Necessity versus opportunity entrepreneurship
Necessity vs. Opportunity Entrepreneurship: Push or Pull?
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 motivation: Necessity and Opportunity. This is often referred to as the "Push vs. Pull" theory.
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 choice. They cannot find a decent job, or they have been fired. They are "pushed" into self-employment to survive.
- Goal: Income replacement and survival.
- Economic Impact: Mostly redistributive. These ventures rarely scale or create mass employment.
- Prevalence: Higher in developing economies and societies with high income inequality (Lippman et al., 2005).
2. Opportunity Entrepreneurship (The "Pull")
These individuals leave or shun good employment to pursue a business idea that they believe is even more lucrative or attractive. They are "pulled" by a gap in the market.
- Goal: Wealth creation, autonomy, and innovation.
- Economic Impact: Highly innovative. Wong et al. (2005) found that countries with a higher ratio of opportunity entrepreneurs have higher rates of national economic growth.
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. Welter et al. (2017) call for research to embrace "everyday entrepreneurship."
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
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.
