Entrepreneurship increases in economic recession, new study says

Aug 1, 2012

Microsoft, Staples, and SouthWest Airlines.

What do these companies have in common? Yes, they're big companies, they employ a lot of people and they're successful. But here's one more thing--all of these companies were created in a period of economic downturn.  The Fortune 500 is littered with stories like this.

Business Beat spoke with Maria Figueroa-Armijos who's one of the authors of a new study which suggests that certain types of entrepreneurs are on the rise and it’s not in spite of the recession--it’s because of it.

Figueroa-Armijos says that before the recession the US had a lot of "opportunity entrepreneurs."  These entrepreneurs tend to have solid connections and resources in the business world.  But once the recession hit and unemployment went up, we started to see more "necessity entrepreneurs"--those who ended up going into business themselves because there was nothing for them in the job market.  It's that last group,  says Figueroa-Armijos, that might be the key to jump-starting dying rural economies. 

Listen to the full interview above or read some excerpts below.

Figueroa-Armijos on what's different about "necessity entrepreneurs":

"There's a lot of focus on opportunity entrepreneurship.  These entrepreneurs are considered high growth or the creators of many jobs.  Whereas necessity entrepreneurs will start with themselves and hire one or two employees but not many at first.  What we're trying to convey in our study is that we need to keep our attention open to necessity entrepreneurs to people next door who are starting something out of their kitchen or their garage.  Because this could be the next Bill Gates or the next Mark Zuckerberg, we don't know."

Figueroa-Armijos on the opportunities for rural economies:

"We see the declining population in rural areas.  During the economic recession many large manufacturers left and they left ghost towns behind them in many cases across the US.  So this may be a good opportunity to support necessity entrepreneurs in rural areas particularly because these might be one of the ways to keep the population."

Figueroa-Armijos on innovation:

"It seems like when we're under pressure we produce great ideas. And that under pressure and with uncertainty, people start moving and probably becoming more innovative because they have to think out of their box in order to survive the recession.  So, recessions may offer opportunities that we may not think of in the moment, but in the long run may benefit the economy as a whole."