Management and Business: Entreprenuerships

What is an entrepreneur?

Entrepreneur is a word borrowed from the French words entreprendre, "one who undertakes"—that is, a "manager." In fact, the word entrepreneur was shaped probably from celui qui entreprend, which is loosely translated as "those who get things done." In the early eighteenth century, a group of thinkers called the Physiocrats surfaced in France around a school of new economic theory. They were the first proponents of laissez-faire and opposed all government intervention in industry, especially taxation. Their doctrine was that the economic affairs of society are best guided by the decisions of individuals.

One of the most famous among them was Richard Cantillon. In a paper he worked on between 1730 and 1734 and that was later published in 1775 as Essai sur la Nature du Commerce en General, he introduced the concept of entrepreneur. He developed these early theories of the entrepreneur after observing the merchants, farmers, and craftsmen of his time. Jean-Baptiste Say, a French businessman turned economist, followed Cantillon with his Trait d'economie politique in 1803. His work commented on the theory of markets and how the entrepreneur is involved in this transaction of goods for money.

Defining the Types of Entrepreneurs
We use a broader definition and scope of entrepreneurial activity, segmenting all entrepreneurial activity into seven types of entrepreneurs: small business and lifestyle, franchise, professional fast growth and serial, corporate, creative disrupters and innovators, extreme, and social and nonprofit.

1. Small Business, Lifestyle, and Family Entrepreneurs
A small business entrepreneur is an individual who establishes and manages a business for the principal purpose of furthering personal goals. They comprise around 90 percent of all entrepreneurial activity in the United States. The business may overlap with family needs and desires. These ventures merely provide a reasonable lifestyle for the founding entrepreneurs. Their average net worth is less than $6 million, and they choose to stay small. These "lifestyle ventures" typically fall below 20 percent annual growth rates, their five-year revenue projections are below $10 million, and average net income does not exceed $2 million. Retailing is one of the few sectors where entrepreneurial activity is extensive. Each year, some 60,000 new retail businesses are started. The National Retail Federation in Washington, D.C., reports that 1.3 million retailers or over 95 percent of all retailers own and operate a single store.

2. Franchise Entrepreneurs
Franchising started in the 1840s and became an American institution. One out of sixteen workers is employed at a franchise, and franchising accounts for nearly $1 trillion in retail spending.19 Franchising is where a franchisor is offering a franchisee exclusive rights in return for their payment of royalties and conformance to standardized operating procedures. Franchising represents a great opportunity for entrepreneurs. An entrepreneur buying into a franchise increases the odds for survival to as much as 90 percent over starting up independently.

There are three basic types: product franchising, like automotive dealerships; service franchising, like Century 21; and business format, like McDonald's. Since there are some 2,300 franchises to choose from, we suggest reading books like Ann Dugan's Franchising: The Complete Guide to Evaluating, Buying and Growing Your Franchise Business. Dugan will help you to find the right franchise and to negotiate the franchise lease; it also provides sample franchise agreements.

3. Professional Fast-Growth and Serial Entrepreneurs
Fast-growth ventures have been called "the backbone of the U.S. economy." Numbering less than 350,000, they create about two-thirds of all new job growth. Professional entrepreneurs lead these ventures, which typically employ between 20 and 500 people, have sales growth of at least 20 percent each year for four straight years, and target five-year revenue projections between $10 and $50 million. Less than 10 percent of all start-ups make it to this level. As can be expected, it is well documented that these high-growth ventures receive great investor interest. A small business entrepreneur will typically retain 100 percent ownership, since the primary motivation is financial independence and control. In contrast, serial entrepreneurs are comfortable with relinquishing control to "a more traditional chief executive." They also accept dilution because "taking significant outside investment" allows them to create a big venture very quickly. Basically, the serial entrepreneur creates a venture, builds it up to a certain point, and then walks away to start another.

4. Corporate Entrepreneurs and Intrapreneurs
A driving force for the corporate world is "innovate or die." As Drucker says, "Any organization that believes that management and entrepreneurship are different, let alone incompatible, will soon find itself out of business." Entrepreneurship is beneficial for managing established businesses but not easily maintained. Large, mature conservative businesses need entrepreneurial leadership so they can perform the continuous renewal that has become a requirement for survival. For example, managers at 3M have set a long-term objective of achieving double-digit sales growth through innovation.

To survive, companies must "strive for a continuing change in the status quo." The National Science Foundation estimates that about $300 billion is spent annually on R&D in the United States, leading new opportunity analysis and roadways to entrepreneurial transformation. Microsoft spends almost $5 billion on R&D annually. In 2002 Microsoft began a five-year, $2 billion investment on the Xbox, a "stripped down personal computer in a VCR-sized electronics box" for home gamers.24 Four veteran game developers led Microsoft's "Project Midway." They "were intrapreneurs, doing the same thing as entrepreneurs except inside a big company."

The concept of corporate entrepreneurship has been around for at least twenty years. Broadly speaking, corporate entrepreneurship (also called intrapreneurship) involves the developing of new business ideas and the birthing of a new business activity within the context of large and established companies.

5. Creative Disrupters and Innovators
Shawn Fanning, the creator of Napster, appeared on the covers of Time, Fortune, and BusinessWeek before he could legally buy a beer. In 1994, John Doerr, a venture capitalist at Kleiner Perkins Caufield & Byers, met a twenty-three-year-old Marc Andreessen, who confidently declared that "his software would change the world." Their company, Netscape, went on to a record-shattering initial public offering in 1995. Like Edison in search of the electric light bulb, seeing only a better way to illuminate a room, these entrepreneurs are a rare breed, living on the creative edge. Most often, these brilliant "entrepreneurial-engineers" look to technology to solve problems in ways that "unlock value." They are visitors from the future, living among us here and now. They have an optimistic passion for an idea that borders on the embarrassing and a restless urge to make a difference in the world. They bring us innovations that will have a deep impact on how we live, work, and think in the decades ahead.

6. Extreme Entrepreneurs
Entrepreneurship is the last frontier where someone can explore individuality and pioneer a dream. In his work Isolated State (1850), German economist Johann Heinrich von Thunen described the entrepreneur as part "explorer and inventor." Long before America's Silent Army, Christopher Columbus pitched his dream to Queen Isabella in Seville, Spain. His "discovery" of America in 1492 brought new prosperity to Spain, as it soon became a world economic superpower. John Sutter was even called a "soldier of fortune." It was near his lumber mill on the American River in California that gold was "discovered" in 1848, about 150 miles from Intel's headquarters in Santa Clara. Today's extreme entrepreneurs are Formula-1 race car drivers, North Atlantic fishermen, lumberjacks, and businessmen like Ted Turner and Richard Branson, the billionaire who started Virgin Records and Virgin Atlantic Airlines. Branson says, "Being an adventurer and entrepreneur are similar. You are willing to go where most people won't dare."

7. Social and Nonprofit Entrepreneurs
David Packard, co-founder of Hewlett-Packard, believed that giving to the local community was important. Social and nonprofit entrepreneurs who pursue endeavors for the benefit of society have existed since ancient times. In fact, the word philanthropy is derived from a Greek word that means "lover of mankind." Today it is believed that entrepreneurism and innovation can also help "spark positive social change." The Ewing Marion Kauffman Foundation is doing just that. Currently with over $1 billion in assets, its mission is to make a difference by encouraging entrepreneurship in all areas of American life. The Price Institute for Entrepreneurial Studies works to further the understanding of the entrepreneurial process. By generously providing grants to leading academic institutions, the Institute works to stimulate MBA programs and curricula development, encouraging and supporting students with entrepreneurial aspirations.

Category: Entrepreneurship, All Questions