An Entrepreneur is an individual who starts and runs a business with limited resources and planning, taking account of all the risks and rewards of his or her business venture. The business idea is usually a new innovation, product or service, rather than an existing business model.
Such entrepreneurial ventures target high-returns, with high level of uncertainty. The entrepreneur is willing to put his or her financial security and career at stake to take risks on an idea, spending time as well as capital on an uncertain venture. (Who were the 10 Greatest Entrepreneurs?)
Entrepreneurial ventures require the enterprising individual to arrange for capital, raw materials, manufacturing locations and skilled employees necessary to produce a good or offer a service. Marketing, sales and distribution are other important aspects which are controlled by the entrepreneur.
Today’s technological advancements (like online ventures) have allowed the entrepreneurs to skip a few mandatory needs (like procuring manufacturing facilities, door-to-door marketing) or outsourcing selected functions (like marketing, sales & distribution), but the risk is still borne by the entrepreneur.
Entrepreneurship is different from:
- Inheriting and/or running an existing businesses (family owned, co-owned)
- Working for other businesses or entrepreneurs for a salary
- Being a commission agent
- Selling already available goods or services as a franchisee or dealership
There is a very fine line between running a small business (SB) and an entrepreneurial venture (EV) as they have a lot in common. Initial stages of both SB and EV need significant hard work and dedication, but over a period of time very few SBs become EV. The following guidelines help to differentiate between the two.
What are the primary difference between Small Businesses and Entrepreneurial Ventures?
- Small Business usually deal with known and established products & services, Entrepreneurial Ventures are for new innovative offerings
- SBs aim for limited growth and continued profitability while EVs target rapid growth and high productivity returns
- Small Businesses deal with known risks; Entrepreneurial Ventures take deep dive with lots of unknown risks
- EVs generally impact economies & communities in a significant manner, which also results in a cascading effect on other sectors like job creation. Small businesses are more limited in this perspective and remain confined to their own domain and group.
A few myths which exist about entrepreneurs:
- Entrepreneurs take uncalculated and unknown risks without any plans – Partially True; entrepreneurs do take uncalculated and unknown risks but they do keep limited resources, plans as well as bandwidth for dealing with the unknowns to a limited extent
- Entrepreneurs start business with a revolutionary invention – Partially True; not all entrepreneurial ventures are true breakthroughs. Most are identifying and capitalizing on a mix-n-match approach. Google (GOOG) did not invent the internet, McDonald's (MCD) did not invent the cheeseburger, Starbucks (SBUX) did not invent coffee. It’s the identification and capitalization of the idea and rapid growth rate with cascading impact that makes the venture entrepreneurial.
- Entrepreneurs venture out only after significant experience in the industry – Most entrepreneurs are young, inexperienced individuals, who follow their passion.
- Entrepreneurs complete extensive research before taking the first step – Unless an existing business is setting up a new business line on a new concept, entrepreneurs start with very limited or no research. However, they do have good awareness about the potential of their offering, which gives them the confidence to go ahead with the venture and risks.
- Entrepreneurs start with sufficient capital and sound business plans – Capital is the foremost requirement of any entrepreneurial venture. Most entrepreneurs fail to secure capital from outside sources, unless they already proven themselves with a running prototype. Hence, most entrepreneurs start out with insufficient capital and a risky and uncertain business plan, with an aim to secure capital along the way with a working model or prototype to impress capital providers.
A few simple examples of Entrepreneurs and Entrepreneurship:
- Products Space:
Trading goods - like buying wholesale lots of branded shampoo at wholesale rates and selling them at retail rates at your retail shop or online (through sites like ebay.com) - does not constitute entrepreneurship.
However, manufacturing your own innovative distinct homemade herbal shampoo, getting a patent of the same and marketing it for business using the same sales channels will qualify as entrepreneurship.
The Africa-based KickStart organization (not to be confused with Kickstarter) has been building low-cost, low effort yet high yield products like a low effort soil press, a machine that processes sunflower seeds into cooking oil, and manually operated water pumps operated with minimal effort.
- Services Space:
Offering that extra room in your property backyard for a monthly rent is a simple rental business.
Building a service based model around this can be a fantastic entrepreneurial idea.
Airbnb implemented the mix-n-match entrepreneurial approach to build a community network of all such available rental places in an area, city or country and made it available for tourists. Without owning a single property, their innovative business model offers a win-win situation for all parties. The owners get short-term high paying tourist customers instead of long term low paying rentals. Tourists benefit from relatively low costs and a secured home-like stay. Airbnb benefits from service charges for offering this buyer-seller marketplace model, owing and controlling the sales channel without owning a single property needing high investments.
Similarly, buying a few cabs and running them through employed drivers is a common business, but not entrepreneurship. Building a large network of such cab owners and providing on-call cabs on need and availability basis allows profit opportunities without the need for owning a single cab.
Nothing in this world comes free. In the first example, the entrepreneur takes the risks on time, effort and financial investments needed for manufacturing the herbal shampoo, getting necessary licenses and handling legal disputes arising of any consumer complaints and competitions. In the latter example, the entrepreneur is accountable for ensuring reliable community of property owners willing to offer proper facilities, as well as ability to handle conflicts arising between various parties.
So what does it take for being a successful entrepreneur?
There are several theories put forward by researchers at leading institutes about entrepreneurship. There is no “one size fits all” model defined for entrepreneurship. Depending upon the nature of business idea/ market/ products or services offered for sale, the success stories vary a lot.
Broadly speaking, entrepreneurship either originates from passion or from identifying suitable business opportunity.
A person who is very passionate about developing electronic circuits may (accidently) develop a great appliance. Such an individual may not necessarily have the business thoughts in mind, but he is driven by pure passion. He doesn’t listen to anyone, goes by his gut feeling and one day develops a great product which can be well marketed to offer extremely high returns. He fits the first category of “passionate” entrepreneurs.
A businessman with sharp business acumen sensing a profit opportunity with a mix-n-match approach will fit in the latter category.
Irrespective of the originating category, an entrepreneurial idea, if well nurtured and correctly driven, can transform into a very profitable business venture.
The Bottom Line
There is no single definition or standard case study to define an entrepreneur. The entrepreneurial ventures come with a lot of variety depending upon the personal characteristics, local and regional issues and external factors. Embarking on an entrepreneurial career path for “Being Your Own Boss” is exciting – just make sure to do your homework about yourself, the offering as well as other external factors.