MOTIVATIONS FOR ENTREPRENEURSHIP Ute Stephan, Mark Hart, Tomasz Mickiewicz, Cord-Christian Drews, Aston Business School & Enterprise Research Centre

& IFF Research

Commissioned by The Department for Business, Innovation And Skills

Observations • Increases in rates of entrepreneurship and very small businesses

during recession and subsequent economic downturn • Renewed focus on how motivations (e.g., necessity entrepreneurship)

influence business survival and performance Aims 1) Unpack motivations for entrepreneurship 2) Understand whether and how entrepreneurial motivations change 3) Assess how start-up motivations link with business survival and

success

Star t ing point

Assessing what we know: Rapid evidence review on motivations for entrepreneurship (Stephan, Hart & Drews, 2015, available on ERC website) Dedicated study to deepen our understanding of motivations for entrepreneurship, 2 components:

• Re-survey of 1000 entrepreneurs (first identified in Global Entrepreneurship Monitor)

• In-depth qualitative interviews with 40 entrepreneurs

Approach

21%

12% 2% 6%

59%

Active

Dormant

Sold

Closed

Nascent

Sample Entrepreneurial Motivation Survey (N=1000)

1) UNPACKING MOTIVATIONS FOR ENTREPRENEURSHIP

59%

24%

12% 5%

Other

Mixed

Necessity

Opportunity

3.8

3.3 3.0

1.9

1.0

2.0

3.0

4.0

5.0

Autonomy &Better work

Challenge &Opportunity

Financial Family &Legacy

Star t -up Mot ivat ions are Complex

Impo

rtan

ce

4%

50%

28%

12%

6%

20+ jobs6-19 jobs1-5 jobsno growthjob loss

Opportunity-Necessity

(Prevalence, N=1000)

Importance of Motives (N=1000)

Job Growth Expectations

(N=950)

Autonomy and Better

Work

Associat ions among Star t -up Mot ivat ions

Challenge and

Opportunity

Financial Motivations

Family and Legacy

Opportunity

Necessity (no better

choices for work)

Positive association

Negative association

Growth Expectations

Tipping points = circumstances that trigger individuals to take steps to set-up a business

Commonly mentioned tipping points that interacted:

• Redundancy / loss of job • A chance business opportunity • Changing family circumstance / life stage • Advice or inspiration from an experienced friend, colleague or advisor • Realisation that the nature of desired work necessitates self-employment

From Mot ivat ions to Act ion: Tipping points

2) CHANGING MOTIVATIONS FOR ENTREPRENEURSHIP?

Comparison of start-up with current motivations for running a business (active business-owners only)

Entrepreneurial motivations are remarkably stable

• Slight increase in the prevalence of opportunity motivation • Increase in importance of autonomy motivation • Slight decrease in growth expectations

A) Does running a business change entrepreneur ia l mot ivat ions?

Comparison of entrepreneurs who started prior to (2002-08) and during the economic downturn (2009-13) The recession triggered changes in motivation

• No significant change in opportunity-necessity motivation • Increase in importance of challenge, financial and family start-

up motivations • Increase in growth expectations

B) Did the recession change mot ivat ions?

Mot ivat ion Types and the Recession

3.7

3.3 3.0

1.8

3.8 3.5

3.2

1.9

1.0

2.0

3.0

4.0

5.0

Autonomy &Better work

Challenge &Opportunity

Financial Family & Legacy

pre-recession (N=257)recession (N=264)

Impo

rtan

ce

Growth Expectat ions and the Recession

5% 1%

60%

47%

25%

33%

7% 14%

3% 5%

20+ jobs6-19 jobs1-5 jobsno growthjob loss

Pre-recession (n=236)

Recession (n=227)

Over half (52%) of the entrepreneurs starting during the recession expect to grow their business Compared to just over one-third (35%) pre-recession

Gro

wth

Ex

pect

atio

ns

No

Gro

wth

Ex

pect

atio

ns

• Overall, few differences in tipping points with recession

• Redundancy does not equate to necessity entrepreneurship

Ins ights f rom the In-Depth Interv iews

Financial consultant

“If the recession hadn't come up I wouldn't be able to do this … I would be sitting behind a desk … it is probably the best thing that could have

happened to me.”

3) L INKING MOTIVATIONS, BUSINESS SURVIVAL AND SUCCESS

• Entrepreneurial Outcomes: Active, Closed*, (Still) Nascent, Sold,

and Dormant businesses • Survival (active business vs. closed business*)

• Performance of active businesses:

• Job Growth (growth in employees since start-up) • Innovation (product/service new to customers and no/few other

businesses offering the same products/services) • Exporting (% customers living outside UK)

*detailed analyses of closed businesses available in the report

Business Performance

Entrepreneur ia l Outcomes and Opportunity-Necessity Motivations

Active (53%)

Sold (2%)

Closed (15%)

Dormant (8%)

Nascent (23%)

Active (62%)

Sold (2%)

Closed (11%)

Dormant (5%)

Nascent (20%)

Necessity (N=240) Opportunity (N=594)

no significant differences between opportunity and necessity entrepreneurs

Significant differences in importance ratings (N=998) • Entrepreneurs of closed

businesses attribute less importance to challenge, financial and family motives

• Nascent entrepreneurs and those who sold their business attribute most importance to these three motives amongst the five groups of entrepreneurs

• Other groups in-between

Entrepreneur ia l Outcomes and Mot ivat ion Types

3.8

3.3 3.0

1.9

3.6

3.2 3.0

1.5

3.8 3.6

3.3

2.1

3.9 3.7

3.4

1.9

3.6

3.3 3.2

1.8

1.0

2.0

3.0

4.0

5.0

Autonomy &Better work

Challenge &Opportunity

Financial Family &Legacy

Active Closed Nascent Sold Dormant

Impo

rtan

ce

Significant differences in growth expectations (N=950) • About one-third of

closed and dormant businesses had growth expectations at start-up – lowest among all groups

• About two-thirds of nascent entrepreneurs and those who sold their business had growth expectations at start-up – highest among all groups

• Active businesses in-between

Entrepreneur ia l Outcomes and Growth Expectat ions

4% 3% 3% 11% 7%

53% 63%

32% 22%

57%

28% 20%

36% 39%

18%

11% 9%

16% 17% 9%

4% 6% 13% 11% 9%

Active(N=576)

Closed(N=117)

Nascent(N=183)

Sold(N=18)

Dormant(N=56)

20+ jobs

6-19 jobs

1-5 jobs

no growth

job lossNo

Gro

wth

Ex

pect

atio

ns

Gro

wth

Ex

pect

atio

ns

• Entrepreneurial Outcomes: Active, Closed*, (Still) Nascent, Sold,

and Dormant businesses • Survival (active business vs. closed business*)

• Performance of active businesses:

• Job Growth (growth in employees since start-up) • Innovation (products/services new to customers and no/few other

businesses offering the same products/services) • Exporting (% customers living outside UK)

*detailed analyses of closed businesses available in the report

Business Performance

Growth 29%

No change 67%

Decline 5%

Job Growth (N= 365 active businesses)

>25% of customers outside UK 18%

1-25% of customers outside UK 31%

No exports 51%

Exporting (N= 364 active businesses)

High 9%

Some 48%

None 43%

Innovation (N= 356 active businesses)

Growth 19%

No change 78%

Decline 3%

Job Growth (N= 125 active businesses)

>25% of customers outside UK 11%

1-25% of customers outside UK 21%

No exports 68%

Exporting (N= 125 active businesses)

High 6%

Some 42%

None 52%

Innovation (N= 124 active businesses)

Necessity (N=240) Opportunity (N=594)

Performance of Opportunity and Necessity Entrepreneurs

In regression analyses controlling for alternative explanations: - Motivations explain 3% to 10% of the variation in business

performance (job growth, innovation, exporting) - Growth expectations at start-up are the strongest motivational

influence on business performance - Challenge, Financial and Family motivations influence business

success indirectly via growth expectations

Business Performance and Mot ivat ions

CONCLUSION

• Less focus on opportunity-necessity distinction: both opportunity and

necessity businesses perform well and have similar survival rates • Other motivations are important:

• Across all business types, entrepreneurs say autonomy is their most important motivator

• Businesses created by autonomy and family-motivated entrepreneurs have a higher chance of survival

• Recession-era entrepreneurs often saw redundancy as an opportunity, and were highly motivated and ambitious when starting their business

Entrepreneurial Motivat ions are Complex

• Ambition is the most important factor for business success (job

creation, innovation, exporting)

• Other motivations influence business success mainly via growth expectations, they highlight different reasons for ambitions:

• Challenge and opportunity • Financial motivations (security, wealth) • Family enterprise and legacy building

Ambit ion is Important for Success

Context

General f ramework

Personal characteristics of

entrepreneurs

Individual circumstances of

entrepreneurs

Motivations for entrepreneurship

Taking first steps to set up a business

Trigger(s) (e.g. redundancy)

THANK YOU

Contact: Prof. Ute Stephan and Prof. Mark Hart U.Stephan@aston.ac.uk and Mark.Hart@aston.ac.uk Aston Business School/Enterprise Research Centre Economics &Strategy Group Aston Triangle, Birmingham B4 7ET

ADDIT IONAL INFORMATION FOR Q&A

We explored how motivations relate to entrepreneurs’ socio-demographic background, their personal situation and characteristics of the business Example:

U-shaped relationships with Opportunity- and Necessity Motivation

See report for more information

Correlates of Star t -up Mot ivat ions

0.2

.4.6

.81

prob

abilit

y pr

edic

tions

16 6520 30 40 50 60age (at time of interview)

opportunity motive by age necessity motive by age

Predicted Probabilities of Entrepreneurship by Motivation and Age

• We explored how motivations relate to entrepreneurs’ socio-demographic background, their personal situation and characteristics of the business

• Clearest associations for socio-demographic background • Education • Household income • Age • Gender

Corre lates of Star t -up Mot ivat ions

Household Income

+

Opportunity motivation Growth expectations

_

Necessity motivation

Education

+

Opportunity motivation Challenge motivation Growth expectations

_ Necessity motivation Autonomy motivation Financial motivation Family motivation

Gender

Autonomy motivation Challenge motivation

Financial motivation Family motivation

Growth expectations

Age • U-shaped relationships with Opportunity- and Necessity Motivation

- Negative relationship with autonomy and growth expectations

0.2

.4.6

.81

prob

abilit

y pr

edic

tions

16 6520 30 40 50 60age (at time of interview)

opportunity motive by age necessity motive by age

Predicted Probabilities of Entrepreneurship by Motivation and Age

• Entrepreneurs’ personal situation • Cross-over with previous job positively related to importance attributed

to autonomy, challenge, financial and family motivations • Necessity entrepreneurs appear to lack role models (know no other

entrepreneurs), while role models are positively related to nearly all other motivations

• No systematic relationships with employments status (beyond opportunity-necessity motivations), and family commitments

• Characteristics of the entrepreneurs’ business

• Starting together with others – opportunity, challenge, and growth expectation

• Starting together with other family members – financial and family motives • Starting-alone – necessity and autonomy motivated • Various weak associations with industry sectors

Corre lates of Star t -up Mot ivat ions

From Mot ivat ions to Act ion: Tipping points

Tipping points = circumstances that trigger individuals to take first steps to set-up a business

14% 13%

12% 11%

10% 8% 8%

7% 7% 7%

6% 5% 5%

4% 4% 4%

3% 3% 2% 2% 2% 2%

Unhappy / dissatisfied with workHad skills / qualifications for job

RedundancyNeeded/wanted (extra) income

Wanted to be own bossFelt had a good idea

Already had prospective client(s)Encouragement from others

Could not find a job / Lack of jobsHad saved / secured finance to start

Saw a gap in the marketApproach from business partner(s)

Thought about it for a whileType of work only for self-employed

To occupy self /earn when retiredOther

Time was right for me personallySupport/advice from a public…

Needed flexibility for…No reason / DK

Recession / Economic DownturnG i th k t ( tit

Entrepreneurial Motivation Survey N=1000, multiple answers, answers mentioned <4% omitted

Tipping points also interact with longer term motivations which are activated/’tipped by’ becoming truly unhappy in their job, being inspired by a conversation or opportunity, or needing to adapt to changing family circumstance

Tipping Points in In-Depth Interv iews

Software developer

“It was a combination of things. We were relocating. It was a chance to start afresh. I’d been used to working in a normal working environment

and I wanted to get the life-balance thing changed a little. Going self-employed would allow me to have the flexibility for childcare because my

wife was working full time. That’s the main reasons for going into it.”

• Closed and active businesses mentioned similar types of start-up tipping points (no in-depth interviews with other businesses)

• Both mentioned redundancy or job loss, dissatisfaction with their previous job or role, taking advantage of an opportunity such as spontaneous client demand, change in legislation, or change in family circumstances.

• Both would have appreciated support from an experienced business advisor to better understand and plan their business in their business’s earliest days; this would have helped them to stabilise more quickly, save money, make fewer mistakes and feel more confident in general appears to be desired especially by entrepreneurs lacking experience

Entrepreneur ia l Outcomes and Tipping Points – Interv iew Ins ights

Differences in opportunity-necessity motivation not significant

Entrepreneur ia l Outcomes and Necessi ty- Opportuni ty Mot ivat ions

62% 53% 58%

72%

51%

21% 31%

26%

22%

31%

11% 11% 14% 6%

15%

6% 6% 2% 3%

Active(N=593)

Closed(N=121)

Nascent(N=209)

Sold(N=18)

Dormant(N=59)

Other

Mixed

Necessity

Opportunity

“Entrepreneurial Journey” of Necessity-motivated Entrepreneurs (N=240)

Active (53%)

Sold (2%)

Closed (15%)

Dormant (8%)

Nascent (23%)

Growth (19%)

No change (78%)

Decline (3%)

Performance: Job Growth (N= 125 active businesses)

>25% of customers outside UK (11%)

1-25% of customers outside UK (21%)

No exports (68%)

Performance: Exports (N= 125 active businesses)

High (6%)

Some (42%)

None (52%)

Performance: Innovation (N= 124 active businesses)

“Entrepreneurial Journey” of Opportunity-motivated Entrepreneurs (N=594)

Active (62%)

Sold (2%)

Closed (11%)

Dormant (5%)

Nascent (20%)

Growth (29%)

No change (67%)

Decline (5%)

Performance: Job Growth (N= 365 active businesses)

>25% of customers outside UK (18%)

1-25% of customers outside UK (31%)

No exports (51%)

Performance: Exports (N= 364 active businesses)

High (9%)

Some (48%)

None (43%)

Performance: Innovation (N= 356 active businesses)

• ‘Autonomy & better work’ – The importance attached to seeking freedom and flexibility and better work opportunities as motivations to start a business.

• ‘Challenge & opportunity’ – The importance attached to seeking personal challenge, fulfilling a vision, and opportunities to use existing skill and receiving recognition as motivations to start a business.

• ‘Financial motives’ – The importance of seeking financial security, larger income and wealth as motivations to start a business.

• ‘Family & legacy’ – The importance of seeking to continue or create a family business as motivation to start a business.

A New Taxonomy of Mot ivat ions

Motivation Facets Importance of reasons for starting up a business Percent

“important” Autonomy & better work (mean importance 3.8)

To have considerable freedom to adapt my own approach to work

73%

To have greater flexibility for my personal and family life

63%

To have better work opportunities 55% Challenge & Opportunity (mean importance 3.4)

To make use of an existing skill 72% To challenge myself 71% To fulfil a personal vision 64% To achieve something and get recognition for it (e.g.

respect from friends or peers) 50%

To make a positive difference to my community, others or the environment

40%

To achieve a higher position for myself in society 16% Financial (mean importance 3.1)

To give myself, my partner and children financial security

50%

To earn a larger personal income 46% To have a chance to build great wealth or a very high

income 25%

Family & Legacy (mean importance 1.9)

To build a business my children can inherit 18% To follow the example of a person that I admire 13% To continue a family tradition 9%