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Entrepreneurship: A Primer

— Entrepreneurship is for everyone —

I’m a firm believer that our fortunes in life are closely bound to entrepreneurship skills, whether we’re self-employedstart_lamp.jpg or choose to work for someone else. On that premise, here’s the first in a series of posts on entrepreneurship we’ll offer Soul Shelter readers over the coming months.

This new thread is for everyone, from business novices to the veteran self-employed. We’ll hear from company presidents who’ve sold their companies for millions, and from artists who’ve achieved long-held dreams: sustainable income from their creative works. Today we’ll define our subject; later posts will cover basics for new small business owners, an employee’s step-by-step plan for going solo—and of course, interviews.

Let’s start by considering the origin of the word “entrepreneurship.” It derives from the French verb entreprendre, meaning “to undertake.” Thus, “entrepreneur” means “one who undertakes” (a new enterprise).

My own definition of the word differs a bit, though. For me, the essence of entrepreneurship lies in undertaking a new enterprise with limited resources. Consider the following three three types of businesses:

1. Lifestyle-Focused or Family Businesses
These are firms that depend heavily on founder skills, personality, energy, and contacts. Often their founders create them to exercise personal talent or skills, achieve a flexible schedule, work with other family members, remain in a desired geographic area, or simply to express themselves. But without the founder’s deep personal involvement, such businesses are likely to, well, founder. Professional investors are therefore rarely involved with lifestyle businesses.

2. Middle-Market Companies
In the business world, people talk about the “scalability” of a company, which basically means that the company’s product or service can be quickly manufactured or deployed on short notice, at a steadily falling cost to those who run the firm because the company has adequate systems in place to accomplish this. Packaged software, music CDs, and books are good example of scalable products; once the “golden master” is prepared, additional units can be inexpensively created. The business’s ongoing viability does not ultimately depend on the founder’s skills, reputation, or personal charm. In short, if a company is truly scalable, its founder is dispensable. Professional investors are often involved with middle-market companies.

3. High-Potential Ventures
These are companies focused on new markets with explosive potential. Often technology-driven, these ventures require heavy upfront cash investment to quickly gain decisive advantages, so professional investors—particularly venture capital firms—usually provide funding. High-potential ventures strive to achieve lasting economic and social impact, and aspire to achieve IPOs, or initial public offerings (getting listed on a stock exchange so they can sell shares to the public).

Among professional investors and academics, the traditional view is that one needs to build a truly scalable business in order to deserve the title “entrepreneur.” Otherwise, you’re merely a business owner.

But I don’t buy this. In my classes, I teach that entrepreneurship means different things to different people, but fundamentally, it means starting a new enterprise, whether a lifestyle-focused family business, a middle-market company, or a highly scalable, high-potential venture. The first type, while rarely scalable, deserves our attention and respect every bit as much as the latter two. Here’s why.

three_business_types_3.jpgWhat portion of all new businesses do you imagine middle-market and high potential ventures account for? Take a look at the chart on the left. Yup. Less than 10%. But so-called “lifestyle” or family firms account for an overwhelming 90% of all new businesses. A definition of entrepreneurship that excludes 90% of all new firms bespeaks a certain lack of realism. So in my book, anyone who starts a new business is an entrepreneur.

Remember the idea of limited resources from 423 words ago? Firms fueled by millions in venture capital are exciting, but they account for fewer than one in 10,000 new businesses. The rest of the world gets by on limited funds—and unlimited energy.

Small business, in short, is where the action is. Figuring out how to allocate millions of startup dollars is no doubt an exciting challenge. But more intriguing to me is how tiny enterprises with limited cash seize a niche—or blindside powerful rivals.

So as our entrepreneurship series progresses, we’ll focus primarily on small businesses, and on people who’ve successfully made the transitionbudding_trileaf_plant.jpg from fortune-focused large firms to fulfillment-focused lifestyle ventures.

And remember, entrepreneurship skills are equally valuable for those who choose to remain employees. Studying entrepreneurship means examining the many ways one can earn a living.

So please join these forthcoming discussions. We’re confident you’ll find the entrepreneurial journey well worthwhile.

(A portion of this essay previously appeared in Japan Entrepreneur Report)

You may also enjoy:

Fixing a Broken Work Model

Recognizing the Opportunity Within

The Lonely Novelist’s Five-Point Productivity Plan

15 Comments to Entrepreneurship: A Primer

On May 22, 2008, J.D. commented:

Awesome post, Tim. On Sunday I’m actually planning to publish that video I mentioned a while back. It’s very much related to this. I’ll see if I can’t work in a link to this post.

On May 22, 2008, Robyn commented:

I’m really looking forward to this series – esp if there will be examples of one-person business models. I will be quitting my job at the end of June to start a one-person textile craft business and would love hear how others have been successful with thus endeavors.

On May 23, 2008, by Tim commented:

Congratulations, Robyn! I’m working on a post on just that subject, so stay tuned. Thanks for writing, and best of luck with your new venture!

On May 26, 2008, Jean Ann commented:

Reading this post reaffirmed what I already believe…it is not all about big business…we are moving into a time where people are starting to value artisan products again. Small scale will no longer be a negative descriptor!

On May 26, 2008, by Tim commented:

Maybe small is the new big … at any rate, more people are recognizing that they’re miserable in large organizations and taking entrepreneurial action. More power to them, and to you!

On May 27, 2008, Anthony Kuhn commented:

Great to see a new thread starting. My readers are also interesting in this kind of thing, so I took the liberty of linking to your post in my blog today at the Innovators-Network with the hope of sending more interested readers to the Soul Shelter. Best luck and I’m looking forward to your future posts.

On May 27, 2008, by Tim commented:

Thanks, Anthony—and great blog, by the way. Stay tuned for Three Things I Wish I’d Known Before Starting My Own Business this Wednesday night and an interview with blogger extraordinaire J.D. Roth next week.

On May 28, 2008, Eric Greene commented:

Thanks! I am looking forward to the rest of the series.

On May 28, 2008, Jon P commented:

Tim,

Great stuff. I run a 3-person firm (myself and two employees) and find myself constantly having to explain the value in a nice, well-oiled small firm. Many people seem to think I’m crazy for not trying to grow employee size dramatically – which would in my case deteriorate the quality level of our service. Anyhow, I think the point that you can have a small 1-5 person business that is efficient, effective, successful and profitable needs to emphasized.

On May 30, 2008, by Tim commented:

Jon, you’ll add much value to the discussion. Thanks for checking in!

On Nov 8, 2008, M I L A N A . C O M » Lifestyle Business “Ala Milana” commented:

[...] Lifestyle-Focused or Family Businesses “These are firms that depend heavily on founder skills, personality, energy, and contacts. Often their founders create them to exercise personal talent or skills, achieve a flexible schedule, work with other family members, remain in a desired geographic area, or simply to express themselves. But without the founder’s deep personal involvement, such businesses are likely to, well, founder. Professional investors are therefore rarely involved with lifestyle businesses.” [...]

On Apr 22, 2009, Darcoerve commented:

hm… really like it

On Dec 23, 2009, hosting commented:

I really like your writing style, its not generic and extremely long and tedious like a lot of blog posts I read, you get to the point and I really enjoy reading your articles! Oh, and merry Christmas!

On Feb 24, 2010, DrakNet Web Hosting Blog » Reselling: Web Hosting as a Lifestyle Business commented:

[...] Shelter’s Tim Clark wrote a few years ago about the difference between Lifestyle-Focused or Family Businesses, Middle-Market Companies, and High-Potenti…, reminding us that Lifestyle and Family businesses account for 90% of new businesses. While many [...]

On Oct 7, 2010, The Changing Face of IT Support and Why Small Matters More commented:

[...] In case you didn’t know small businesses or lifestyle businesses are the majority. IT is starting to make this fact even more prevalent. There’s always the [...]

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