If you walk through almost any city in Latin America, you are likely to come across many small businesses or entrepreneurial projects. In some cases, they were created by people who had no other option—and they likely do not generate income that truly reflects the effort invested. In other instances, the business emerged in response to a neighborhood or market need, and you might even wonder why you did not think of it yourself, because it is clear that the owners—and often the employees too—are running successful operations.
In the world of entrepreneurship, there are two main paths: necessity-driven and opportunity-based. In this article, we explore the key characteristics and challenges of each, and reveal the secret to building a successful business.
Necessity-Driven Entrepreneurship
Necessity-driven entrepreneurship arises when people are forced to start a business due to a lack of salaried job opportunities. This type of entrepreneurship is common in regions with high levels of informality, where self-employment becomes a way to earn an income and survive. Perhaps the clearest example is someone who “knows how to bake a good cake” and uses that skill to make money—without even knowing how to set the right price.
Self-employment is a fundamental source of income for many people. In Latin America and the Caribbean, where informality affects more than half of the workforce, 3 out of 10 workers are self-employed or employers—a significantly higher share than in more developed economies.
Opportunity-Based Entrepreneurship
Opportunity-based entrepreneurship refers to people who choose to start a business because they see a market opportunity and are motivated to grow and expand.
These entrepreneurs often have a clear vision, a solid business plan, and are driven by the desire to innovate and contribute to economic development. One key point is that this potential is rooted in what people need—not necessarily in what the entrepreneur is good at.
In other words, just because you make delicious empanadas does not mean it is a good business idea. It depends on how much it costs to make them, the price you can sell them for, and of course, how many other people are also selling empanadas where you plan to set up your business.
A clear example of opportunity-based entrepreneurship is eco-tourism initiatives. Latin America and the Caribbean, with their impressive biodiversity and natural landscapes, offer unique opportunities for this kind of business. Many of these initiatives are built not only on the capabilities of those who launch them, but also on what tourists actually want: sustainable, authentic experiences connected to nature. When supply and demand are aligned, these businesses can generate stable income, create local jobs, and contribute to environmental conservation.
The Impact of Supporting Opportunity-Based Ventures
In our publication Do Entrepreneurship Policies Drive Job Creation? A Look at the Evidence, we analyze a set of 38 entrepreneurship promotion policies implemented in various regions around the world. These policies focus on opportunity-based ventures and their effects on employment and productivity.
We found that 71% of these programs include traditional training components—covering skills directly related to running a business, such as accounting or inventory management. Meanwhile, 63% provide financial support, and 24% offer mentoring or business advising.
We also found that in some cases, these interventions aim to support self-employment among groups that face additional barriers to entering or reentering the labor market—such as unemployed individuals (38%) and people in vulnerable situations (13%).
Our analysis shows that interventions that combine “hard” measures (such as financing) with “soft” measures (such as training and mentoring) are especially effective in developing economies. For instance, in Mexico, a technical assistance program showed sustained positive effects: five years after implementation, participating businesses had increased their number of employees by 57% and their daily payroll by 72%.
Likewise, in Bolivia, a course for entrepreneurs on the care and feeding of chicks managed to reduce the time needed for them to reach market weight by up to five days. The training taught participants how to calculate the right amount of food—avoiding overfeeding, which actually slows growth—and resulted in double savings: lower feed costs and shorter growing times.
From Evidence to Action: Recommendations to Support High-Potential Ventures
It is clear that both types of entrepreneurship have their own characteristics and challenges, but the evidence shows that opportunity-based entrepreneurship has a significant impact on job creation and economic growth. This is the kind of initiative that, if we support its creation and growth, generates not only employment for the entrepreneur but also quality jobs for others.
That is why entrepreneurship promotion policies must be properly targeted to the needs of specific groups. While it is important to help necessity-driven entrepreneurs connect with market needs or transition to formal employment, it is equally crucial to identify those entrepreneurs with high potential who face multiple barriers to growth.
For more details on the evidence and findings from this study, we invite you to download the full report: Do Entrepreneurship Policies Drive Job Creation? A Look at the Evidence
And we also invite you to reflect: how can we balance support for ventures with the potential to create quality jobs without leaving behind those who turn to self-employment out of necessity? How would you allocate public spending on this issue? Share your thoughts in the comments!
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