Why Do People Start Businesses? It's Not What You Think

Last Updated Nov 2, 2010 5:50 PM EDT


As the author of a book called "Not Just a Living," about lifestyle entrepreneurs, and a former long-time columnist on the same topic for The Wall Street Journal's Startup Journal online publication, I have long taken the position that people start businesses primarily in search of independence. Years ago I'd seen several surveys asking entrepreneurs about the particular carrots they were chasing. Terms like "independence" and "self-determination" and "freedom" seemed to almost always rank at or near the top. That settled it, as far as I was concerned.

Actually, it's more complicated. Recent research indicates that entrepreneurs' motivations vary along several different axes. If you know what industry they are in, what type of company they have founded and what country they are in, you can make some generalizations. Otherwise, it's almost as if every entrepreneur has a different reason for going into business.

If you look only at people who have started fast-growth businesses, for instance, you find people whose biggest single motivation is wealth creation, according to this 2009 study for the Kauffman Foundation. When researchers quizzed 549 company founders in 12 high-growth industries, "build wealth" was the strongest factor in starting a company. Other motivators included capitalizing on a business idea, the appeal of a startup culture, a desire to own a company, and lack of interest in working for someone else. Only the last resembles a desire for independence.

Fast-growth entrepreneurs are, of course, a minority. But even when we examine the vast, amorphous, heaving body of small business owners, we don't find that independence and the freedom to make their own decisions is the only, or even the main reason people start businesses.

In 2006, a worldwide poll of more than 4,000 small-business owners found the most common motivation for going into business, cited by 70 percent, was making enough money to cover living expenses. Sixty-four percent mentioned a desire to have more control over the future, which may or may not be equivalent to a desire for independence.

To me the most interesting finding comes from this second survey. It found that in countries where individual freedom is highly prized, independence is, indeed, the main reason for starting a business. That's true in the U.S., for instance. American entrepreneurs are the world's most likely, at 67 percent, to say that being their own boss is an important motivator.

Elsewhere, it's different. Brazilians were most likely to cite providing employment (71 percent) and contributing to society or the community (64 percent) as important motivations. In China, small business owners were the most likely, at 59 percent, to say that an important motivation was to build something that can be passed on to family members. So only Americans are most likely to go into business in search of independence.

Meanwhile, a scholarly research study from the International Journal of Entrepreneurial Behavior and Research basically found that what motivates entrepreneurs is a belief that chances for success are pretty good. The authors report that risk tolerance, self-efficacy -- the ability to get things done, including start businesses -- and perceived net desirability are major predictors of self-employment intentions.

Those net desirability calculations involve trading independence and wealth creation off against the chances of failure and bankruptcy, among other factors. But what it comes down to is that people become entrepreneurs, not strictly because they want to, but because they can. What does this mean to the wannabe entrepreneur? Essentially, whatever reason you have is as good as any other. You don't have to want to imitate Michael Dell to be like Mike.

Mark Henricks has reported on business, technology and other topics for The New York Times, The Wall Street Journal, Entrepreneur, and other leading publications. Follow him on Twitter @bizmyths.
Image courtesy of Flickr user Robert Couse-Baker, CC2.0

  • Mark Henricks

    Mark Henricks' reporting on business and other topics has appeared in The Wall Street Journal, The New York Times, The Washington Post, Inc., Entrepreneur, and many other leading publications. He lives in Austin, Texas, where myth looms as large as it does anywhere.