U1.02 — Reasons for starting a business
Overview
People start businesses for all kinds of reasons — from chasing a dream to solving a problem or achieving financial independence. In Western Australia, where local enterprise is encouraged through initiatives like the Small Business Development Corporation (SBDC), entrepreneurship is seen as a key part of the state’s growth.
Understanding why people start businesses helps explain what motivates entrepreneurs and what drives innovation across the economy.
4 common reasons include:
- 👉 Wealth Creation
- 👉 Development of an Innovative Idea
- 👉 Financial Security
- 👉 Employment Opportunities and Choices
1. Wealth Creation
Definition:
Wealth creation is building financial value through business ownership — earning profit, growing assets, and increasing personal and family income.
Why it matters:
Owning a profitable business can lift your standard of living, fund future goals (like property or retirement), and create value you can sell later.
Example (WA): A Perth lawn-care owner reinvests profits into equipment and grows the client base. After two years, the business doubles in value.
Advantages:
- Potential for higher income than employment.
- Builds wealth to sell or pass on.
- Freedom to reinvest profits.
- Control over pricing and growth.
- Satisfaction from financial success.
Challenges:
- High financial risk early on.
- Irregular cash flow.
- Debt pressure and long hours.
- Requires strong budgeting skills.
- Business value depends on systems and records.
Tip: Track profit and owner’s drawings separately to see real performance.
2. Development of an Innovative Idea
Definition:
Innovation means creating or improving a product, service, or process that adds value or solves a problem.
Why it matters:
New ideas create competitive advantage, attract customers, and drive progress in industries.
Example (WA): A Fremantle café introduces a QR pre-order window for commuters. Faster service increases sales and builds its reputation.
Advantages:
- Turns creativity into real solutions.
- Creates competitive advantage.
- May attract investors or grants.
- Can command higher prices.
- Builds strong brand identity.
Challenges:
- High research and development costs.
- Market may not be ready.
- Risk of copycats.
- Hard to balance innovation and profit.
- Requires ongoing updates.
Tip: Test ideas with real customers before spending heavily on production.
3. Financial Security
Definition:
Financial security is building a stable, reliable income and safety net through business ownership.
Why it matters:
Steady earnings support lifestyle needs, help plan for retirement, and protect against job loss.
Example (WA): A mobile dog-wash builds weekly subscriptions to maintain consistent bookings all year round.
Advantages:
- Greater control over income.
- Builds long-term stability.
- Supports family security.
- Less reliant on employers.
- Potential for multiple income streams.
Challenges:
- Unstable income early on.
- Financial stress in downturns.
- Must manage tax, super, and insurance.
- Admin and record keeping required.
- Risk of financial loss.
Tip: Keep 3–6 months of expenses as a business buffer.
4. Employment Opportunities and Choices
Definition:
Employment opportunities are jobs a business creates; employment choices are flexibility and control over work style.
Why it matters:
Small businesses drive local jobs and allow owners to build careers that fit their lifestyle.
Example (WA): A Mandurah carpenter hires two apprentices, freeing up time to focus on quotes and growth.
Advantages:
- Creates local jobs.
- Flexible hours and workplace.
- Builds community pride.
- Encourages leadership.
- Sense of purpose and control.
Challenges:
- Responsibility for staff welfare.
- Costs of training and safety.
- Need steady workflow.
- People management stress.
- Risk of burnout.
Tip: Start with part-time help before full-time hires.
Other Common Reasons for Starting a Business
- Personal fulfilment: pride in building something of your own.
- Work–life balance: flexible hours to suit lifestyle.
- Family tradition: continuing or modernising a family business.
- Passion: turning interests into income.
- Market gap: providing a service missing locally.
- Social or environmental impact: purpose-driven goals.
- Technology change: using new tools or platforms.
- Community contribution: supporting others and local causes.
Quick activity: Pick two reasons that would motivate you most — and why?