Thursday, October 7, 2010

Indian Middle Class and Entrepreneurship

This post is actually a comment to my friend Aditi's blog post, "Each One, Employ One". You can find this post @

I was posting this comment on that post but then it ran so long that I thought better make it a post in itself. Although I encourage you to read that post before reading this one but for those lazy or "busy" folks the gist of that post is what the topic of this post is. Aditi questioned the middle class for its inclination towards getting job rather than entrepreneurship.

Many of you might be aware of Maslow's hierarchy. Those who are not, can look it up in Wikipedia.

It is a psychology/motivational theory which says  that humans move from the base of this pyramid towards the top from one level to other as they achieve the parameters at that level. Although the theory is used for different purposes but here we can use it to understand why the middle class actually shy away from entrepreneurship.

Actually, this theory has strong critics as in practice a person can exists at multiple levels simultaneously. But whatever the case may be, there is one fact for sure that the bottom 2 levels of Physiological Needs and Safety Needs are fundamental needs which in any case should be satisfied. This is one of the primary reasons why middle class look for jobs rather than starting their own business. Jobs are safe... They generally satisfy the lower 2 levels of the pyramid. On the other hand entrepreneurship has inherent risks (this is also the most common argument that your parents would give you).

This can be understood using the following equation:
Income = Wages from job + Returns from Investments

The following equation should always be satisfied:
Income >= Needs
i.e. Wages from job + Returns from Investments >= Needs

This is the fundamental equation that determines your leverage. Your leverage is your freedom... It determines your risk appetite. Greater is the contribution of your wages in your total income, the lesser is your leverage and more dependent you are on your job for survival.

If you would look at this equation in conjunction with Maslow's theory then you would understand what I mean. And I believe this is the dilemma with most of the middle class and with our society in general. The more a person moves towards that level, where his/her dependency on job is tending towards 0 to satisfy his/her needs, the more (s)he is inclined to start his/her business, at least theoretically.

Some of my friends might not agree with me. But I am not saying that this is the only reason but it might be one of the possible reasons. And there are always exceptions, like Sid. Looking at this issue from this point of view, offers us a solution, where one can ensure that the lower 2 levels of the pyramids are satisfied first through your returns on investments and then you can jump into entrepreneurship. Chintan, I know you would say its a mental block than anything else. But its just a probability.....

1 comment:

Aditi Only said...

MAslow's !! huh!! tat's certainly one reason for not doing MBA .. you know much more than is required ...