Published December 20, 1999

Why People Start Companies: Reasons to Start a Business

What drives people to become entrepreneurs-to start companies? It's a question with many answers. Often these individuals are not entirely sure themselves, and the answers to the question are apt to change over time as their perceptions change.

I divide the reasons in to two broad categories: the reactive reasons and the active reasons. Reactive reasons are those things that are objectionable about working for others. They are the negatives that push you out. Active reasons are those things that are attractive about having your own business. They are the positives that pull you out.

The following list was compiled from many sources over a period of years. I do not necessarily agree with all of them but they are the reasons most often heard.

Reactive reasons

  1. Inequity between contribution and reward - People who are by nature high achievers tend not to get along well in large organizations. They want rewards based upon accomplishment, not on seniority, conforming to the culture or political clout. The person who just made a major contribution does not want to be told, "Be patient-your turn will come."
  2. Fame and recognition - It is the opinion of some that this is an important reason why people start companies. I do not agree. Most entrepreneurs I know are fairly conservative individuals who do not seek the limelight. Ken Olsen, founder of Digital Equipment Corp. (DEC) and a multi-millionaire, for many years lived in the same home he bought shortly after starting DEC. A Fortune article suggested that "Olsen's unostentatious style has kept him from becoming a business celebrity." The struggle to bring a new company into existence is a great lesson in humility.
  3. Participation in all aspects of a business -- Nothing is more exciting than to be broadly involved in the operation of a business. The entrepreneur helps conceive the product or service, helps design it, goes out and gets orders, makes sure the factory runs well, helps the customer put it into operation, and finally sees the effect that all of this has on the profits of the firm. What a thrill!
  4. Personal financial gain - For some people this is very important, for others less so. Gains can come more quickly and can be much greater than when working for someone else; this is not a negligible consideration. For most people becoming an entrepreneur is the only way available to make a lot of money.
  5. Joy of winning -- Entrepreneurs are the ultimate achievers. They like to win. Starting a company is a good way to satisfy the achievement instinct. Starting a new company, working for a new company, being involved in any way with a new company is just plain fun. It is satisfying and exciting. We spend more hours at our job than at anything else we do. Why shouldn't we enjoy it?

The reasons above are not the only reasons to start a business. There are many reasons and they are quite powerful reasons. Starting a new company is a great challenge. To those with entrepreneurial instincts, it is very appealing.

Excerpted with permission from Start Up: An Entrepreneur?s Guide to Launching and Managing a New Business, - 1999 by William J. Stolze.