Why Now Is a Great Time to Start a Business
The down economy has led to a significant increase in entrepreneurs starting businesses out of need, rather than opportunity, according to new research.
The University of Missouri study found that cases of necessity entrepreneurship, which result from a need to create new income streams due to job loss or pay cuts, rose from 16 to 28 percent of total entrepreneurship in the United States between 2007 and 2010.
"From economic stress, great ideas are born," said Thomas Johnson, a Missouri professor and co-author of the study. "Many large, profitable businesses have been created due to entrepreneurship during economic downturns."
Maria Figueroa-Armijos, a doctoral candidate at the University of Missouri, said the country has experienced this same movement during previous economic recessions.
"We've seen similar trends occur in past economically slow periods that have led to economic booms," Figueroa-Armijos said. "The doldrums in the 1980s led to increased entrepreneurship and the economic growth in the 1990s."
With necessity entrepreneurism on the rise, Figueroa-Armijos said there is a need for more help from lenders and policymakers to ensure their success.
"Currently, there is much more economic support for opportunity entrepreneurs than for people starting their own businesses out of necessity," Figueroa-Armijos said. "These necessity entrepreneurs could create jobs and economic growth for long-term economic prosperity."
The study also found that rural entrepreneurship levels have not decreased during the recession, despite previous research showing that rural areas lack the necessary resources for successful entrepreneurism. In addition, the research shows an increase in entrepreneurship among African-Americans.
Figueroa-Armijos said the findings offer policymakers an opportunity to permanently increase entrepreneurial involvement of historically underrepresented groups.
"Considering the decline of rural populations, rural development strategies must be re-examined," she said. "Increased support for necessity-driven self-employment not only offers a way of improving the incomes of rural residents, but also provides an opportunity to create more overall entrepreneurial activity following the recession."
This study was published in a recent issue of the Entrepreneurship Research Journal.