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Definition: Entrepreneur: What's in A Definition?
Definition: Entrepreneur: What's in A Definition?
Let's look at how some small business experts define the word "entrepreneur":
Bob Reiss, successful entrepreneur and author of Low-Risk, High-Reward: Starting and
Growing Your Small Business With Minimal Risk, says: "Entrepreneurship is the
recognition and pursuit of opportunity without regard to the resources you currently
control, with confidence that you can succeed, with the flexibility to change course as
necessary, and with the will to rebound from setbacks."
Entrepreneurs find ways to acquire the resources they need to achieve their goals. One of
those resources is capital. "Entrepreneurial" is often associated with venturesome or
creative. Be creative in acquiring the resources you need to build and grow your business.
Think outside the box and you'll improve your chances of acquiring what you need to
succeed.
Linda Pinson, author of much of the SBA's material about writing a business plan and
creator of business plan software (business-plan.com) says: "I have always thought of an
entrepreneur as a person who starts a business to follow a vision, to make money, and to
be the master of his/her own soul (both financially and spiritually). Inherent in the
venture is the risk of what the future may bring. Therefore, I believe that an essential key
to success is that the entrepreneur also be an "educated" risk taker.... "
Pinson continues: "I think that there is a general admiration for the entrepreneur who has
a skill and bravely jumps into the middle of the fire hoping not to get burned. If he makes
it, he is our shining example of who we want to be. If he does not, we say, "Oh, well" and
pay no heed to the plight of his venders, associates, and customers who have been burned
in the process. The view, though, I think is rapidly changing because a large percentage
of American entrepreneurs have not been successful. Their industry knowledge and skills
have been everything we could hope for......but their business skills have been sorely
lacking. I think it is now recognized that the "educated risk taker" will win the race."
Pinson makes two key points. First, many entrepreneurs want to be masters of their own
fate and they can't find this outside of entrepreneurship. While studies have shown that
people derive tremendous satisfaction from their work, how many people are really doing
exactly what they want to be doing? Entrepreneurs are usually doing what they want, or,
at least, they are doing something which they feel gives them control over their future.
Entrepreneurs like to be in control of their future. They like to set their own course.
Many entrepreneurs feel that running a business offers far more security than being an
employee. Entrepreneurs often argue that you can acquire wealth much faster if you own
a business and you can build a buffer of personal financial security. Further, an
entrepreneur's continued paycheck isn't dependent upon a single employer whose faulty
business decisions could lead to being laid off. So, while some people see starting a
business as more risky than conventional employment, other people see it as less risky.
Pinson reminds us that entrepreneurs have a certain responsibility not only to themselves
but also to their customers, suppliers, and associates.
Gillian Murphy, leader of San Joaquin Delta College Small Business Development
Center, says: "An entrepreneur is not static but fluid...continues to seek opportunities
and/or different methods of operation. When I think of someone with 'an entrepreneurial
spirit,' I think of a person who will do whatever it takes to be successful in business, e.g.,
A former client wanted to open a business in a specific strip mall. However, there were
no vacancies. He sought out a business that didn't appear to be very healthy. The business
owner agreed to my client's suggestion of dividing her premises, leaving her with reduced
rent, inventory needs, and general operations. In turn, my client "found" a location where
he could operate his business!"
Murphy again shows the value of creativity in acquiring the necessary business resources.
Thinking outside the box or taking creative approaches can often gain access to resources
that appear unavailable to less entrepreneurial-minded people. Further, entrepreneurs are
willing to propose unique ideas to potential partners or to negotiate unconventional deals
to get what they want.
Bernard Kamoroff, entrepreneur, owner of Bell Springs Publishing, and author of the
highly-regarded and bestselling book (over 500,000 copies sold), Small Time Operator:
How To Start Your Own Small Business, Keep Your Books, Pay Your Taxes, And Stay
Out Of Trouble! says: "The original dictionary definition of entrepreneur is one who
undertakes to carry out an enterprise,' the words entrepreneur and enterprise possibly
having the same root. But people who do call themselves entrepreneurs I find usually
think of themselves as more than 'just' a business owner carrying out an enterprise. They
view themselves more as a swashbuckler, business adventurer, risk taker. Inc. Magazine
in particular likes to promote this image. Me, personally, I do not make the distinction in
my books. One of the fun things of being your own boss is giving yourself whatever title
you like."
Small businesses are common in many countries, depending on the economic system in
operation. Typical examples include: convenience stores, other small shops (such as a
bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest
houses, photographers, small-scale manufacturing, and online business, such as web
design and programming, etc.
Size definitions
The legal definition of "small" varies by country and by industry. In the United States the
Small Business Administration establishes small business size standards on an industry-
by-industry basis, but generally specifies a small business as having fewer than 500
employees for manufacturing businesses and less than $7 million in annual receipts for
most nonmanufacturing businesses.[1] The definition can vary by circumstance – for
example, a small business having fewer than 25 full-time equivalent employees with
average annual wages below $50,000 qualifies for a tax credit under the healthcare
reform bill Patient Protection and Affordable Care Act.[2]
In the European Union, a small business generally has under 50 employees. However, in
Australia, a small business is defined by the Fair Work Act 2009 as one with fewer than
15 employees. By comparison, a medium sized business or mid-sized business has
under 500 employees in the US, 250 in the European Union and fewer than 200 in
Australia.
Several organizations also provide help for the small business sector, such as the Internal
Revenue Service's Small Business and Self-Employed One-Stop Resource. [4]
In addition to ensuring that the business has enough capital, the small business owner
must also be mindful of contribution margin (sales minus variable costs). To break even,
the business must be able to reach a level of sales where the contribution margin equals
fixed costs. When they first start out, many small business owners underprice their
products to a point where even at their maximum capacity, it would be impossible to
break even. Cost controls or price increases often resolve this problem.
In the United States, some of the largest concerns of small business owners are insurance
costs (such as liability and health), rising energy costs and taxes. In the United Kingdom
and Australia, small business owners tend to be more concerned with excessive
governmental red tape.[5]
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-
Myth. The mythic assumption is that an expert in a given technical field will also be
expert at running that kind of business. Additional business management skills are
needed to keep a business running smoothly.
Still another problem for many small businesses is the capacity of much larger businesses
to influence or sometimes determine their chances for success.
Common marketing techniques for small business include networking, word of mouth,
customer referrals, yellow pages directories, television, radio, outdoor (roadside
billboards), print, email marketing, and internet. Electronic media like TV can be quite
expensive and is normally intended to create awareness of a product or service.
Many small business owners find internet marketing more affordable. Google AdWords
and Yahoo! Search Marketing are two popular options of getting small business products
or services in front of motivated Web searchers. Successful online small business
marketers are also adept at utilizing the most relevant keywords in their site content.
Advertising on niche sites can also be effective, but with the long tail of the internet, it
can be time intensive to advertise on enough sites to garner an effective reach.
Creating a business Web site has become increasingly affordable with many do-it-
yourself programs now available for beginners. A Web site can provide significant
marketing exposure for small businesses when marketed through the Internet and other
channels. Some popular services are WordPress, Joomla and Squarespace.
Social media has proven to be very useful in gaining additional exposure for many small
businesses. Many small business owners use Facebook and Twitter as a way to reach out
to their loyal customers to give them news about specials of the day or special coupons
and generate repeat business. The relational nature of social media, along with its
immediacy and 24-hour presence lend intimacy to the relationship small businesses can
have with their customers, while making it more efficient for them to communicate with
greater numbers. Facebook ads are also a very cost-effective way for small businesses to
reach a targeted audience with a very specific message.
In addition to the social networking sites, blogs have become a highly effective way for
small businesses to position themselves as experts on issues that are important to their
customers. This can be done with a proprietary blog and/or by using a backlink strategy
wherein the marketer comments on other blogs and leaves a link to the small business'
own Web site.
A solid public relations strategy that utilizes speaking engagements, press releases,
feature stories, events and sponsorships can also be a very cost-effective way to build a
loyal following for a small business.
Franchise businesses
Franchising is a way for small business owners to benefit from the economies of scale of
the big corporation (franchiser). McDonald's restaurants, TrueValue hardware stores, and
NAPA Auto Parts stores are examples of a franchise. The small business owner can
leverage a strong brand name and purchasing power of the larger company while keeping
their own investment affordable. However, some franchisees conclude that they suffer the
"worst of both worlds" feeling they are too restricted by corporate mandates and lack true
independence. However, in some chains, such as the aforementioned TrueValue and
NAPA, franchises may have their own name alongside the franchise's name.
Small business bankruptcy
When small business fails, the owner may file bankruptcy. In most cases this can be
handled through a personal bankruptcy filing. Corporations can file bankruptcy, but if it
is out of business and valuable corporate assets are likely to be repossessed by secured
creditors there is little advantage to going to the expense of a corporate bankruptcy. Many
states offer exemptions for small business assets so they can continue to operate during
and after personal bankruptcy. However, corporate assets are normally not exempt, hence
it may be more difficult to continue operating an incorporated business if the owner files
bankruptcy.
Building trust with new customers can be a difficult task for a new and establishing
business. Some organizations like the Better Business Bureau and the International
Charter now offer Small Business Certification, which certifies the quality of the services
and goods produced and can encourage new and larger customers. These services may
require a few hours of work, but a certification may reassure potential customers. [citation
needed]
In the US, small business (less than 500 employees) accounts for around half the GDP
and more than half the employment. Regarding small business, the top job provider is
those with less than 10 employees, and those with 10 or more but less than 20 employees
comes in as the second, and those with 20 or more but less than 100 employees comes in
as the third (interpolation of data from the following references).[6] The most recent data
shows firms with less than 20 employees account for slightly more than 18% of the
employment.[7]
Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than 10 employees, and
99.7 percent had fewer than 500 employees.[8]
Sources of funding
Small businesses use several sources available for start-up capital:[9]
Self-financing by the owner through cash, equity loan on his or her home, and or
other assets.
Loans from friends or relatives
Grants from private foundations
Personal Savings
Private stock issue
Forming partnerships
Angel Investors
Banks
SME finance, including Collateral based lending and Venture capital, given
sufficiently sound business venture plans
Some small businesses are further financed through credit card debt - usually a poor
choice, given that the interest rate on credit cards is often several times the rate that
would be paid on a line of credit or bank loan. Many owners seek a bank loan in the name
of their business, however banks will usually insist on a personal guarantee by the
business owner. In the United States, the Small Business Administration (SBA) runs
several loan programs that may help a small business secure loans. In these programs, the
SBA guarantees a portion of the loan to the issuing bank and thus relieves the bank of
some of the risk of extending the loan to a small business. The SBA also requires
business owners to pledge personal assets and sign as a personal guarantee for the loan.
Canadian small businesses can take advantage of federally funded programs and services.
See Federal financing for small businesses in Canada (grants and loans).
The largest regional small business group in the United States is the Council of Smaller
Enterprises, located in Greater Cleveland.
Entrepreneurship
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who
undertakes innovations, finance and business acumen in an effort to transform
innovations into economic goods". This may result in new organizations or may be part
of revitalizing mature organizations in response to a perceived opportunity. The most
obvious form of entrepreneurship is that of starting new businesses (referred as Startup
Company); however, in recent years, the term has been extended to include social and
political forms of entrepreneurial activity. When entrepreneurship is describing activities
within a firm or large organization it is referred to as intra-preneurship and may include
corporate venturing, when large entities spin-off organizations.[1]
History
The entrepreneur is a factor in microeconomics, and the study of entrepreneurship
reaches back to the work of Richard Cantillon and Adam Smith in the late 17th and early
18th centuries, but was largely ignored theoretically until the late 19th and early 20th
centuries and empirically until a profound resurgence in business and economics in the
last 40 years.
In the 20th century, the understanding of entrepreneurship owes much to the work of
economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl
Menger, Ludwig von Mises and Friedrich von Hayek. In Schumpeter, an entrepreneur is
a person who is willing and able to convert a new idea or invention into a successful
innovation.[4] Entrepreneurship employs what Schumpeter called "the gale of creative
destruction" to replace in whole or in part inferior innovations across markets and
industries, simultaneously creating new products including new business models. In this
way, creative destruction is largely responsible for the dynamism of industries and long-
run economic growth. The supposition that entrepreneurship leads to economic growth is
an interpretation of the residual in endogenous growth theory and as such is hotly debated
in academic economics. An alternate, description posited by Israel Kirzner suggests that
the majority of innovations may be much more incremental improvements such as the
replacement of paper with plastic in the construction of a drinking straw.
Different scholars have described entrepreneurs as, among other things, bearing risk. For
Schumpeter, the entrepreneur did not bear risk: the capitalist did.
For Frank H. Knight [5] (1921) and Peter Drucker (1970) entrepreneurship is about taking
risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her
career and financial security on the line and take risks in the name of an idea, spending
much time as well as capital on an uncertain venture. Knight classified three types of
uncertainty.
The acts of entrepreneurship are often associated with true uncertainty, particularly when
it involves bringing something really novel to the world, whose market never exists.
However, even if a market already exists, there is no guarantee that a market exists for a
particular new player in the cola category.
Promotion of entrepreneurship
Given entrepreneurship's potential to support economic growth, it is the policy goal of
many governments to develop a culture of entrepreneurial thinking. This can be done in a
number of ways: by integrating entrepreneurship into education systems, legislating to
encourage risk-taking, and national campaigns. An example of the latter is the United
Kingdom's Enterprise Week, which launched in 2004.
Outside of the political world, research has been conducted on the presence of
entrepreneurial theories in doctoral economics programs. Dan Johansson, fellow at the
Ratio Institute in Sweden, finds such content to be sparse. He fears this will dilute
doctoral programs and fail to train young economists to analyze problems in a relevant
way.[9]
Many of these initiatives have been brought together under the umbrella of Global
Entrepreneurship Week, a worldwide celebration and promotion of youth
entrepreneurship, which started in 2008.
Financial bootstrapping
Financial bootstrapping is a term used to cover different methods for avoiding using the
financial resources of external investors. Bootstrapping can be defined as “a collection of
methods used to minimize the amount of outside debt and equity financing needed from
banks and investors”.[11] The use of private credit card debt is the most known form of
bootstrapping, but a wide variety of methods are available for entrepreneurs. While
bootstrapping involves a risk for the founders, the absence of any other stakeholder gives
the founders more freedom to develop the company. Many successful companies
including Dell Computers and Facebook were founded this way.
Owner financing
Sweat equity
Minimization of the accounts receivable
Joint utilization
Delaying payment
Minimizing inventory
Subsidy finance
Personal Debt
Traditional Financing
Having outside investors is not necessarily beyond the realm of entrepreneurship. In
many cases, leveraging the owners' credit cards and personal assets, such as mortgages,
may not be sufficient. Inadequate investment can also kill a start up. And bringing in
outsiders can be beneficial. Outsiders can provide financial oversight, accountability for
carrying out tasks and meeting milestones, and many can even bring valuable business
contacts and experience to the table.
Angel Investors
Venture capital investors
Crowd Funding
Hedge Funds
Alternative Asset Management