How can civil servants best diversify the pool of entrepreneurs?

This article was written by Charlotte Reypens, currently Senior Policy Advisor for the UK Government Department for Digital, Culture, Media and Sport (DCMS). Charlotte was Senior Policy Researcher for Nesta when this article was originally published in late March of this year. The article was first published by Nesta, the UK's innovation agency for social good, and you can read the original article here.

All inferences, opinions, and conclusions drawn in this article are those of the author and do not reflect the opinions or policies of the DCMS or the UK Government.

Women and minority ethnic entrepreneurs combined contribute around £130 billion to the UK economy. Despite their sizeable economic – and social – contribution, women and minority ethnic founders still face disproportionate barriers when it comes to starting and growing a business. They experience worse access to finance, are less likely to rely on formal support and struggle to secure government or corporate contracts. Tackling these barriers could add at least £250 billion of additional value to the economy. Although the barriers to entrepreneurship are increasingly well documented, we still know little about which interventions are most effective to address them.

This blog summarises the evidence base on boosting diversity in entrepreneurship. We illustrate how experimental methods can be useful to design interventions and evaluate whether these interventions actually result in better business outcomes for under-represented entrepreneurs.

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How can we diversify the pool of entrepreneurs?

Women and minority ethnic groups are less likely to start and grow a business, especially in high-growth tech sectors. While some of these differences in entrepreneurial activity can be explained by different growth motivations or business preferences, a large body of research demonstrates that minority ethnic and women founders are held back by unequal access to finance, markets and networks. This makes it harder for them to realise their entrepreneurial ambitions and to thrive as business owners.

Even when business support is available, women and minority ethnic entrepreneurs may be reluctant to engage with it.

A growing number of initiatives are set up to help more women and minority ethnic people become entrepreneurs. These include exposing school children to entrepreneurship, creating youth entrepreneurship programmes, and offering business building bootcamps to accelerate their entry into entrepreneurship. However, the impact of these initiatives is only rarely rigorously evaluated, so we do not yet know whether they result in increased business ownership among women or minority ethnic groups.

This is why experiments are important: they can help identify which interventions are most effective. For example, some trials demonstrated that role models play a crucial role in fostering positive entrepreneurial attitudes. One trial, carried out at a German university, examined whether exposure to a female entrepreneurial role model would boost entrepreneurial aspirations among female students. As part of an entrepreneurship course, students were randomly assigned to help a female or male entrepreneur prepare a business plan. Female students that were matched with female entrepreneurs reported higher entrepreneurial intentions and more favourable attitudes towards entrepreneurship, offering robust evidence on the role that same-gender models play.

How can we tailor support to diverse groups of entrepreneurs?

Interventions to increase entrepreneurial aspirations among women and minority ethnic groups need to be complemented with tailored support programmes that go beyond ‘fixing’ entrepreneurs, but, rather, fix the inequalities they face. Such interventions can range from creating novel funding mechanisms, such as peer-selected investment, developing targeted mentoring programmes, to setting up dedicated incubator and accelerator programmes. However, to our knowledge, the impact of many of these interventions on women and minority ethnic entrepreneurs is yet to be experimentally evaluated.

Project GATE (Growing America Through Entrepreneurship), a large-scale randomised experiment in the US, illustrates why business support programmes should be evaluated with a specific target group in mind. The GATE project offered free entrepreneurship training to those interested in starting or growing a business. Applicants were randomly assigned to a treatment group (which received the training) or a control group (which received no services). Surprisingly, the training did not have long-term effects on business ownership rates, earnings or growth. In fact, those in the treatment group were as likely as those in the control group to have started or grown a business. What’s more, the project perpetuated existing gaps in entrepreneurship, as White entrepreneurs were more likely to benefit from the training compared to Black entrepreneurs. White entrepreneurs who received the training had better access to finance, which enabled them to start a business following the training. If the training was complemented with financial assistance, perhaps the project could have supported more Black entrepreneurs to start a business. These findings demonstrate that interventions can have counterproductive effects on some entrepreneurs if they are not designed with their needs in mind.

How can we engage a diverse group of entrepreneurs with business support?

Even when business support is available, women and minority ethnic entrepreneurs may be reluctant to engage with it. The What Works Centre for Local Economic Growth suggests various reasons why support take-up may be low, many of which are likely to pose greater barriers for women and minority ethnic entrepreneurs. They may struggle to comply with requirements or they may not perceive the support as suitable for them. Some entrepreneurs may also distrust external advisors, or the support simply is not easily accessible due to the location or time. Finally, there may be a social stigma attached to receiving support.

Experiments can help disentangle which of these mechanisms drive low uptake of support and can test ways to increase uptake. For example, one trial aimed to test whether a ‘de-biased’ invitation message would increase the number of women who apply for a tech skills course. The ‘de-biased’ message was designed to counteract stereotypes about women in tech, for example by emphasising that firms were actively recruiting women. The de-biased message resulted in double the applications compared to a generic message, indicating how carefully designed messages can be an effective tool to increase entrepreneurs’ engagement with business support.

In addition to improving outreach messages, other – yet to be experimentally tested – interventions to increase support uptake include setting up satellite offices in communities with under-represented entrepreneurs, providing a mix of on-demand and live content, and offering support to complete applications, for example by hosting optional information sessions. — Charlotte Reypens

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