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Defining necessity--A closer look at NWBC's new research report, Necessity as a Driver of Women's Entrepreneurship

Today, July 12, 2017, the National Women’s Business Council released its latest research report, Necessity as a Driver of Women’s Entrepreneurship.  This report offers a nuanced view of what constitutes “necessity entrepreneurship” and reveals why it is crucial to explore business motivation in context of gender and social norms.  While the project was launched in order to understand more about the 80 percent of women business owners bringing in less than $50,000 in receipts a year, the research ultimately challenges the notion that necessity entrepreneurship can be described through finances, alone.  The final report reviews the existing literature; analyzes two public sources of data; introduces a new working model for understanding necessity entrepreneurship; and offers recommendations for policy and future research.

Research and the media frequently contrast individuals who enter the market to exploit a particular opportunity (often described as “opportunity entrepreneurs”) with those who resort to entrepreneurship in order to meet financial needs (“necessity entrepreneurs”).  These categories reflect the basic economic principles of supply and demand, or “push” and “pull,” factors. But while this framework may be intuitive, it is also overly simplistic, failing to take into account the full array of motivations behind self-employment.

Men and women may be “pushed” into entrepreneurship in order to meet basic economic needs in a time of market—and labor force—contraction.  For example, research clearly demonstrates that self-employment numbers rose during the time of the 2008 recession.  Entrepreneurship in these conditions can be described as a result of necessity, and those who enter business ownership as “necessity entrepreneurs”.

However, self-employment may also result from less financially quantifiable needs.  Consider individuals with children, for whom reliable and safe childcare is an ongoing need.  In this case, entrepreneurship may be an option that allows parents to meet not only budget, but also time-flexibility, requirements.   Individuals may also choose to start a business to respond to a lack of opportunity in the C-suite; allow for geographic flexibility; or supplement wages with additional income in order to pay for short-term expenses, such as tuition or debt.

Although many of these examples relate to basic economic needs, each specifically addresses nuanced trade-offs commonly faced by women, who not only assume much of the responsibility for resolving work-life balance issues within families, but also see limited advancement at the highest levels of corporate management as well as greater levels student loan debt than men.  In light of these illustrations, it is clear that a traditional idea of what constitutes “necessity” is worth a particular examination through the lens of women’s experiences.  The report released today, Necessity as a Driver of Women’s Entrepreneurship, uses literature and data to explore a broader definition of necessity-based entrepreneurship, in which women start a business not due to the lack of employment options, but because their other labor force options are either not preferable or are not sufficient to meet their needs.

On the policy side, this paper surfaces research suggesting that countries with better paid leave, subsidized childcare, and more part-time opportunities demonstrate a negative correlation with necessity entrepreneurship and a positive correlation with growth-oriented forms of entrepreneurship.  Such results suggest a variety of arenas for policy intervention or support, including investment to

  • Alleviate social and economic disparities facing women in the workforce;
  • Address macroeconomic and general unemployment issues in the United States; and
  • Assist women who have already made, or are about to make, the necessity entrepreneurship decision to survive and thrive as business owners and leaders.

Necessity as a Driver of Women’s Entrepreneurship is NWBC’s first paper explicitly exploring this topic.  The next step in this work is to engage with directly with women entrepreneurs to evaluate the strength of the model for necessity entrepreneurship presented in this initial report.  Stay tuned for ongoing research on this critical issue.

You can read the full report here and join the conversation online using #NWBCResearch. 

 

Author: Annie Rorem, Director of Policy and Research at the National Women’s Business Council.

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