The Liability of Poorness: Why the Playing Field is Not Level for Poverty Entrepreneurs

Abstract

Entrepreneurship is increasingly emphasized as a pathway out of poverty. However, the complex, multi‐faceted nature of the poverty experience has important implications for the ability to launch and sustain viable businesses. All entrepreneurs must overcome the liabilities of newness and smallness, as reflected in a lack of legitimacy with stakeholders, inadequate resources and capabilities, an unclear identity, misunderstood roles and unclear role definitions, few established routines and procedures, and little bargaining power. However, poverty entrepreneurs face an additional barrier, which we term the liability of poorness. Four underlying dimensions of the liability of poorness are identified: literacy shortcomings, a scarcity mindset, significant non‐business distractions, and the lack of financial slack or a safety net. The manner in which each of these interacting elements exacerbate the entrepreneur's ability to address the liabilities of newness and smallness is explored. It is argued that, as the liability of poorness becomes greater, the vulnerability and fragility of the poverty entrepreneur's venture are apt to increase. Under such circumstances, significant external shocks and unexpected occurrences, such as the economic shutdown resulting from the COVID‐19 pandemic, typically have a more devastating impact on the ventures of the poor. Policies are needed to level the playing field.