An entrepreneur is an individual who starts and runs a business with limited resources and planning, and is responsible for all the risks and rewards of his or her business venture. The business idea usually encompasses a new product or service rather than an existing business model.
Such entrepreneurial ventures target high returns with an equally high level of uncertainty. The entrepreneur is willing to risk his or her financial security and career, spending time as well as capital on an uncertain venture, arranging for the necessary capital, raw materials, manufacturing locations and skilled employees. Marketing, sales and distribution are other important aspects which are controlled by the entrepreneur.
Even if some of these functions are outsourced, the risk is still carried by the entrepreneur. This makes entrepreneurship different from inheriting and/or running an existing business, working for a startup or entrepreneur for a salary, being a commissioned agent, or selling already available goods or services as a franchisee or dealership.
Small Businesses vs. Entrepreneurial Ventures
There is a fine line between being a small business (SB) owner and an entrepreneur—the roles actually have a lot in common—but there are distinct differences that set them apart. Small businesses usually deal with known and established products and services, while entrepreneurial ventures focus on new, innovative offerings. Because of this, small business owners tend to deal with known risks and entrepreneurs face unknown risks. (For related reading, see: How to Manage Entrepreneurial Risk.)
Limited growth with continued profitability is what is hoped for in most small businesses, while entrepreneurial ventures target rapid growth and high returns. As a result, entrepreneurial ventures generally impact economies and 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.
Myths About Entrepreneurs
- Entrepreneurs take uncalculated and unknown risks without any plans. This myth is partially true; entrepreneurs do take uncalculated and unknown risks, but they keep resources, and plan as much as they can for dealing with the unknown.
- Entrepreneurs start business with a revolutionary invention. This is also partially true; not all entrepreneurial ventures are true breakthroughs. Most are identifying and capitalizing on a mix-n-match approach. Google did not invent the internet, McDonald's did not invent the cheeseburger, Starbucks did not invent coffee. It’s the identification and capitalization of the idea and rapid growth rate that makes the venture entrepreneurial.
- Entrepreneurs venture out only after gaining significant experience in the industry. Most entrepreneurs are young, inexperienced individuals who follow their passion. (For related reading, see: 7 Entrepreneurs Who Became Successful in Their 20s.)
- 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 assume the risk.
- Entrepreneurs start with sufficient capital. Capital is the foremost requirement of any entrepreneurial venture. Most entrepreneurs fail to secure sufficient capital from outside sources unless they have somehow proven themselves or have a marketable prototype. Hence, most entrepreneurs start out with insufficient capital with an aim to secure more along the way.
Examples of Entrepreneurship
Trading goods—like buying entire lots of branded shampoo at wholesale rates and selling them at retail rates at your retail shop or online—does not constitute entrepreneurship. However, manufacturing your own innovative, herbal shampoo, obtaining a patent on it and marketing it for business using the same sales channels qualifies as entrepreneurship.
The Africa-based KickStart organization (not to be confused with Kickstarter) has been building low-cost, low-effort, high-yield products like a soil press, a machine that processes sunflower seeds into cooking oil, and manually operated water pumps that require minimal effort.
Offering that extra room in your home for a monthly fee is simply a rental business. Building a service-based model around this idea is a fantastic entrepreneurial idea.
Airbnb implemented the mix-n-match entrepreneurial approach to build a network of all such available rentals in a certain area and make it available to 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 customers (tourists) instead of long-term low-paying renters. Tourists benefit from relatively low costs and a secure, home-like stay. Airbnb benefits from service charges for offering this buyer-seller marketplace model, controlling the sales channel without owning a single property.
Nothing in this world comes free. In the first example, the entrepreneur takes a risk on the time, effort and financial investments needed to manufacture the herbal shampoo, getting necessary licenses and handling legal disputes arising from any consumer complaints and competitions. In the latter example, the entrepreneur is accountable for ensuring a reliable community of property owners willing to offer proper facilities, as well as the responsibility for handling conflicts arising between various parties.
What Does It Take to Be a Successful Entrepreneur?
There are several theories put forward by researchers at leading institutes about entrepreneurship. There is no one-size-fits-all model for entrepreneurship. Broadly speaking, entrepreneurship either originates from passion or from identifying suitable business opportunities.
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 with his gut and one day develops a highly marketable product that offers extremely high returns. He fits into the first category of passionate entrepreneurs.
A businessman with sharp business acumen sensing a profit opportunity with a mix-n-match approach fits into the latter category.
Irrespective of the originating category, an entrepreneurial idea, if well nurtured and correctly driven, can be transformed into a very profitable business venture.
(For related reading, see: 10 Habits Every Entrepreneur Should Have.)