The value of necessity entrepreneurship

Interview Christel Tessier-Dargent,  Teacher Researcher at Grenoble INP, Graduate schools of Engineering and Management, Université Grenoble Alpes, France

First published eZINE Volume 5 no 3, Entrepreneurial Mindset Network, 2022.

Keywords Entrepreneurship, necessity entrepreneurship, economic growth, unemployment, bricolage, effectuation, jugaad.

How to reference this article Tessier-Dargent, C., The value of necessity entrepreneurship,  Entrepreneurial Mindset Network, accessed [insert date], <www.e-star.academy/regional-impact/christel-tessier-dargent>.

How did you first become interested in entrepreneurship?

Entrepreneurship entered my professional life early on, by choice, and never left. During my studies at ESCP Business School, I joined the Junior-Enterprise, to earn money for my tuitions and get experience. I privileged the least over the first, as I decided to set up “ESCP Création”, a department dedicated to supporting and advising entrepreneurs, as we received lots of such requests. Entrepreneurship has always been a very interesting topic to me, as it encompasses most business areas of expertise, marketing, HR, finance, strategy and requires a systemic, holistic approach, which suits my curiosity and broad mindset. I worked long hours, learned a lot, encountered long-lasting friends and determined, extraordinary characters, enjoyed the exhilarating task of consulting and supporting entrepreneurial ventures and received an award therefore.

I then picked the Entrepreneurship class at McCombs Business School, University of Texas at Austin, led by a wonderful expert, Jeff Sandefer, who made this class and the Moot Corp competition a once in a lifetime experience that shaped my professional vision. I could not explain briefly why, but I never planned to be an entrepreneur myself: consulting, researching, supporting, coaching and training is to me a rewarding vocation. I indulged in consulting for over a decade and definitely developed an entrepreneurial mindset, managing projects and teams, developing innovative processes, negotiating contracts with clients.

After a while, I felt the urge for sharing my experience and became a teacher. I wrote a PhD thesis on Entrepreneurship, focusing on Effectuation theory and Necessity Entrepreneurship, based on this inspiration (Baker, Welter, 2015): “We have chosen to align ourselves with studying and celebrating the tiny fraction of entrepreneurs who have little or nothing they need from us. And let’s face it, highly paid, highly skilled, highly resourced consultants consistently do a better job of discovering ‘what works’ for high-profile entrepreneurs than do academic researchers – which is probably how it should be. In contrast, we find the recent development of research – and theories – that have some promise of being relevant to entrepreneurs and communities that can benefit from our work to be extraordinarily exciting”.

What is necessity entrepreneurship (NE)?

Necessity Entrepreneurship (NE) has been defined for the first time by Reynolds et al. (2002, p.8) as “reflecting to the individual’s perception that such actions [setting-up a venture] presented the best option available for employment but not necessarily the preferred option”, referring to the well-established theory of push and pull motivations, as described by Shapero(1975).

Although the concept of NE is derived from a microanalysis of individual’s motivations, expressing a behavioural difference with opportunity-driven entrepreneurs, it has first been developed for macroeconomic explanations of surprisingly high rates of entrepreneurial activity in developing countries, contradicting the commonly accepted paradigms. The term was coined in 2001 by the Global Entrepreneurship Monitor (GEM) and the necessity / opportunity dichotomy has moved center-stage in much of the recent literature.

NE implies setting-up a venture by default, with no preliminary intention, to address a purely economic need of making revenues, as other options, especially wage employment, are unavailable. Necessity entrepreneurs try to escape long-term unemployment or sudden lay-off, by creating their own, mostly precarious job. NE is an involuntary, constrained choice, due to external circumstances, also called ‘push factors’, occurring in an adverse context. Most studied necessity entrepreneur categories are women, minorities, seniors and youth.

Literature provides for a very wide array of necessity entrepreneurs: from downgraded seniors to highly qualified but inexperienced newcomers who cannot find a job in accordance with their expectations (Smeaton, 2003; Yaniv and Brock, 2012; Bell and Rutherford, 2013); from actual survival entrepreneurs in developing countries (Claret and Ruane, 2010; Carlsrud and Brännback, 2011) to discriminated minorities not fitting in their local labour market (Maritz, 2004); from individuals pushed by their employers to setup their own venture and become subcontractors to disillusioned employees escaping a waged but stressful, demeaning, prospectless job (Kantola, 2014). Such type of entrepreneurship is very important to developing and emerging economies.

With the increasing instability in socio-economic conditions worldwide, NE is now estimated to concern one billion individuals in both developed and developing nations. Mandjak et al. (2011) explain they are tragic heroes: “they are tragic in the sense that they are forced to do something they are not prepared and motivated for. In spite of this, they undertake to do it, and pursue their ventures whole heartedly. They are tragic precisely because, due to the given circumstances, they are practically doomed to fail…”. That is why, after meeting those Schumpeterian antiheroes and researching on them, I enlarged my field of research to competencies developed through entrepreneurial education and the entrepreneurial capital concept.

Picture Credit Pixabay

Are the positive impacts of NE mainly economic or social?

As you have well understood from the definition, most researchers are very critical towards necessity entrepreneurship. NE could help reduce discrimination, unemployment, and poverty if the businesses setup by deprived individuals were successful, which is proven quite wrong by most scholar studies. However, in a highly constrained environment, lacking all types of resources, necessity entrepreneurs still manage to increase their psychological, human and social capital throughout the venture setup process. This is crucial for their possible social reintegration in a waged career, which is what they are mostly longing for.

The literature review has confirmed that NE has shown no conclusive positive impact neither on economicgrowth and unemployment, nor on poverty and discrimination, although public policiesworldwide tend to force entrepreneurship onto deprived individuals. Concerning economic effects, they are limited since most businesses started out of necessity do not create jobs. Niefert and Tchouvakhina (2006) show that start-ups by unemployed individuals more often than other start-ups occur in industries with low market entry barriers and low capital requirements. Sternberg and Bergmann (2003), Zali et al. (2013) and Calderon et al. (2016) explain that necessity ventures have a lower survival rate, are less profitable and grow slowerthan opportunity businesses.

However, NE can play a decisive social role in order to rise the entrepreneurial competencies of necessity individuals. This outcome is critical since the targeted population of inclusive entrepreneurship measures are mostly vulnerable, under-educated, discriminated individuals, lacking self-confidence, possessing scarce resources and evolving in a very constrained environment. If they are provided with the necessary background and support, they may setup and grow a hit business, but more probably gain employability and credentials to successfully apply on the job market, which is their preferred option. However, those studies are valid for welfare states, common in Europe. In countries where social safety net are less generous and waged jobs scarce, moving from poverty and unemployment to self-employment and financial independence thanks to micro credit projects has definitely positive individual and social impacts.

Can you explain the importance of non-orthodox venturing approaches like bricolage, improvisation, effectuation & jugaad?

I encountered those non-orthodox entrepreneurial theories while journeying in NE. Why are they non-orthodox? Because those theories are not relying on the 4 classical paradigms of entrepreneurship, which are new organization set-up, value creation, innovation development and business opportunity detection/creation.

Why are they relevant for NE? Because most necessity entrepreneurs put those theories into practice without even realizing it, as Mr Jourdain in Molière’s masterpiece was speaking prose unwittingly. Let’s take a moment to define and differentiate each one of those concepts. Bricolage is firmly grounded in anthropology, as Claude Levi-Strauss (1962) developed the concept, before it percolated in the entrepreneurship research field, where it describes the ability of an entrepreneur to make something (a business venture) out of underutilized resources and combine them into productive resources (competitive and unique business ventures). Baker and Nelson (2005) give the example of retrofitting machines or software to be used for purposes they were not intended for, with the creation of appendages and hacks.

Bricolage theory is thus mainly focused on explaining how entrepreneurship emerges in economically depressed, or resource-poor areas. Improvisation is a variant, defined as spontaneous responses to events that are both unexpected and unplanned-for and inspired by their metaphorical counterparts in jazz. Working with scarce resources under conditions of uncertainty and with little time, expertise, or even inclination, it is not surprising that necessity entrepreneurs are commonly placed in improvisational situations (Baker et al., 2003; Hmieleski et al., 2013).

For some in India, Jugaad also translated by frugal innovation, represents the best of India – the ability of an enterprising people to make do with less, the art of overcoming harsh constraints by improvising an effective solution using limited resources. For these entrepreneurs, including the margin not only provides for greater social good, it also makes great business sense. This bottom up approach is described as cheaper, faster, more inclusive and resource efficient. Jugaad innovators are “modern-day alchemists” who transmute adversity into opportunity in a resilient manner. This characteristic builds the bridge with effectuation, a logic of entrepreneurial expertise developed by Sarasvathy (2001) that I discovered during my PhD studies was also applicable to NE.

Effectuation is generally defined as a form of reasoning or problem solving which assumes the future is largely unpredictable, but that it can be controlled through human action.She observed that entrepreneurs are indeed effectual thinkers who start with a given set of means, think in terms of acceptable loss and find new and different ends, which are not necessarily pre-determined. Overall, those theories applied to NE allow to emancipate and empower necessity entrepreneurs, by structuring and documenting the competencies they develop to set up sustainable ventures. Even more importantly, they provide a framework for bottom up social innovations and environmental innovations, which are key for out future.

Picture Credit Pixabay

Which business competencies should PhD graduates develop during their studies?

As I have recently been appointed to supervise the “Competencies for business” module for PhD candidates at my university (linked to a national certification program), I realized how talented those students were, yet highly unaware of their applicable competencies for pursuing a business career. Therefore, the question to me is twofold: which business competencies do they develop during their studies that they must acknowledge and stress in their resume and during interviews and which ones they lack and need to develop besides their thesis work?

Indeed, in France, PhD candidates are not yet as highly regarded by privately owned companies as in Germany or the US for instance, although they have top-notch expertise: they are more remote from the corporate world (except for the CIFRE contracts), mainly pursuing academic excellence, although the opportunities for academic careers are scarcer. When asked, PhDs who entered a business career discover that they had developed strong competencies during their thesis: “I can adapt very quickly, to train myself in many subjects, to think about innovative solutions for my clients and my company, to have a critical mind on the information entrusted to me, to train my new colleagues…the only tool I lacked was self-confidence”. They have strong and rigorous analytical skills on top of their scientific expertise. They have developed project management capabilities, critical thinking and are able to synthetize loads of complex information. They work in multi-cultural teams, often train colleagues, are very self-driven and have developed creativity and science popularization skills.

The area for development is thus mostly so-called soft skills, like teamwork, stress management, leadership and communication. They have a pivot role to play in business concerning innovation and change management. That is why they must have strong persuasion skills, be able to explain their proposals simply, clearly and concisely, in order to convince, create desirability, acceptability and trust. That is the basis for the program I developed to coach PhD students, encompassing “learning expeditions” in businesses, so that they are ready to take up the challenges the world is facing.

References

Baker T., and Nelson R. E., (2005), “Creating something from Nothing: Resource Constructionthrough Entrepreneurial Bricolage”, Administrative Science Quarterly, vol. 50, n°3, pp. 329-366

Baker, T. and Welter, F. (2015) ‘Bridges to the future: challenging the nature of entrepreneurshipscholarship’, Routledge Companion to Entrepreneurship, Routledge, London, UK.

Bell, D. and Rutherford, A. (2013) Older Workers and Working Time, Discussion Paper No. 7546,Institute for the Study of Labor (IZA), Bonn.

Calderon, G., Iacovone, L. and Juarez, L. (2016) ‘Opportunity versus necessity: understanding theheterogeneity of female micro-entrepreneurs’, The World Bank Review, Vol. 30, No. 2,pp.86–96.

Carlsrud, A. and Brännback, M. (2011) ‘Entrepreneurial motivations: what do we still need toknow?’, Journal of Small Business Management, Vol. 49, No. 1, pp.9–26.

Claret, M. and Ruane, M. (2010) ‘Nene and her business: entrepreneurship by necessity’,International Journal of Entrepreneurship, Vol. 14, No. SI, pp.75–80.

Kantola, J. (2014) ‘Narrating coping experiences of necessity entrepreneurs’, Monograph [online]
https://www.univaasa.fi/materiaali/pdf/isbn_978-952-476-529-9.pdf (accessed 25 June 2019).

Mandják T., Bárdos C., Neuman-Bódi E., Németh S. , Simon J., (2011), 'To solve theimpossible: From necessity to success with the help of business network'IMP Journal, vol.5, n° 3

Maritz, A. (2004) ‘New Zealand necessity entrepreneurs’, International Journal ofEntrepreneurship and Small Business, Vol. 1, No. 1, pp.255–263.

Niefert, M. and Tchouvakhina, M. (2006) Aus der Not geboren? – Besondere Merkmale undDeterminanten von Gründungen aus der Arbeitslosigkeit, Discussion Paper 06–010, ZEW.

Reynolds, P.D., Camp, S.M., Bygrave, W.D., Autio, E. and Hay, M. (2002) GlobalEntrepreneurship Monitor: 2001 Executive Report, Kauffman Center for EntrepreneurialLeadership, Kansas City, MO.

Shapero, A. (1975) ‘The displaced uncomfortable entrepreneur’, Psychology Today, Vol. 9, No. 1,pp.83–88.

Smeaton, D. (2003) ‘Self-employed workers: calling the shots or hesitant independents?A consideration of the trends’, Work Employment and Society, Vol. 17, No. 2, pp.379–391.

Sternberg, R. and Bergmann, H. (2003) Global Entrepreneurship Monitor, Laenderbericht.Deutschland 2002, Institute of Economic and Social Geography, University of Cologne,Cologne.

Yaniv, E. and Brock, D. (2012) ‘Reluctant entrepreneurs: why they do it and how they do it’, IveyBusiness Journal [online]

https://iveybusinessjournal.com/publication/reluctant-entrepreneurs-why-they-do-it-and-how-they-do-it/(accessed 25 June 2019).

Zali, M., Faghih, N., Ghotbi, S. and Rajaie, S. (2013) ‘The effect of necessity and opportunitydriven entrepreneurship on business growth’, International Research Journal of Applied andBasic Sciences, Vol. 7, No. 2, pp.100–108.