Why do people start their own businesses?

Did you know that more than 10,000 businesses launch in the United States every day?

Yes, that’s a real statistic. According to the US Census, entrepreneurs filed 4.35 million applications for new businesses in 2020, or approximately 11,900 applications per day. It was the busiest year on record for new businesses, and if trends continue, that number is poised to keep increasing.

This all raises the question: Why? What’s driving so many people to start their own businesses?

The reasons why are as multitudinous and diverse as business owners themselves. To name a few of the motivating factors: 

  • Freedom to work and live on one’s own terms
  • Independence from someone else’s (e.g., a boss’s, manager’s, or supervisor’s) whims and expectations
  • A change of circumstances (such as the loss of a job or partner, the birth of a child, or relocation to a new city)
  • The prospect of finding true meaning and purpose in a career
  • The idea of building a community or giving back
  • A desire to create jobs and contribute to a local economy
  • A passion for following one’s dreams and making a difference in the world

The big reason: risk and reward

Perhaps the most common reason people start businesses is the same reason you’d find in an introductory economics textbook: to capitalize on financial opportunities.

Many people launch their own companies because they see an unmet demand or gap in the market, or because they believe they can provide a better, faster, smarter, and/or cheaper solution than what’s available.

When these beliefs bear out, a new business owner stands to make serious money, perhaps orders of magnitude greater than what they could make working for someone else. In theory, their money-making potential is only limited by supply and demand—and if they plan ahead well, they’ll not only achieve that potential but also grow and scale it.

In other words, if your business has the right offerings, strategy, and timing, you could soon be diving into a mountain of money, Scrooge McDuck-style.

In practice, however, many businesses don’t result in the piles of cash their founders dream of. In fact, 50% of new businesses fail within their first five years. That’s how it works. Failure—perhaps even massive, catastrophic, life-altering failure—is the risk new business owners take.

Some people are willing to swallow the risk in pursuit of the reward. Others are motivated by uncertainty; they live for taking risks and putting everything on the line.

Launching a business for survival versus growth: a question of personality

An individual’s personality plays a large role in their decision to become an entrepreneur. Many of us are aware of the risks and rewards inherent in launching a business, but only some of us go through with it.

Still others don’t consider themselves “entrepreneurs” at all. When I started my business, I did so out of a feeling of necessity. I was 22 years old in a tight job market—there were no real employment opportunities for someone with my experience and skill set—so I collected gigs until I had a steady freelancing career. I didn’t have a clear idea of the kind of risks or rewards I was facing. I didn’t even realize I was self-employed for the first few months; I assumed my clients were my employers.

I know plenty of people with similar stories, people for whom starting a business is the safest—or maybe the only—option in terms of providing for themselves and their families. Many of these people aren’t in it to become multimillionaires. They aren’t chasing growth, but rather hoping to achieve a steady stream of income.

What kinds of people start their own businesses?

So, what kinds of people start their own businesses? It’s fair to say that the answer to the question is the same as the answer to “What kinds of people live in the United States?” Anyone and everyone.

Anyone can start a business enterprise that makes money, serves a community, and enables the founder to reach their goals. And everyone seems to be doing it.

These days, there’s no such thing as a “typical” business owner—not in terms of what they’re trying to achieve, and certainly not in terms of what they look like. Success as an entrepreneur is not confined to a single gender, age, cultural background, or racial identity. As more people start their own businesses, the landscape is growing more diverse.

Forbes reports:

“The face of female entrepreneurship overall is becoming a lot less white. Black women represent 42% of new women-owned businesses—three times their share of the female population—and 36% of all Black-owned employer businesses.”

It’s not difficult to perceive the reasons why women, and particularly Black women, are outpacing others in terms of launching new businesses in the 2020s.

Researchers at Babson College found that Black Americans start businesses at higher rates than other entrepreneurs. That’s in part because conventional career paths leave them “more likely to be in the lowest third of household income.”

Women, people of color, and especially women of color face many barriers in the conventional working world. For women of color, launching a business means leaving behind experiences in which they felt marginalized or subjected to discrimination and unfair work practices. For many, it also means a lot more money. 

Entrepreneurship gives people opportunities to bypass barriers in their careers— to take ownership of their lives, their successes, and their failures, too. When conventional career paths don’t offer you freedom and control—or don’t seem to be available to you—the obvious choice is to start your own business.

“Starting a business allows you independence and control in your work, and the potential to earn a higher income and pursue opportunities you’re passionate about.” 

–Donna Kelley, Professor of Entrepreneurship at Babson College

While these statistics are encouraging, Babson’s research also uncovered forms of long-term inequity: Black-owned businesses have lower survival rates than white-owned businesses, and only 3% of Black women own and operate mature companies.

Why are these businesses struggling at higher rates than other groups? Follow the money.

Historically, Black-owned companies have been excluded from financial and investment opportunities that keep startups afloat during the first five years (when most young businesses are still in the red). The majority 61% of Black women business owners self-fund their startups.

Fortunately, researchers and members of the finance sector have taken noticed and suggested changes for improving access funding to create more equity among business owners.

But capital isn’t the only reason businesses struggle in their infancy. Other common problems for startups include… 

  • Lack of capital or cash flow 
  • Poor planning
  • The challenge of managing multiple processes and tools
  • Growing too quickly (yes, this can be a problem for many businesses
  • Trouble connecting with leads and customers
  • Lackluster brand image and brand awareness
  • Dissatisfied and unengaged customers

While we continue to work toward improving systemic barriers many business owners face, there are other ways to improve your chances of success. For ideas, tips, and free guides, check out our small business resource hub.

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