I’ve been meaning to write this post for several months. But it’s such a big topic, so fraught with socio-political overtones, so intertwined with issues of privilege and perception that I just didn’t quite have the guts.
But then I wrote about Abigail last week and I decided it was the perfect entre.
It all began when Leslie Forman posted a discussion in a business group I’m a member of.
“Hi everyone, my name is Leslie and I’d like to share a question that came up in a meeting this morning. I teach entrepreneurship courses at a university in Chile, and today I was invited to participate in a brainstorming session between four female faculty members who are investigating the role of women in entrepreneurship and technology.
Anyways, my colleagues were drawing on the Global Entrepreneurship Monitor, an international survey of entrepreneurship trends and policies that divides the field into two categories: Opportunity-Based and Need-Based.
In this context Opportunity Based means that the entrepreneur found a market opportunity and created something to exploit it, and Need Based means the person didn’t have any other means of employment and was thus forced to become an entrepreneur. Basically the Opportunity Based entrepreneur is doing this from a position of more privilege and this distinction is important in public policy. In Chile there are different subsidies and programs for entrepreneurs in each of these categories.
Their literature review suggests that a desire for autonomy leads women to become entrepreneurs, and this tendency makes them less likely to seek equity funding (which enables growth, but takes away autonomy.)
So here are my questions for the group: What has been the main driver in starting and running your business? Have investment and funding opportunities ever been a major factor?”
I had not realized that there was an official distinction between the two types of businesses (so official that global organizations and governments use it to allocate funding) but this was like finding the last piece of the puzzle.
What The Difference Looks Like
You might not have been paying attention, but the country as a whole and the internet in particular is enamored of something called “start-ups.” These start ups begin with an idea. They pitch their idea to investors (called venture capitalists) in the hopes that the VCs will see potential in their ideas. They then take this money and try to “prove” their business is viable. Start-ups often have to do several rounds of funding. The first round is in the hundreds of thousands of dollars, the second round is usually in the millions, and the third round is in the tens of millions. In return for all this money, the start-up founders trade “equity” or partial ownership of the company to their investors.
The venture capitalists are basically gambling. The chances that these start-ups will fail is VERY high. But the ones that succeed (think Facebook or Uber) will pay off a hundred failed investments. And by “succeed” we mean either “go public” (this means get on the stock exchange) or “be acquired” which means to be bought by a larger company. Like how Instagram was bought by Facebook. If you don’t want to be bought? Too bad. Those investors want their payday, and they’re collectively in the position to force you to sell. Hostile takeover, baby.
This is the very pinnacle of opportunity-based entrepreneurialism, and although it’s kind of a mutant freak, (it’s a bubble) I’m using it as an example because I know you’ve heard of these companies.
What I’m sure that you also noticed was that a start-up’s idea of success sounds like our idea of hell.
Another example of an opportunity-based business is this one: Change Catalyst. I saw a market that seemed in high demand, in an area of my expertise, so I set about building it. I took great pains to isolate it from having to be a need-based business because of the pressures that puts on a new enterprise. But, I was also in the position to do so, because I had other businesses to support me in the meantime.
An example of a need-based business is our resident guinea pig, Abigail Markov. Although Markov Jewelry exploits a sadly underserved niche (classy, but bold jewellry that’s made well and ethically), she didn’t start the business to serve that need. She started the business because she needed money and this was a way to get it.
My favorite charity Kiva serves an entire globe of need-based entrepreneurs. People sell groceries and toiletries from their home. They weave rush baskets to sell at the market. They make bricks to sell to local construction companies. Are they exploiting an opportunity in their local market? Absolutely. But you know what they lack that an opportunity-based entrepreneur doesn’t? Options.
What Having Options Looks Like
Start-up founders, after their start-up fails, typically start over with a new idea. In fact, they’re often more sought after, because they now have experience with start-ups! So if they don’t have a new idea, they can get a higher paying job or start a consulting business for other startup founders.
If a Kiva business owner fails, they will be forced to rely on the charity of their relatives. Their children will have to drop out of school. They will most likely continue the cycle of poverty to the next generation.
Now, likely you’re not totally one or the other. Even the Kiva entrepreneurs represent an extreme case for our first world society (but barely. Inter-generational poverty is a hard problem to beat.)
If my business went under, I would start a new one. Perhaps you have such standing in your field that any company would be glad to have you back (most people don’t want to go back, but that’s beside the point. The point is, you could go back, and you would not impoverish your children by your company going under.)
However, there are lots of people to whom the alternative is either welfare, or a minimum wage job that interferes with child care responsibilities. Or perhaps they have an illness or disability that makes it impossible to work set hours. In other words, their alternative options are even riskier than entrepreneurship.
You’re not a bad person if these problems aren’t obvious to you
The thing about online business is that everyone looks about as prosperous; therefore it’s easy to assume that everyone is about in the same boat you are. If you can afford thousand dollar classes that benefit your business, you assume most people can. If you can’t even afford $100, you assume most other people can’t either– that’s part of the reason you see people undervalue their products and services. There’s also the problem that it actively damages your business if you appear to have serious money problems.
(By the by, I recently saw a woman describe where she spent something like $25,000 for training in the first year of her business, which subsequently failed. That’s probably not the fault of the training, but it’s certainly a different worldview to believe you need that training, and be willing to pay it. Clearly we run in different circles.)
The understanding of what kind of entrepreneur you are is crucial.
Not because of your access to government funds, but because you need to be aware of, and stay aware of, your options. You don’t have to like them. But you need to know what they are. Whether your options are few or plentiful, if they are desirable or abhorrent, you need the ability to coolly assess them and do what has to be done.
Every single one of my readers has a lot more in common with need-based entrepreneurs than opportunity-based ones for the following reasons:
- They value autonomy more highly than money (especially borrowed money)
- They refuse to compromise on the essentials (the definition of essentials varies, but it’s usually values-based)
- If they switch businesses, it’s not because they “got a better idea” it’s because they’ve gotten a better understanding of the value they offer.
But you might be surprised at the number of people who are need-based entrepreneurs in the strict definition of the term. Some are chronically ill. Some are disabled. Some have family members they are full time caregivers for. Some people are getting by but they’ve started a side business because that’s the only way they will ever make enough money to retire.
THESE PEOPLE ARE REAL.
They are not political strawmen. They are not theoretical constructs. You are friends on social media with them. You buy their products and services. They are productive and contributing members of society, but they are usually invisible because of the stigma and marginalization of people who are not productive in precisely the way that society says its citizens should be productive. If you are one of those people, know that you’re not alone, and that you’re among friends here. If you aren’t one of these people, hello. I hope this awakening isn’t too rude. My business advice changes only a little between the two groups, so it’s not like there’s a need for segregation.
Even in a society that basically fawns over entrepreneurs these days, need-based entrepreneurs are still all but invisible. Perhaps it’s because they don’t pursue investment. Perhaps it’s because they don’t have empire-straddling goals for their business. But perhaps its that they’re started by the sort of people we don’t expect to contribute. And therefore we don’t pay any attention to them.
If you think this article is worth sharing, please do.