Are You a Needs Based or Opportunity Based Entrepreneur?

Opportunity Based entrepreneurs start a business because they spot an opportunity in the market which they have the means to pursue. Needs Based entrepreneurs often start a business when they do not have another means of generating income. These two types of entrepreneurs require vastly different services from the local ecosystem to be successful.

So what does it mean when a Needs Based entrepreneur is encouraged by the local Start-Up eco-system to pursue commercializing a product or technology? In an effort to improve the overall success rate of Michigan’s entrepreneurs, this article explores both the difference and how eco-systems can better manage Michigan’s overall entrepreneurial risk by identifying and supporting both types of entrepreneurs.

“Necessity entrepreneurship” first appeared in the Global Entrepreneurship Monitor (GEM) report in 2001. Entrepreneurs in 29 countries were polled as to whether they were starting and growing their business to take advantage of a unique market opportunity (Opportunity Based Entrepreneurship) or because it was the best option available for income (Needs Based Entrepreneurship). Interestingly enough, a little less than 1/3 were Needs Based and sightly over 2/3 were Opportunity Based.

More recently, Stanford published a study on Opportunity versus Necessity Entrepreneurship in 2017. The study showed what many in Michigan’s Start-up Ecosystem long believed - business creation increases in recessions. When Michigan’s automotive industry is in recession, there is a rush to entrepreneurial. In other words, “Necessity” turns out to literally be the mother of invention. Stanford researchers looked at two distinct motivations, “opportunity” entrepreneurship and “necessity” entrepreneurship. In the Stanford study, the definition of a necessity entrepreneur was someone who was unemployed before starting their business. Necessity entrepreneurship was found to be strongly counter-cyclical to the economy in general. Meaning, recessions drive necessity-based entrepreneurs to start their own businesses whereas Opportunity entrepreneurship was found to be pro-cyclical and was also associated with more growth-oriented businesses.

The “Health and Well Being” of all Michigan entrepreneurs is core to Nanokore’s Vision. It is therefore important for Nanokore to determine how to welcome, screen and service new entrepreneurs to succeed within Michigan’s Entrepreneurial Eco-system. For instance, even the process for “New Entity Formation” can be vastly different for Needs Based and Opportunity Based Entrepreneurs. Moreover, the evaluation and mentoring of “Business Models” that can generate cash quickly (vs those that may take years to produce positive cash) is critical for Needs Based entrepreneurial success.

Needs Based entrepreneurs occupy a segment of entrepreneurship that deserves more attention. First, not every entrepreneur driving Michigan’s economy has a doctoral degree and has developed a new technology that is prime for commercialization. Most forms of entrepreneurship are a bit more “main street”. Women and minority entrepreneurs are often necessity-based entrepreneurs. The startup rate for businesses created by both women and minorities exceeds the overall rate for new startups. Serving these undeserved communities are critical to the overall success of Michigan’s Entrepreneurial Ecosystem.