WEEK 2: OPPORTUNITY VS. NECESSITY ENTREPRENEURS

'Opportunity' vs. 'necessity' entrepreneurs is an emerging approach to segment entrepreneurs based on the motivation for business creation. Made popular by the the Global Entrepreneurship Monitor (GEM) Consortium in 2001, the segmentation is based on the question 'why entrepreneurs start and grow their business' :

• to take advantage of a unique market opportunity i.e. they are opportunity entrepreneurs

• or because it was the best option available i.e. out of necessity.

A study from Stanford explores the paradoxical relationship between business creation and recessions. The study finds that opportunity entrepreneurship tend to be pro-cyclical and while necessity entrepreneurship tend to be counter-cyclical. Opportunity entrepreneurship was also found to be associated with more growth-oriented businesses. Many studies from around the world have also arrived at the same conclusion i.e. opportunities entrepreneurs have a higher chance of growing their business because they are intrinsically motivated to seek independence, increased earnings, and opportunities to carry out their own ideas compared entrepreneurs who are pushed to start a business.

According to GEM’s most recent report for 2017-2018, three-quarters of the entrepreneurs globally tend to be opportunity entrepreneurs. However, the numbers are very disaggregated. First, women are more likely to start businesses out of necessity, compared to men, in all regions except in North America. Second, developing countries tend to have more necessity entrepreneurs (i.e. lower Motivational Index = opportunity to necessity ratio). My location of internship, Brazil, had a low Motivation Index of 1.2 alluding to the fact that most entrepreneurs are necessity driven.

Source: GEM 2017 / 2018 GLOBAL REPORT