AUSTIN, Texas — Entrepreneurs often focus their efforts on financing and innovating. Yet marketing is just as crucial to the growth of a small business, according to new research from the McCombs School of Business at The University of Texas at Austin.
In the first empirical study to isolate the role a marketing professional plays in the growth of small-business ventures, Ugandan entrepreneurs coached by marketers increased sales, profits, assets and employees more than similar entrepreneurs who did not receive any business coaching during the same two-year period.
The study, forthcoming and online in advance in the Journal of Marketing, answers a resounding “yes” to the complicated question of whether marketers matter for entrepreneurs. “Now we know that linking an entrepreneur with a marketer is actually critical for stimulating growth,” said co-author Stephen J. Anderson, assistant professor of marketing at the McCombs School.
This question is often muddied in a developed economy, because entrepreneurs with more resources tend to implement marketing practices alongside other business techniques.
So, to measure the unique impact of marketers on small-business ventures, Anderson joined Pradeep Chintagunta at the University of Chicago, Frank Germann at the University of Notre Dame and Naufel Vilcassim at the London School of Economics to conduct a randomized controlled field experiment with 930 entrepreneurs in Kampala, Uganda.
The small businesses were randomly assigned to treatment or control groups. Entrepreneurs in the treatment group met for virtual coaching sessions via Skype with a professional from different business backgrounds (e.g., marketing, consulting, finance, engineering). These coaches came from more than 60 countries and volunteered their time to help the entrepreneurs improve business performance. The control group received no business coaching.
Compared with the control group, entrepreneurs randomly matched with a marketing coach increased monthly sales 52% on average, while their monthly profits improved 36%, total assets rose 31%, and the number of paid employees increased 24%. What made the difference for the marketer group? To find out, researchers analyzed key words used in the coaching sessions and found that marketers tended to focus more on products and how to differentiate them from competitive offerings.
Premium products hit the mark, even in an economy where disposable income is low. For example, a bakery owner in the study thrived when he started selling high-quality doughnuts with unique displays to a local supermarket, while a beauty salon owner distinguished herself by training in new and sought-after hairstyles.
The study also illustrates the effectiveness of virtual business interactions, which have grown more important during the COVID-19 pandemic. “This is the first evidence that a virtual collaboration between professionals across markets can effect changes in a business that directly impact firm performance,” Anderson said.
The impact of marketer coaches in Uganda may be greater than the impact of such interventions in a more developed economy. “Perhaps the local conditions, or maybe a low starting threshold in terms of the entrepreneurs’ marketing capabilities, allowed the virtual business coaching to drive large effects in firm growth,” Anderson said.
But he still believes the direction of the effects would generalize, along with a focus on products and differentiation. “If I’m starting a new business venture in the U.S., I’m going to face a lot of the same challenges as someone in Uganda,” he said. “Leveraging a marketer’s viewpoint — to obtain novel product insights and distinguish from other options in the marketplace — is fundamentally important, regardless of whether I’m in Austin or Africa.”
For more information about this research, read the McCombs Big Ideas feature story.