Necessity and Opportunity Entrepreneurship
Not all startups are created equal. While popular media celebrates the visionary founder who leaves a cushiony job to change the world, the reality of global entrepreneurship is far more diverse.
Scholars (Harding et al., 2002) divide entrepreneurs into two distinct categories based on their primary underlying motivation: Necessity and Opportunity. This foundational framework, widely referred to as the "Push vs. Pull" theory, fundamentally shifted how economists and policymakers study new venture creation. Rather than treating all small business owners and startup founders as a monolithic group, this theory acknowledges that the genesis of a business deeply dictates its future trajectory, growth potential, and capital requirements. It highlights that the driving force behind self-employment is either a negative external pressure—being "pushed" away from a hostile, discriminatory, or stagnant labor market—or a positive market signal, being "pulled" toward a lucrative, unexploited niche. Understanding this dichotomy is critical for global economic assessments (such as the Global Entrepreneurship Monitor), as the governmental policies, micro-loan structures, and social safety nets required to support survival-driven founders are vastly different from the venture capital ecosystems designed to scale high-growth, opportunity-driven innovators.
The Two Types of Motivation
Basically, if you have one of these two motives, you are statistically more likely to become an entrepreneur. However, the economic impact of your venture will differ significantly depending on which one drives you.
1. Necessity Entrepreneurship (The "Push")
These individuals start businesses because they have no other viable economic choice. They are "pushed" into self-employment to survive due to structural barriers such as sudden corporate layoffs, severe economic recessions, systemic discrimination in the labor market, or a fundamental lack of formal employment opportunities in their geographic region.
- Goal: Immediate income replacement and basic survival. The primary objective is to generate enough reliable cash flow to sustain themselves and their dependents, rather than to disrupt an industry, scale rapidly, or achieve a massive financial exit.
- Economic Impact: Mostly redistributive and localized. Because these founders typically lack access to venture capital or traditional bank loans, they are forced to enter highly saturated, low-barrier-to-entry sectors (such as street vending, gig-economy contracting, or local micro-services). Consequently, these ventures rarely scale to create mass employment or drive technological innovation, though they play a vital role in keeping marginalized populations out of absolute poverty.
- Prevalence: Significantly higher in developing economies, regions with extreme income inequality, and nations lacking robust social safety nets (Lippman et al., 2005). However, developed nations also experience sudden, temporary spikes in necessity entrepreneurship during severe macroeconomic shocks when corporate downsizing forces displaced professionals into freelance or consulting roles.
2. Opportunity Entrepreneurship (The "Pull")
These individuals voluntarily leave or shun secure, well-paying employment to pursue a specific business idea or unexploited market gap that they believe is highly lucrative or deeply fulfilling. They are "pulled" into the market by the prospect of exponential upside, willingly absorbing a high opportunity cost to bring a new vision or technological breakthrough to life.
- Goal: Wealth creation, market disruption, personal autonomy, and scalable innovation. These founders are driven by the desire to build enterprises that extend far beyond their own labor—aiming to solve complex systemic problems, introduce novel technologies, or fundamentally change how an industry operates.
- Economic Impact: Highly innovative and structurally transformative. Wong et al. (2005) found that countries with a higher ratio of opportunity entrepreneurs experience significantly higher rates of national economic growth and GDP expansion. These are the ventures that attract venture capital, drive large-scale job creation by hiring robust workforces, increase national productivity, and foster the development of dense regional innovation clusters.
The Policy Debate: Is All Entrepreneurship Good?
This distinction has sparked a major debate in public policy. Scott Shane (2009) argues that encouraging more people to become entrepreneurs is actually bad public policy if those people are necessity entrepreneurs creating low-value firms.
There is a growing consensus that only scalable forms of entrepreneurship drive economic growth. Therefore, government grants and incubators should perhaps focus less on "quantity of startups" and more on "quality of opportunity."
The Grey Area: Rags to Riches
However, critics argue that this binary view is elitist. It is also clear that some go from one type to another, blurring the lines. Welter et al. (2017) call for research to embrace "everyday entrepreneurship instead."
Necessity entrepreneurship can evolve into opportunity entrepreneurship. Many "rags to riches" stories (like Li Ka-shing) begin with a desperate need to survive and evolve into global empires. By ignoring the necessity sector, we risk overlooking the potential diamond in the rough.
Video: Necessity vs. Opportunity Explained
Related Theories
The "Push vs. Pull" dynamic shapes the economic destiny of a venture. These frameworks explore the motivations and institutional forces behind the binary:
1. Motivational Dynamics
- Expectancy Theory: How survival vs. wealth changes the calculation of effort and reward.
- Self-Efficacy: Why Opportunity founders rely on mastery, while Necessity founders act on need.
2. Structural Context
- Institutional Voids: Why broken labor markets "push" individuals toward necessity ventures.
- Bricolage Theory: The art of "making do" that allows survival ventures to eventually scale.
References
Harding, R., Hart, M., Jones-Evans, D., & Levie, J. (2002). Global Entrepreneurship Monitor. London Business School.
Lippmann, S., Davis, A., & Aldrich, H. E. (2005). Entrepreneurship and inequality. In Entrepreneurship (pp. 3-31). Emerald Group Publishing.
Shane, S. (2009). Why encouraging more people to become entrepreneurs is bad public policy. Small Business Economics, 33(2), 141-149.
Welter, F., Baker, T., Audretsch, D. B., & Gartner, W. B. (2017). Everyday entrepreneurship—a call for entrepreneurship research to embrace entrepreneurial diversity. Entrepreneurship Theory and Practice, 41(3), 311-321.
Wong, P. K., Ho, Y. P., & Autio, E. (2005). Entrepreneurship, innovation and economic growth: Evidence from GEM data. Small Business Economics, 24(3), 335-350.
Understanding Entrepreneurship: Necessity vs. Opportunity
By Brock Dickinson • Published: January 2025 • Source: YouTube
Brock Dickinson breaks down the critical distinction between necessity entrepreneurship—driven by a lack of employment alternatives—and opportunity entrepreneurship, which arises from identifying and exploiting market inefficiencies, examining how both pathways influence economic development and venture survival.
PUSH / PULL
Entrepreneurial Dynamics
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