Necessity-Based Entrepreneurship¶
Necessity-based entrepreneurship, also known as survival entrepreneurship is defined as entrepreneurship driven by the need to survive rather than by the pursuit of opportunity. Common in emerging economies, such as India, where high levels of entrepreneurship are observed due to economic challenges.
It is driven by a lack of alternative employment opportunities or income sources. Here individuals turn to enterpreneurship out of necessity, often due to unemployment, underemployment, economic hardship, or lack of social safety nets.
The primary goal is to generate income for survival and basic needs which contrasts with opportunity-based entrepreneurship, where individuals pursue business ventures to capitalize on perceived market opportunities and to distrupt the market.
Characteristics of Necessity-Based Entrepreneurship:¶
- Resources: Has limited access to capital, resources, and formal business training. Entrepreneurs may rely on personal savings, informal loans, or microfinance.
- Scale: Typically operates on a small scale, often as sole proprietorships or micro-enterprises. The focus is on immediate income generation rather than long-term expansion.
- Sector: Commonly found in informal sectors, such as street vending, small-scale retail, personal services, and home-based businesses.
- Innovation: While not always the primary focus, necessity can drive innovation in resourcefulness and adaptation to limited resources. Entrepreneurs may find creative ways to utilize available materials and cater to local needs.
- Risk Tolerance: Individuals are often willing to take risks due to their limited alternative options. The potential reward of generating income outweighs the risk of failure.
- Replication: It is very common to replicate what someone else is doing in this type of entrepreneurship
Examples of Necessity-Based Entrepreneurship:¶
- Street vendors: Selling food, clothing, or other goods in public spaces.
- Home-based businesses: Providing services such as tailoring, hairdressing, or childcare from home.
- Artisans and craftspeople: Creating and selling handmade products.
- Small-scale farmers: Cultivating small plots of land for subsistence and local sale.
- Repair and maintenance services: Offering repairs for household appliances, bicycles, or other items.
Challenges Faced by Necessity-Based Entrepreneurs:¶
- Limited access to finance: Difficulty obtaining loans or other forms of financing.
- Lack of business skills and training: Limited knowledge of business management, marketing, and finance.
- Regulatory barriers: Complex regulations and licensing requirements can hinder operations.
- Competition from larger businesses: Difficulty competing with established businesses with greater resources.
- Unstable income: Income can be irregular and dependent on various factors.
Importance of Supporting Necessity-Based Entrepreneurship:¶
- Poverty reduction: Provides a pathway out of poverty for individuals and families.
- Job creation: Creates employment opportunities, particularly in developing economies.
- Economic development: Contributes to local economic activity and growth.
- Social inclusion: Empowers marginalized communities and promotes self-reliance.
Innovation and Adaptation¶
Necessity entrepreneurs often replicate successful business models from others in their community as a survival strategy. Despite facing numerous challenges, many demonstrate resilience and adaptability in their ventures.
Micro Finance : Biggest source of finance in Necessity Entrepreneurship¶
Micro finance was invented/ put together by Prof Muhammad Yunus of Bangladesh. He started Grameen Bank and the concept scaled up. Microfinance has been pivotal in supporting necessity entrepreneurs by providing small loans that help them establish or expand their businesses. High repayment rates among low-income borrowers demonstrate the effectiveness of community-based lending models.
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