Originally published by InsideIndianaBusiness.com
SOUTH BEND, Ind. - The South Bend Entrepreneurship and Adversity Program is an initiative of the McKenna Center for Human Development and Global Business in the Keough School of Global Affairs at the University of Notre Dame.
Run by Michael Morris, the program seeks to help residents in the South Bend community experiencing economic or other hardships start and grow businesses. Morris sees the program as a proven tool for business success and longevity using what he calls the “stepwise approach.”
Morris spoke with Inside INdiana Business about the potential within the informal sector, the program’s stepwise approach and his interest in seeing small business owners turn into successful entrepreneurs.
This article has been edited for brevity and clarity.
Can you give me a brief history of the South Bend Entrepreneurship and Adversity program?
This is a program that is based on work we’ve been doing for over 30 years with low-income and disadvantaged people. The program in South Bend is based on a model we’ve developed over many years. It’s a 10-and-a-half-month annual program. We work with about 70 low-income and disadvantaged entrepreneurs each year. In South Bend, over 300 have come through the program. It starts with six weeks of training, followed by four months of mentoring, followed by student consulting where Notre Dame students in small teams work with these individual entrepreneurs, creating bookkeeping systems, social media presence, websites, registering businesses, whatever it takes.
We have a stage that is called Community Connect, where we host sort of social networking events to connect these entrepreneurs to the larger community and get people to support them. We have a stage called the pathway to microcredit that connects those that are ready to take on credit. We have a database that tracks these ventures on 35 metrics for three years. That’s the essence of the program.
From your experience, what’s the biggest challenge to starting a business?
If you ask the question, “How many entrepreneurs from poverty started a business in Indiana last year?” Nobody knows. There is no data, whether it’s Indiana or Virginia or California, so we’re collecting. We don’t use the business plan model and we certainly don’t use the lean startup model. These are methods that don’t work with low-income and disadvantaged people. The folks that we’re serving frequently have literacy gaps, not just reading, writing and numeracy but financial literacy, technological literacy, economic literacy, business literacy. They suffer from what we call a scarcity mindset. They have a very short-term orientation and are just trying to get through the week or the month, trying to make a decision between paying the rent and paying a doctor’s bill. So it’s hard for them to think five years ahead in terms of a business plan. They have a lot of non-business distractions that make it hard to focus on the business.
Our typical entrepreneur might be a single mother with four kids, working two part-time jobs while she’s trying to start a business. So we employ what we call a stepwise approach. We’ve taken the journey from an idea to a sustainable enterprise. Not to a startup, anybody can start something, but to a business that generates consistent profits; five months of consistent profits we think of as sustainable. We’ve broken that journey down into 80 steps. Our whole mantra is one step at a time. Progress begets progress.
So if our students create a website for the entrepreneur, and she gets up in the morning and sees her website, she’s much more likely to go open that business bank account. She’s much more likely to take two steps she’s been putting off, and so we’ve most recently published our 80 steps into a book not for anybody except the entrepreneurs that we serve. It’s a hands-on guide, written in language that makes sense to them. How do you create a logo? How do you open a business bank account? How do you get an EIN? It’s just a straight practical, step by step guide.
The program works. A lot of these folks are already selling but they’re struggling. They have a product or service but no real business structure. We’ve been able to spread the program to other cities, eight abroad and 30 in the U.S., everywhere from California to New Jersey.
Morris explains why low-income and disadvantaged communities need a different approach to building sustainable businesses.
What got you started down this route?
My career has paralleled literally the explosion in entrepreneurship education in universities. I built the entrepreneurship programs at Syracuse University, Oklahoma State University and University of Florida. As we built these entrepreneurship programs, we were creating majors and minors and master’s programs in entrepreneurship. We did a lot of experiential learning and community engagement.
So while the shiny object was always the next scalable tech-based business, our programs concentrated on entrepreneurship as a source of empowerment, entrepreneurship under conditions of adversity. We’ve had programs for women, disabled veterans, Native Americans, and the poverty thing has been sort of a centerpiece. With the South Bend Entrepreneurship and Adversity Program, we formalized it and created a comprehensive integrated program that is holistic, cohort based and collaborative.
That’s what it’s about. When you can help people realize their dreams and do it in a disciplined but logical and absorbable way, you know you’re having an impact. The fact that the program works to the point that we’ve been able to expand it to other cities is very exciting. It’s expanded faster than we ever thought it would and we’ve probably got 10 more cities in the pipeline. So the driver behind the whole thing is just this passionate commitment to the power of taking control of your own future. Creating your own venture, creating your own identity.
How long has the program existed?
Five years. The umbrella we created once we started having other cities get involved is called the Urban Poverty and Business Initiative. And while that is the umbrella and how we coordinate all these cities and support them, it’s the only place we use the word poverty. In the local programs like in South Bend, we call it the South Bend Entrepreneurship and Adversity Program because all of us have adversity in our lives. And so we’re not trying to put a stigma on poverty, but that is who we’re serving.
Is the program in South Bend at a point where members of previous cohorts are now acting as mentors?
So the answer is absolutely, and it’s one of the most exciting developments because it’s more than that. We’ve completed the training stage and we’re in the mentoring stage for the 2024 cohort. For the first time, eight of the mentors are former clients who have done the program and are now running sustainable businesses. In the training phase, they’re exposed to content, tools, concepts, and then we bring in an entrepreneur to share their experiences with that content and this time. Around half of the guest entrepreneurs were people who’ve been through the program.
We’re bringing about 15 of these entrepreneurs into the classroom on the campus of Notre Dame, and that’s a whole different learning experience for students because you’ve got a couple of these entrepreneurs in front of a classroom and they’re sharing their experiences and answering questions. And you suddenly realize that six months before she started her business, she was dumpster diving. That’s always a shock of reality for students. It’s also a source of pride to these entrepreneurs that they’re not just alumni of the program but they’re now guest lectures on a campus like Notre Dame.
For somebody who is still dealing with a scarcity mindset, how can they break out from it, especially if they do not yet have access to this program?
Well, it’s tough. We have a whole set of concepts that we’ve introduced, both in this program but also to the literature. A lot of these businesses fall into what we call the “Commodity Trap.”
For example, a cleaning business. The first problem is your business is undifferentiated from the 50 other cleaning businesses around. The second problem is because there’s no market differentiation; you’re forced to compete on price. And then the third problem, low-income people tend to charge a price that they would pay rather than a market price, thereby underpricing and not including the cost of their own labor in their price.
Then you find the entrepreneur is running a business that’s labor intensive, they can’t afford equipment, they can’t afford or don’t necessarily understand technologies, and so their capacity is constrained. Because of that, they buy raw materials in small quantities, they have to buy at retail instead of at wholesale, further adding to their costs and lack of competitiveness. They have no bargaining power with the supplier. Then they’re starting something with low-entry barriers, so competition is intense.
You take the combination of those factors and it’s called the commodity trap. It’s very hard to break out of unless you have the kind of training we give. The problem is you’re not likely to get that training from conventional sources because even the small business development centers have to take anybody that walks in the door, which means they haven’t tailored their program to this audience. I think that’s why this program has spread to so many cities because it is tailored. It kind of makes sense why this stepwise approach works so well because otherwise it just seems like a mountain too high to climb.
What are the requirements for getting into the program, and how do you attract clients?
The challenge is you have to be in one of the cities we’re in, although we’ve had some people drive a bit of distance to attend. The application process is super simple. We only market to the audience we’re trying to serve and that tends to work pretty well. So we’re not attracting suburbanites and it’s pretty consistent across cities. It’s 96% people of color, 70% female, people from 18 to 65. We have a number of formerly incarcerated people, some refugees ,and we have been working with a women’s shelter. So we’re attracting the audience that we want.
The first time we offered it in South Bend, I said let’s just try to get 50 people and we were overwhelmed. We cut it off at 70 just because the quality goes down if we have a bigger cohort. And after a couple years, we hardly even do marketing. We announce the applications are open and we have 150 people on the waitlist, and South Bend as you know is a small place. It’s not a big city. And so a lot of that has to do with how we do the marketing. We use a two-tiered approach. Tier one is street level marketing where we go to popular gathering places and neighborhood associations and put up posters and so forth. Step two is we spend a considerable amount of time meeting opinion leaders in the Black and Hispanic communities explaining what we wanted to do.
How has the program been received in the communities you target?
As much as places like Notre Dame have fantastic reputations, to our audience it’s, “Notre Dame never did anything for me.” Literally the reaction was, “You might have some fancy academic reputation but you’ve got no reputation with us and Notre Dame has no credibility.” And you have to be ready for that and you have to have a response to that, and it was quite interesting.
One guy in particular, a preacher, asked why he should support the program and I said, “You can give a man a fish or you can teach a man to fish,” and I will never forget this because I learned a lesson. He says, “That’s all well and good but it doesn’t matter if there’s no fish in the lake.” His point being, “I can give you the skill, but if there’s no opportunity for you, it doesn’t matter.”
Those conversations were very important in establishing the partnership and building trust. So I committed to 200 new ventures started by people from that community in the next five years. We realized that other people had come in before us with good intentions but after the photo ops, they were nowhere to be found six months later. We had to convince folks that we’re gonna be here five years from now. Sixty percent or more of the original cohort came from those gatekeepers. And once we delivered the goods and did a good job, it spread by word of mouth.
We put a price tag on the program to have some semblance to the marketplace. It’s $600, but on the application form, the last question is, “Do you come from difficult circumstances and are you requesting a scholarship?” So I’m as positive as I can be that we are reaching the audience that we want to reach. We don’t check to see if they’re actually from poverty circumstances because I know we’re reaching the right people.
How can the formal market begin to recognize the value of the informal market?
In Africa, the informal sector may represent 50% to 60% of the total GDP of the country. And the historical view has always been that we need to discourage the informal sector, penalize them or get these people to all formalize. I profoundly believe that we need to encourage the informal sector and actually help people not formalize, that will come with time if they feel like it, but help them be more successful, even as informal sector businesses.
About a third of the people that come into our program have a product or service, but there’s no registered business and that’s pretty consistent across the 38 cities. So that informal sector becomes an important incubator to generate businesses that will maybe become formal someday. And there’s quite a few informal sector businesses that are actually fairly successful. The bottom line is the informal sector is undercounted, they aren’t reflected in startup numbers and yet it provides a job for maybe just one person and maybe some family members. So each firm is not creating a lot of jobs, but collectively all of them are creating a ton of jobs catering to market niches that are underserved. They develop human capital skills, finance skills, customer service and so forth. So I’m just a profound believer that we need to look at the informal sector as an asset that should be invested in and not as a necessary evil that should be discouraged.
When do applications open for the 2025 cohort?
Applications are open year-round. It’s just that once the cohort’s full, we tell them you won’t hear from us until we’re ready for the next cohort. They don’t have to reapply because they’re already in the pool. The next cohort starts February 2025 and runs through December. We start actually entertaining the applications on November 1.
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Originally published by at mckennacenter.nd.edu on July 17, 2024.