Necessity versus opportunity entrepreneurship

Scholars have divided entrepreneurship into different categories. For example, self-employed individuals are often not considered entrepreneurs. To be an entrepreneur, there has to be an organization being built. There is even a growing sense that only scalable forms of entrepreneurship should be encouraged (Shane, 2009).

Another way to slice up entrepreneurs is to separate between necessity and opportunity entrepreneurs (Harding, 2002). Most entrepreneurship theories focus on opportunity entrepreneurship, but perhaps scholars should also embrace broader views that include entrepreneurship that is based on necessity, or at least consider a greater diversity of entrepreneurship (Welter et al., 2017). This approach looks at the motivations of the entrepreneurs, thus can be considered a motivational theory. Basically, if you have one of the two motives, you are more likely become an entrepreneur.

Necessity entrepreneurs are individuals who start businesses because they cannot find a decent job (or in some cases, keep one). Opportunity entrepreneurs on the other hand, are people who leave or shun good employment to pursue even more lucrative or attractive careers as entrepreneurs.

Opportunity entrepreneurship is seen as more innovative; necessity entrepreneurship, more redistributive. There is some evidence that countries that have a greater ratio of opportunity to necessity entrepreneurship have higher rates of economic growth (Wong et., 2005).

Interestingly, there is more necessity entrepreneurship in societies with higher levels of income inequality (Lippman et al., 2005), suggesting that reducing necessity entrepreneurship is likely achieved by reducing overall inequality.

One criticism is that sometimes necessity entrepreneurship turns into opportunity entrepreneurship. Sometimes there is also a blend of necessity and opportunity--many rags to riches stories that seem to corroborate it.

All entrepreneurship theory categories

Other Economic Theories of Entrepreneurship:


Sources:

Wong, P. K., Ho, Y. P., and Autio, E. (2005). Entrepreneurship, innovation and economic growth: Evidence from GEM data. Small business economics, 24(3), 335-350.

Harding, R., Hart, M., Jones-Evans, D., and Levie, J. (2002). Global entrepreneurship monitor. London: London Business School.

Shane, S. (2009). Why encouraging more people to become entrepreneurs is bad public policy. Small business economics, 33(2), 141-149.

Lippmann, S., Davis, A., and Aldrich, H. E. (2005). Entrepreneurship and inequality. In Entrepreneurship (pp. 3-31). Emerald Group Publishing Limited.

Welter, F., Baker, T., Audretsch, D. B., and Gartner, W. B. (2017). Everyday entrepreneurship—a call for entrepreneurship research to embrace entrepreneurial diversity. Entrepreneurship Theory and Practice, 41(3), 311-321.

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