Success in Entrepreneurship: Doing the Math
Chapter in NBER book African Successes, Volume II: Human Capital (2016), Sebastian Edwards, Simon Johnson, and David N. Weil, editors (p. 281 - 303)
Outside of agriculture, the family owned business is the most common form of enterprise in low-income countries. There is tremendous heterogeneity in how such firms perform. For instance, in the retail sector, some firms hold large inventories and earn significant profits, while others hold minimal stocks and provide little more than subsistence income for their owners. However, it is an open question why there is such heterogeneity in the success of small firms. This paper examines the association between entrepreneurial success and firm and owner characteristics, in the context of the small retail sector in Western Kenya. Earlier work finds very high rates of return to inventories. Inventories are positively associated with math skills. Since inventories and profits are positively correlated, math skills predict profits as well. Math skills are also robustly correlated with profits conditional on inventories.
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