8. Entrepreneurial motives
People become self-employed for a variety of motives, such as the following:- refuge from unemployment into self-employment due to economic crisis or discrimination in
- independence and ‘doing one’s own thing’ as an aim in itself
- desire to combine the personal with work
- maintenance of small scale, escape from pressures for growth
- unwillingness or inability to function under a hierarchy
- ambition to pursue ideas that are not accepted in established firms
- motivation to serve society according to one’s own convictions
- thirst for profit, power or growth
- answer to a ‘wake-up call’ from some personal crisis (illness, accident, divorce, bereavement)
- an opportunity that happens to come along, in an inheritance, succession of a relative in a family
firm, an offer of a partner to join, a facility that happens to become available.
Different people become independents for different reasons, with different attitudes and ways of doing things. They can afford this to the extent that they or friends or family provide their own, private capital. This variety stands in contrast with larger firms, especially firms quoted on a stock exchange, who have to satisfy more uniform demands and expectations from capital markets.
The variety of motives and ways of doing things further increases the transaction costs that small firms impose on others. It also complicates government policy for small firms. While due to the idiosyncrasy of small firms a differentiated, custom-made approach, with tailored regulations and schemes is in order, precisely due to the small scale of the firms that is uneconomic.
Note that only some of the motives for self-employment are related to innovation. Some may well yield a highly traditional or even conservative venture. In fact, the great majority of self-employed (say 80 %) are hardly innovative. Novelty often goes no further than a new location for a traditional activity.
Often, the only source of income is profit from the firm. As a result, motivation is strong. In bad times, independent entrepreneurs are more willing to absorb a cut in income than employees would be. Next to this advantage there is also a possible disadvantage here. For lack of a spread of risk (as is offered in capital markets) the entrepreneur may be more conservative, less willing to stake his source of income in risky projects. In fact, as already indicated, the majority of small business is traditional and wary of change.
The combination of private and commercial interests can yield problems. The bonds and emotions of family or partnership may yield a lock-in into relationships that are (no longer) viable, and in an excess of trust and informality, with too few explicit agreements, and an obstacle in expressing criticism. Such lack of openness can in fact lead to a breakdown of trust in the failure to achieve expectations that were left unclear and in misunderstandings that were left undiscussed.
Often, an entrepreneur is either technically or commercially oriented and inspired, and seldom both at the same time, while both orientations are needed for success. Hence one often sees teams of technical and commercial partners. A third and neglected dimension here is organizational ability, in particular the ability to collaborate with other firms.
By leaving innovation to entrepreneurs risk is privatized, left to entrepreneurs who undertake risk willingly. The alternative is to let government innovate, by which risk is socialized and imposed on a society that is largely risk-averse. That would not come off the ground.