As a longtime entrepreneurship instructor, I’ve seen how entrepreneurial skills contribute to career success, especially for employees. In this, the first in a four-essay series on entrepreneurship, I’ll share three things every professional should understand about the often-misunderstood field.
1. Definition of Entrepreneurship
The word entrepreneurship derives from the French verb entreprendre, meaning “to undertake.” An entrepreneur is someone who undertakes a new enterprise.
My own definition differs a bit. For me, the essence of entrepreneurship lies in undertaking a new enterprise with limited resources. If you’re given a multimillion dollar budget to develop a new wireless controller division within your firm, you’re a manager rather than an entrepreneur. Developing that new division would undoubtedly pose an exciting challenge. But more intriguing to me is how tiny enterprises with limited resources seize a niche — or even blindside powerful rivals.
2. Three Types of Enterprises
Entrepreneurs start three different types of enterprises.
Lifestyle-Focused or Family Businesses
These enterprises depend heavily on the founder’s skills, personality, energy, and contacts. Often founders start 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, these enterprises are likely to, well, flounder. That’s why professional investors rarely get involved with lifestyle businesses.
In the business world, people talk about the “scalability” of a company, which basically means that, thanks to well-planned systems, the company’s service or product can be quickly deployed or manufactured on short notice at a low or steadily falling cost per unit.
Software, digital music, and e-books are familiar examples of highly scalable offers: Once the “golden master” is ready, additional units can be delivered at low cost. Scalability reduces the enterprise’s dependence on the founder’s skills, reputation, or personal charm. Professional investors often get involved with middle-market companies.
These are companies focused on new or emerging markets with great potential. Often technology-driven, these ventures require heavy upfront cash investment to move quickly and gain decisive advantages, so professional investors — particularly venture capital firms — often 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).
Understanding the difference between these three types of enterprises is important, because working for a high-potential enterprise is very different from working for a lifestyle enterprise — both personally and professionally.
3. Entrepreneurship is for Everyone
Entrepreneurship is for everyone. Among professional investors and academics, the traditional view is that only those aiming to build scalable, high-potential business deserve the “entrepreneur” title. I don’t buy this. To me, entrepreneurship means starting a new enterprise, whether a lifestyle-focused family business, a middle-market company, or a highly scalable, high-potential venture.
The lifestyle enterprise, while rarely scalable, deserves our attention and respect every bit as much as the other two. Here’s why.
|Business Type||% of all businesses started|
|Lifestyle||More than 90%|
|High-potential||Less than 1%|
What portion of all new businesses do you imagine high potential ventures account for? Take a look at the chart above. That’s right — less than 1%. But lifestyle or family firms account for an overwhelming 90% of all new businesses.
Remember the idea of limited resources? Firms fueled by millions in venture capital account for fewer than one in 10,000 new businesses. The rest of the world gets by on limited funds — and limitless personal energy.
Small business, in short, is where most of the action is — and where most workers develop their careers.
In the next essay, will explore the surprising truth about why people become entrepreneurs.
(A portion of this essay originally appeared in the Soul Shelter blog.)