In 2011, Lariat Alhassan had a business in Abuja, Nigeria. Larclux Paint was the name. She sold house paint. And industrial paint. Textured paint. Paint that fills in cracks in your walls. It was a paint company. But a really small one.
“The employee I had was just me. I was the production manager. I was the marketer. I was delivery person. I was everything,” says Alhassan, laughing. “Except the security.”
That was the company. A woman in her late 20s and a security guard watching over a factory space she rented to make the paint.
Customers liked her paint. They would try it out, and say “This seems great. I’d like to place a big order. We’ll come to your office to sign the papers,” she recalls. And that is when things would get awkward.
“I kept telling them, no, no, no. You call me and whenever you want, I’ll be there. I will just be there,” she says.
She didn’t have an office. Just her car. At this point the clients would often just back out. She couldn’t afford an office without more clients. She couldn’t get more clients without an office. She felt trapped. Stuck.
That was back in 2011. And then one day, she was at home listening to some music on the radio, when these ads came on. It seemed as if the radio was talking right to her, she recalled. It was for some sort of program to help small businesses.
“It may be small today but it won’t be after You Win! the youth enterprise and innovation competition,” said one ad. (You can hear it in the episode of Planet Money.)
The government was having a nationwide contest to give out $58 million to young Nigerians trying to start or grow a small business.
No experience necessary. Almost no strings attached. Just go to the website and sign up, said the ad.
Alhassan thought it was too good to be true.
“I just wanted to make sure I was safe and I wasn’t going to be conned” she said.
But it was no scam. The government really was giving away millions of dollars. Ngozi Okonjo Iweala, was the finance minister for Nigeria at the time. Her team set up the program. It was part of a massive nationwide plan to boost youth employment. About half of the young people didn’t have jobs, according to the World Bank.
“Everyone wants to run something, start their own business. Be their own boss,” says Iweala. “But the entrepreneurs often operate in an informal way. A lot of them are young people. And they want to expand their businesses but don’t know how.”
This is a problem around the world: How to get a small business to become a medium-size business that can become a big business. Because if you can figure out how to do that … you can make a dent in all kinds of other problems: unemployment, poverty. You name it. But in the developing world, small businesses rarely take off like that.
One problem is just money. In someplace like the United States, if you have a two-person paint company and need to rent out office space or warehouse space, you can just take out a small business loan.
In the developing world, in places like Nigeria, it is very hard to get that kind of loan.When a whole business is just a person with a trunk full of supplies, it is hard for lenders, like a bank or the government, to tell the good businesses from the bad ones. It is risky making those kinds of loans. So d small businesspeople can’t get loans.
The idea that Iweala and her team came up with to boost employment took all of this into account. It was a massive business contest the likes of which nobody in Nigeria had seen before. The amount of money they wanted to give away per person — roughly $50,000 — was out-of-this-world high. About 25 or 30 times the average annual income for a Nigerian at the time.
Iweala shopped the idea around the Nigerian government. People had all sorts of questions. How is the government going to decide which people to give the money to? And how will they make sure people don’t divert the funds to some other use?
Iweala and her team’s solution was to ask the entrants to submit a business plan: a few sheets of paper with an idea, maybe a chart or two, a budget. The government would read them all, pick the best ones and hand out the money.
Not everyone in the government was convinced that could work. Iweala remembers her colleagues saying things like, “These people have never written business plans. “It’s one thing if you say you’re going to invite 40 people, 50. But we’re talking [about] thousands.”
But Goodluck Jonathan, the president of Nigeria at the time, liked the idea right away. He gave it the greenlight.
There were still problems to confront. How do you pull something like this off in Nigeria — a country where trust in government is notoriously low.
People outside the government, the people who would to apply to the contest, also needed convincing. “They said, ‘Oh we’ve had so many government programs,’ and ‘It starts with promises and at the end of the day it’s never implemented,’ “says Iweala.
Then there was the worry that people running the contest would just give the money to friends and family. “That was the even bigger skepticism,” says Iweala.
So Iweala’s team had to make sure it was really clear how winners were getting picked … and who was doing the picking. For the initial review of applications, they lined up graders from a local business school. And all the names of the applicants were removed before grading.
About 24,000 people applied to the contest, which was also supported by other federal ministries, the World Bank, the U.K.’s Department for International Development and Nigeria’s private sector.
For the second round, the accounting firm PricewaterhouseCoopers was brought in to do part of the scoring. And the British Plymouth Business School did quality assurance. The applicants knew all of these checks and balances were in place, which upped their trust.
But that still left the hard question, how to score it? Who were the best candidates to get the money? Was it the very best, or would that be wasted money because those people might succeed anyway and not need the money? And how could you tell the difference between the 1,200th and the 1,201st candidate in any meaningful way?
This is where they reached out to a researcher at the World Bank. “I typically come in when people have an idea and they want to know if it will work,” says David McKenzie.
At this point, in mid-2011, Iweala wanted to launch the program in two months. McKenzie met with a few team members in the cafe of the J building at the World Bank in Washington, D.C., to hash out ways to grade the entrants and measure the results.
One idea was to just rank every entry and pick the best. From his research, McKenzie suggested a different course of action: Pick the winners somewhat randomly.
Sure you can look at the business plans and pick out the very best. And the very worst. Those are usually obvious. But after you have the outliers, he argued, just make it luck of the draw. It’ll save a lot of trouble.
Plus if you do it randomly, you can measure the impact of winning by looking at the control group of non-winners, says McKenzie.
That was the plan.
They gave the contest the name: the YouWiN! Competition. And in late 2011, they started getting the word out. With ads, lots and lots of ads – in print, on TV and on the radio.
And that’s how Alhassan, the paint seller, came to hear an ad for YouWiN! coming out of her bedside radio that day.
“Lots of people did not believe it,” she says. But after hearing it a second and a third time, she said to herself: “Lariat, why don’t you pick up this opportunity? Try. Try, and see if it will work out for you.”
She took out her old laptop, plugged in her modem and went online and applied. A little while later, she was one of the 6,000 invited to the next round. Where everyone would write their business plans.
The government provided some help. The applicants were invited to four-day training sessions held around the country. When Alhassan describes it, she said it felt like thousands of people packing into something like a concert hall. There were all kinds of applicants: A baker without enough machinery. A chicken farmer thinking of expanding to catfish and snails. Someone trying to start a computer school. Musicians. Dentists. People with all kinds of business plans.
“Boy it was intense. From morning to evening,” says Alhassan. But they did get lunch. “And breakfast,” she says, laughing.
Then she was asked to take what she just learned and write up a formal business plan. This was the real test. The real competition.
She sent it in and went home to wait. A little while later she got an email. “Congratulations,” it said.
“I felt I couldn’t even control my emotions. I started jumping on my bed,” she says. “My sister said what is wrong with you, have you won the lottery? I said yes. Yes. Yes.”
Alhassan got 10 million Naira, for her business — equivalent to $65,000.
She brought on marketers. Salespeople. She bought them a car to get around, to get the word out. She got a truck for deliveries so it wasn’t all out of her own trunk anymore. And she rented a proper office and a showroom. She decorated it with furniture she could be proud of.
“I can confidently say [to customers] now, ‘Please come to my office. You can come here. What time? I’ll be ready for you. I’ll be waiting for you,” she says.
Well, you might look at this and say, of course she was able to do this. She was given $65,000 — and it wasn’t even a loan.
The real question is how her business does down the road — and all the other businesses as well, from the dentists to the chicken farmer who wants to expand into catfish. Was it worth it for the government? Did it create jobs?
The World Bank analyzed the YouWiN! Competition impact over three years and published a report a few months ago.
The report looked at the 1,200 winners of the contest and found they had created 7,000 jobs, real jobs that stuck around three years later. The competition cost $60 million to run. So that means each job cost about $8,500 to create, a way cheaper investment than any other program studied in the report.
Chris Blattman, an economist at Columbia University who researches poverty and global development, thinks the results are pretty remarkable.
“I remember reading it [and] my eyes [kept] kind of popping out of my head,” he says. The thing that stood out to him most was that the winners, as a group, seemed to use the money pretty well. They didn’t waste it. He says it was easier than expected to find small businesses that could use a big pile of cash to grow. Maybe way more people are constrained by not having enough capital than we think.
Nigeria has had two more rounds of the YouWiN! Competition. The latest round had more than 100,000 applicants and 1,500 winners.
As good as the first round was, 7,000 new jobs is still a small number in a country of 170 million people. It’s clearly not going to solve the problem of unemployment.
But Blattman says, these results are extremely promising. So promising he wrote a euphoric blog post in October with the title: “Is This The Most Effective Development Program In History?”
But is it?
He stresses the question mark at the end of the title. It may not really be the best in history, he says, but he’s quick to add: “It’s probably the best I’ve seen so far. In history, it’s the best one we’ve measured.”
That’s something, considering that in so many cases of job creation programs, nobody measures the results at all.
Culled from NPR: National Public Radio (NPR) is an American privately and publicly funded non-profit membership media organization that serves as a national syndicator to a network of 900 public radio stations in the United States of America.