenzie tested this idea through a study embedded within the Growth and Employment (GEM) project, a multiyear government program in Nigeria funded by the World Bank to support entrepreneurial growth across Africa’s largest emerging market. Their randomized experiment with businesses in Lagos and Abuja compared approaches for addressing the limits of entrepreneurs, including two traditional programs (training, consulting) and two new programs never tested before (insourcing, outsourcing). They then used business audits and management surveys to track the financial performance and business practices of businesses for the next two years.

“They all work in different ways, but the insourcing and outsourcing interventions tend to provide the biggest bang for the buck,” Anderson says. “They also lead to good sales, profit, and performance gains down the road.” Hiring a marketing specialist proved especially critical.

Marketers Needed

The GEM project subsidized entrepreneurs’ cost of participating in one of the four programs. Businesses randomly assigned to the training group received 25 hours of online training, followed by 12 days of in-person classroom training (at a cost of $2,000 per company). Alternatively, companies in the consulting group were provided with a management consultant who advised the entrepreneur for 88 hours spaced over six to nine months (at a cost of $4,000 per business).

The two new approaches were equal in cost to the training program. However, funds were instead used to help companies access a two-sided online marketplace (designed by Anderson and McKenzie) where they could hire for these skills. With insourcing, companies could contract a human resources provider to help them find and hire a marketing or finance specialist to work full time in their businesses. They received a subsidy that would initially cover the full cost of this worker before declining over time so that the company was covering most of the cost after eight months. With outsourcing, companies could contract an accounting or marketing service provider, whose specialist would typically work one day per week with the company, with a declining subsidy spread over nine months.

In contrast to training and consulting, which largely tell entrepreneurs how to do things themselves, the insourced or outsourced specialist directly implements tasks and carries them out on an ongoing basis. The study found both insourcing and outsourcing improved multiple business practice and company performance.

What sorts of help did the entrepreneurs need most? Anderson found that given the choice, they insourced or outsourced workers with specialized skills in marketing and selling. “What’s super cool is 80% of the companies said, ‘I need to grow sales, and I need a marketer to come in and help me do that,’” he says.

That approach makes sense to Anderson, given companies’ need to increase sales, especially small businesses and early-stage ventures. “If you don’t have money coming in, then you don’t have a business,” he says. “So, intuitively, that’s what I think, and these entrepreneurs maybe thought the same way.”

Insourcing and outsourcing also improved businesses’ product innovation and expanded their digital marketing footprints on social networks. “Older owners aren’t as familiar with social media,” Anderson says.

“And they go out and hire or contract a marketing sales expert: Lo and behold, what do they do? More and better digital or social media marketing.” — Stephen J. Anderson

As a result, companies saw higher sales and profits.

Providing Help

The project played a valuable “market-making” role by subsidizing businesses’ payments to workers and contractors, and by providing a two-sided marketplace that screened service providers for quality, then shortlisted options for businesses. Without access to this support and online platform, entrepreneurs may not hire skilled specialists due to financial limitations (for example, lack of funds to cover upfront costs, uncertainty in the returns) or due to information frictions (for example, not knowing someone with a specific skill set exists, how to make such a hire, or how to assess the quality of a worker).

The study’s findings suggest that governments or organizations can step in with financial and marketplace assistance. Anderson says a Better Business Bureau could offer support, with service providers vetted through the familiar five-star rating system. The organization can provide the initial ratings for workers or contractors, later supplied by people using the service, he says. Anderson and his team will next create an operations manual detailing their approach so it can be replicated by another government team or organization.

“Who knows?” he says. “Maybe a private company wants to do what we now know can be effective: Facilitating access to skilled specialists helps owners move beyond the entrepreneurial boundary and grow their businesses.”

“Improving Business Practices and the Boundary of the Entrepreneur: A Randomized Experiment Comparing Training, Consulting, Insourcing and Outsourcing” is published in the Journal of Political Economy.

Story by Jeremy M. Simon