Thursday, September 29, 2011

Why It Sucks to be a Necessity Entrepreneur

Welcome back to our Letters to an Imminent Entrepreneur Series. 

Dear Imminent Entrepreneur

In my last letter we have looked at our businesses, and how to position them as energy giving entities.  I discussed some thoughts on how to position your business as a life giving place of empowerment.  Remember that to be empowered yourself, you'll have to empower others. There's no way around that, in my opinion at least, 'life' cannot flow to you, if it is not flowing from you.  

Today, I want us to look at the distinction between necessity-driven and opportunity-driven entrepreneurship. I’ll highlight some reasons why it sucks to be a necessity entrepreneur, as I found out for myself. We'll then consider opportunity driven entrepreneurship in some detail. 

But first, let me explain the difference between the two. 

Simply put a necessity-driven entrepreneur starts a business out of necessity. This is someone who starts a business for the lack of other alternatives, maybe someone who has lost a job, for example, and has to start a business in order to survive.  

In contrast, an opportunity driven entrepreneur identifies a real business opportunity in the market and puts together people, resources, and money to profit from the idea. The latter is focused on a real opportunity.    

Do you see the difference? I started my first business out of necessity. I found that necessity often leads entrepreneurs to jump on the first semi-viable idea that crosses their path, even if that idea may not be the best idea to pursue. Necessity creates pressure to do something or anything to pay the bills. You probably know the story.   

Maybe I should mention that many necessity entrepreneurs succeed in building excellent companies. However, I am sure, in such cases success depended on the necessity entrepreneur making a mental shift, at some point, from survivalist to opportunity-driven entrepreneurship. Maybe someone could comment on this from their own experience. 

I am not degrading the necessity entrepreneurs; I think it is admirable to start a business, rather than to just sit at home.  However, I am concerned that such businesses do not adequately reward their owners for their troubles. I'll also venture to say that these businesses are at a greater risk of failure because of inadequate planning.      

The danger of necessity/survivalist entrepreneurship is that the entrepreneur may spend too little time on really evaluating the feasibility of the business idea. Pursuing any entrepreneurial idea will cost you. It'll cost you in time, money, energy and reputation. 

Evaluating the feasibility of entrepreneurial idea is critical for success. Wasting money hurts, but wasting time hurts even more. Let's try not to waste time on poor ideas.

We must learn to identify good and feasible opportunities. Successful entrepreneurs are successful because they are firstly able to identify and secondly able to exploit profitable ideas.    

In a 2009 study conducted by the Global Entrepreneurship Monitor (GEM) it was found that necessity-driven entrepreneurship doesn't meaningfully contribute to job creation in South Africa.  Thereby not helping unemployment, a big problem is SA.  Less than 3% of necessity-orientated businesses create six or more jobs.

That's one reason why we'll have to build businesses that do more than merely survive and to do that we have to switch to opportunity entrepreneurship.  

We’ll consider how to evaluate and exploit a true business opportunity in my next letter.     

Yours sincerely,


Thank you for reading. Please share your comments, experiences or advice, on this topic, in the comment field below. 

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