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-employed 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.
What 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 transition 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)
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