Business creation involves making a new start-up effort into a firm. It is a major form of economic activity and contributes to job creation, improved productivity, innovation and adaptation in the economy. However, it also involves substantial social costs in terms of lost opportunity and resources. As such, it is a difficult process to encourage or facilitate while simultaneously mitigating the associated social costs.
Those who want to start businesses are not necessarily motivated solely by profit; they may also be seeking prestige, wealth and social status, or a combination of these. This diversity of motivations explains why business formation is not a constant over time. Some economists, for example, believe that downturns are good times to start a business: competition might be low and inputs, such as labor, might be cheap.
The proportion of nascent ventures that reach profitability varies greatly depending on the industry and the type of firm. The average is about two-fifths. Policy makers should focus on ways to increase this percentage, but at the same time mitigate the associated social costs of business creation.
To succeed in running a business, entrepreneurs need to create their own definition of success. For some, this means focusing on revenue and growth. Others define success through the progress toward a dream or mission. The latter approach can have its pitfalls, as shown by the many examples of unsuccessful businesses that were started to tackle real world issues, such as climate change.