Choice, Not Necessity, Leads to Firm Success
Is there a silver lining in corporate layoffs? The theory goes something like this: Sent packing by big companies, workers increasingly start their own business rather than find another job. And that has to be great for the economy since small businesses create so many new jobs, right?
As comforting as that sounds, it’s probably wrong. The study of entrepreneurship is just starting to generate sufficient data to conclude that laid-off workers, also known as necessity entrepreneurs, don’t, as a rule, start companies that employ a lot of people. That’s the province of so-called opportunity entrepreneurs — those who choose to start their own business out of a burning desire, not because they lost a job.
Only 2% of necessity entrepreneurs expect their new business to employ 20 or more people within five years, while 14% of opportunity entrepreneurs expect a 20-person payroll within that time period, according to a new study by London Business School and Babson College, Babson Park, Mass. The survey covered 29 industrial and developing nations, including the U.S., that combined have 40% of the world’s population.
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