Why Do People Become Entrepreneurs?

Scott Shane

Today is the first of what will be regular blogs of mine on this site. Because it is my first posting, I thought that I would start with a basic question: Why do people become entrepreneurs?

Researchers have identified myriad reasons why people start their own businesses, but across all of the surveys, interviews, and other efforts to understand entrepreneurial motivation, one reason stands out above all others: People start businesses because they don't want to work for someone else.

It's interesting that the desire not to have a boss is the primary motivator of entrepreneurs because "being one's own boss" appears to be the prime source of entrepreneurs' job satisfaction.

To understand why, you need to know that entrepreneurs are happier with their jobs than people who work for others. A lot happier. Research shows that you would have to pay an entrepreneur 2 ½ times as much for that person to have the same job satisfaction as an employee that he or she has as an entrepreneur.

But employees tend to be better off than entrepreneurs in terms of compensation, job stress, and hours worked. People who work for themselves are more likely than those who work for others to report that their jobs are stressful and exhausting and make them unhappy or depressed. Moreover, the typical American who works for himself or herself works 4.4 more hours per week than the typical person who is employed by someone else. And studies show that the typical entrepreneur earns less and has more variable income than the typical employee.

So, the greater job satisfaction of entrepreneurs isn't because they earn more money, work fewer hours, and have less stressful jobs than nonentrepreneurs. Rather, they are more satisfied with their jobs in spite of having more work and more job stress and less pay than nonentrepreneurs.

For many people, it seems, not having a boss is worth a lot.

For more information on this topic, take a look at my book Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By.

Scott Shane is A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. He is the author of Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By, among other books.