Necessity Entrepreneurship

Necessity entrepreneurship (NE) refers to market-based trading activities undertaken primarily because of a belief that decent or desirable livelihood alternatives do not exist for an individual. Unlike "opportunity entrepreneurship" (OE), which is motivated by the perceived existence of a market opportunity, NE is often characterized by individuals being "pushed" into self-employment due to a lack of other viable work options. 

NE is different from OE in many ways. For one thing, the primary motivation of NEs is “push” factors as a last-ditch effort for survival, while OE is pursued by “pull” factors, i.e., opportunities to obtain greater wealth accumulation and personal satisfaction. Second, the two groups differ in education levels. NEs are often individuals with little or no formal education, while OEs are more likely to have attained higher education. Finally, access to financial resources sets them apart. NEs typically rely on their own limited means or microfinance institutions, whereas OEs tend to enjoy broader access to capital and formal financing channels.

Because of this, and many other factors, NE ventures have a very limited growth potential. Most entrepreneurs start as solo entrepreneurs and remain that way. OE, on the other hand, has a high growth potential as small ventures can turn into large companies.

Necessity Entrepreneurship in Ethiopia

As most people in NE operate within the informal economy, it’s difficult to quantify them. One study reports that 29% of early-stage entrepreneurs in Ethiopia start their business out of necessity. The rates vary by region, however. In Addis Ababa, for example, only 12% of early-stage entrepreneurs start their business out of necessity, while in the Somali region, that number is 83%. 

The case of Ethiopia is consistent with the trend we see in Africa. One in five working adults on the continent is self-employed. However, a significant majority of these are stuck in necessity entrepreneurship. High unemployment and poor access to capital and resources are pushing many into necessity-driven entrepreneurship.

Why is Necessity Entrepreneurship a Problem?

While necessity entrepreneurship provides short-term survival for many, it often traps people in cycles of poverty and economic stagnation. Firstly, these ventures lack scalability as they remain small, informal, and unable to expand into sustainable businesses. Secondly, the earnings are often barely enough to cover daily needs, leaving little room for investment or savings.  

Because many NEs operate in saturated, low-skill sectors (petty trade, street vending, subsistence farming), they contribute less to national productivity and economic growth. The absence of formal registration, taxation, and regulation keeps entrepreneurs excluded from legal protections, social security, and financial opportunities. As a result, necessity entrepreneurship fails to address the very thing that put them into entrepreneurship in the first place.

Tackling the challenges of necessity entrepreneurship requires coordinated policy and institutional action that focuses on expanding formal employment opportunities and vocational training to provide alternatives to survival-based self-employment, improving access to finance through affordable credit, grants, and investment for small businesses with growth potential, and offering business development services such as training, mentorship, and market access programs to help entrepreneurs shift toward opportunity-driven ventures. 

It also involves simplifying registration processes and lowering compliance costs to encourage formalization, while strengthening social protection and safety nets to reduce the pressure that forces individuals into necessity-driven entrepreneurship. By addressing these barriers, policymakers and development actors can transform survival-driven ventures into opportunity-driven businesses. Entrepreneurship should be an engine of growth rather than a symptom of necessity.