Necessity Entrepreneurs

by Lane Wallace on September 1, 2009

A recent article in the New York Times, called “On to Plan B: Starting a Business” explored the current trends in entrepreneurial activity. And while some of the conclusions were less than novel, some of the facts and information it contained were interesting.

The Good News:

  • The Kauffman Foundation Index of Entrepreneurial Activity showed a slight increase in new businesses formed in 2008, despite the recession.
  • A just-released Ernst & Young report on Innovation noted that many companies with billion-dollar market capitalization, including Starbucks, Intuit and PetSmart, were started in a recession. Same goes for more than half the companies on both the 2009 Fortune 500 list and the Inc. magazine list.
  • There are now a growing number of companies that cater to the needs of new businesses—such as unintentionalentrepreneur.com, LegalZoom, and Infostreet.
  • Researchers and consultants all seem to agree (no surprise to us here at No Map. No Guide. No Limits.) that taking on the challenge of a new business venture sparks creative thinking and makes anyone who tries it “better, smarter, and more capable.”

The Bad News:

  • Only 2/3 of all new businesses survive two years, and only 31% survive seven. (Although the good news is, those numbers are the same in good economic times or bad.)

That last fact is a bit daunting, of course. But if you look at the two lists, there’s much more good news than bad, when it comes to taking on the challenge of an uncharted, entrepreneurial venture. The bad news numbers just mean … at least in my mind … two things:

  1. Don’t start a business you’re not passionate about. Not only because it won’t have seemed worth it if you don’t succeed, but because passion is a secret weapon that can make the difference in which side of those numbers your venture ends up in. And from first-hand experience, I can say, without question, that the only thing that makes the stress and uncertainty of being an entrepreneur worth it is the soul food of doing something you love or believe in with all your heart.
  2. Even if you’re undertaking a venture you’re passionate about, take those failure numbers seriously. Plan well. Get advice on finances and options. Don’t assume best case scenario. Come up with Plan A, Plan B, Plan C … and keep your creative mind open to changing course as many times as necessary to adjust to unexpected developments. Many “successful” entrepreneurs actually started out with a different business plan, or product, in mind from the one that brought them that success.

Another interesting fact is that in 2008, the number of “necessity” entrepreneurs increased, while the number of “opportunity” entrepreneurs, as Kauffman called them, decreased. Which is to say, more people are taking the plunge into entrepreneurship because their nice, safe other option went away.

That makes sense, of course, given the economy. But I wonder … do necessity entrepreneurs have less drive than opportunity entrepreneurs, because they’re still okay with walking away and taking a steadier paycheck job? Or do they work harder at success, and perhaps have a higher chance of achieving survivability, when the business is a matter of necessity rather than opportunity? I don’t have an answer to that, but it will be interesting to watch the numbers over the next few years and see if any trends emerge.

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From Desperation to Innovation: Necessity Entrepreneurship in Latin America
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