Entrepreneur & Entrepreneurship Definition + Types

An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. The process of setting up a ... TableofContents Expand TableofContents WhatIsanEntrepreneur? HowEntrepreneurshipWorks HowtoBecomeanEntrepreneur EntrepreneurshipFinancing 7CharacteristicsofEntrepreneurs TypesofEntrepreneurs 4TypesofEntrepreneurship EntrepreneursandtheEconomy QuestionsforEntrepreneurs EntrepreneurshipFAQs TheBottomLine Business BusinessEssentials WhatIsanEntrepreneur? Anentrepreneurisanindividualwhocreatesanewbusiness,bearingmostoftherisksandenjoyingmostoftherewards.Theprocessofsettingupabusinessisknownasentrepreneurship.Theentrepreneuriscommonlyseenasaninnovator,asourceofnewideas,goods,services,andbusiness/orprocedures. Entrepreneursplayakeyroleinanyeconomy,usingtheskillsandinitiativenecessarytoanticipateneedsandbringinggoodnewideastomarket.Entrepreneurshipthatprovestobesuccessfulintakingontherisksofcreatingastartupisrewardedwithprofits,fame,andcontinuedgrowthopportunities.Entrepreneurshipthatfailsresultsinlossesandlessprevalenceinthemarketsforthoseinvolved. KeyTakeaways Apersonwhoundertakestheriskofstartinganewbusinessventureiscalledanentrepreneur.Anentrepreneurcreatesafirmtorealizetheiridea,knownasentrepreneurship,whichaggregatescapitalandlaborinordertoproducegoodsorservicesforprofit.Entrepreneurshipishighlyriskybutalsocanbehighlyrewarding,asitservestogenerateeconomicwealth,growth,andinnovation.Ensuringfundingiskeyforentrepreneurs:FinancingresourcesincludeSBAloansandcrowdfunding.Thewayentrepreneursfileandpaytaxeswilldependonhowthebusinessissetupintermsofstructure. 1:37 Entrepreneur HowEntrepreneurshipWorks Entrepreneurshipisoneoftheresourceseconomistscategorizeasintegraltoproduction,theotherthreebeingland/naturalresources,labor,andcapital.Anentrepreneurcombinesthefirstthreeofthesetomanufacturegoodsorprovideservices.Theytypicallycreateabusinessplan,hirelabor,acquireresourcesandfinancing,andprovideleadershipandmanagementforthebusiness. Entrepreneurscommonlyfacemanyobstacleswhenbuildingtheircompanies.Thethreethatmanyofthemciteasthemostchallengingareasfollows: OvercomingbureaucracyHiringtalentObtainingfinancing Economistshaveneverhadaconsistentdefinitionof"entrepreneur"or"entrepreneurship"(theword"entrepreneur"comesfromtheFrenchverbentreprendre,meaning"toundertake").Thoughtheconceptofanentrepreneurexistedandwasknownforcenturies,theclassicalandneoclassicaleconomistsleftentrepreneursoutoftheirformalmodels:Theyassumedthatperfectinformationwouldbeknowntofullyrationalactors,leavingnoroomforrisk-takingordiscovery.Itwasn'tuntilthemiddleofthe20thcenturythateconomistsseriouslyattemptedtoincorporateentrepreneurshipintotheirmodels. Threethinkerswerecentraltotheinclusionofentrepreneurs:JosephSchumpeter,FrankKnight,andIsraelKirzner.Schumpetersuggestedthatentrepreneurs—notjustcompanies—wereresponsibleforthecreationofnewthingsinthesearchforprofit.Knightfocusedonentrepreneursasthebearersofuncertaintyandbelievedtheywereresponsibleforriskpremiumsinfinancialmarkets.Kirznerthoughtofentrepreneurshipasaprocessthatledtothediscovery. HowtoBecomeanEntrepreneur Afterretiringherprofessionaldancingshoes,JudiSheppardMissettbecameanentrepreneurbyteachingadanceclasstociviliansinordertoearnsomeextracash.Butshesoonlearnedthatwomenwhocametoherstudiowerelessinterestedinlearningprecisestepsthantheywereinlosingweightandtoningup.SheppardMissettthentrainedinstructorstoteachherroutinestothemasses,andJazzercisewasborn.Afranchisedealfollowed.Today,thecompanyhasmorethan8,300locationsworldwide. Followinganicecreammakingcorrespondencecourse,twoentrepreneurs,JerryGreenfieldandBenCohenpaired$8,000insavingswitha$4,000loan,leasedaBurlington,Vt.,gasstation,andpurchasedequipmenttocreateuniquelyflavoredicecreamforthelocalmarket.Today,Ben&Jerry’shaulsinmillionsinannualrevenue. Althoughtheself-madepersonhasalwaysbeenapopularfigureinAmericansociety,entrepreneurshiphasgottengreatlyromanticizedinthelastfewdecades.Inthe21stcentury,theexampleofInternetcompanieslikeAlphabet,formerlyGoogle(GOOG),andMeta(FB),formerlyFacebook,bothofwhichhavemadetheirfounderswildlywealthy,havemadepeopleenamoredwiththeideaofbecomingentrepreneurs. Unliketraditionalprofessions,wherethereisoftenadefinedpathtofollow,theroadtoentrepreneurshipismystifyingtomost.Whatworksforoneentrepreneurmightnotworkforthenextandviceversa.Thatsaid,therearesevengeneralstepsthatmost,ifnotall,successfulentrepreneurshavefollowed: EnsureFinancialStability Thisfirststepisnotastrictrequirementbutisdefinitelyrecommended.Whileentrepreneurshavebuiltsuccessfulbusinesseswhilebeinglessthanfinanciallyflush(thinkofFacebook,nowMeta,founderMarkZuckerbergasacollegestudent),startingoutwithanadequatecashsupplyandensuringongoingfundingcanonlyhelpanaspiringentrepreneur,increasingtheir personalrunwayandgivingthemmoretimetoworkonbuildingasuccessfulbusiness,ratherthanworryingaboutmakingquickmoney. BuildaDiverseSkillSet Onceapersonhasstrongfinances,itisimportanttobuildadiversesetofskillsandthenapplythoseskillsintherealworld.Thebeautyofsteptwoisitcanbedoneconcurrentlywithstepone. Buildingaskillsetcanbeachievedthroughlearningandtryingnewtasksinreal-worldsettings.Forexample,ifanaspiringentrepreneurhasabackgroundinfinance,theycanmoveintoasalesroleattheirexistingcompanytolearnthesoftskillsnecessarytobesuccessful.Onceadiverseskillsetisbuilt,itgivesanentrepreneuratoolkitthattheycanrelyonwhentheyarefacedwiththeinevitabilityoftoughsituations. Muchhasbeendiscussedaboutifgoingtocollegeisnecessarytobecomeasuccessfulentrepreneur.Manyfamousentrepreneursarefamousforhavingdroppedoutofcollege:SteveJobs,MarkZuckerberg,andLarryEllison,tonameafew. Thoughgoingtocollegeisn'tnecessarytobuildasuccessfulbusiness,itcanteachyoungindividualsalotabouttheworldinmanyotherways.Andthesefamouscollegedropoutsaretheexceptionratherthanthenorm.Collegemaynotbeforeveryoneandthechoiceispersonal,butitissomethingtothinkabout,especiallywiththehighpricetagofacollegeeducationintheU.S. Itisnottruethatmajoringinentrepreneurshipisnecessarytostartabusiness.Peoplethathavebuiltsuccessfulbusinesseshavemajoredinmanydifferentsubjectsanddoingsocanopenyoureyestoadifferentwayofthinkingthatcanhelpyouinestablishingyourbusiness. ConsumeContentAcrossMultipleChannels Asimportantasbuildingadiverseskillsetis,theneedtoconsumeadiversearrayofcontentisequallyso.Thiscontentcanbeintheformofpodcasts,books,articles,orlectures.Theimportantthingisthatthecontent,nomatterthechannel,shouldbevariedinwhatitcovers.Anaspiringentrepreneurshouldalwaysfamiliarizethemselfwiththeworldaroundthemsotheycanlookatindustrieswithafreshperspective,givingthemtheabilitytobuildabusinessaroundaspecificsector. IdentifyaProblemtoSolve Throughtheconsumptionofcontentacrossmultiplechannels,anaspiringentrepreneurisabletoidentifyvariousproblemstosolve.Onebusinessadagedictatesthatacompany'sproductorserviceneedstosolveaspecificpainpoint;eitherforanotherbusinessorforaconsumergroup.Throughtheidentificationofaproblem,anaspiringentrepreneurisabletobuildabusinessaroundsolvingthatproblem. Itisimportanttocombinestepsthreeandfoursoitispossibletoidentifyaproblemtosolvebylookingatvariousindustriesasanoutsider.Thisoftenprovidesanaspiringentrepreneurwiththeabilitytoseeaproblemothersmightnot. SolveThatProblem Successfulstartupssolveaspecificpainpointforothercompaniesorforthepublic.Thisisknownas"addingvaluewithintheproblem."Onlythroughaddingvaluetoaspecificproblemorpainpointdoesanentrepreneurbecomesuccessful. Say,forexample,youidentifytheprocessformakingadentistappointmentiscomplicatedforpatients,anddentistsarelosingcustomersasaresult.Thevaluecouldbetobuildanonlineappointmentsystemthatmakesiteasiertobookappointments. NetworkLikeCrazy Mostentrepreneurscan'tdoitalone.Thebusinessworldisacutthroatoneandgettinganyhelpyoucanwillalwayshelpandreducethetimeittakestoachieveasuccessfulbusiness.Networkingiscriticalforanynewentrepreneur.Meetingtherightpeoplethatcanintroduceyoutocontactsinyourindustry,suchastherightsuppliers,financiers,andevenmentorscanbethedifferencebetweensuccessandfailure. Attendingconferences,emailingandcallingpeopleintheindustry,speakingtoyourcousin'sfriend'sbrotherwhoisinasimilarbusiness,willhelpyougetoutintotheworldanddiscoverpeoplethatcanguideyou.Onceyouhaveyourfootinthedoorwiththerightpeople,conductingabusinessbecomesaloteasier. LeadbyExample Everyentrepreneurneedstobealeaderwithintheircompany.Simplydoingtheday-to-dayrequirementswillnotleadtosuccess.Aleaderneedstoworkhard,motivate,andinspiretheiremployeestoreachtheirbestpotential,whichwillleadtothesuccessofthecompany. Lookatsomeofthegreatestandmostsuccessfulcompanies;allofthemhavehadgreatleaders.AppleandSteveJobs,BillGatesandMicrosoft,BobIgerandDisney,andsoon.Studythesepeopleandreadtheirbookstoseehowtobeagreatleaderandbecometheleaderthatyouremployeescanfollowbytheexampleyouset. EntrepreneurshipFinancing Giventheriskinessofanewventure,theacquisitionofcapitalfundingisparticularlychallenging,andmanyentrepreneursdealwithitviabootstrapping:financingabusinessusingmethodssuchasusingtheirownmoney,providingsweatequitytoreducelaborcosts,minimizinginventory,andfactoringreceivables. Whilesomeentrepreneursareloneplayersstrugglingtogetsmallbusinessesoffthegroundonashoestring,otherstakeonpartnersarmedwithgreateraccesstocapitalandotherresources.Inthesesituations,newfirmsmayacquirefinancingfromventurecapitalists,angelinvestors,hedgefunds,crowdfunding,orthroughmoretraditionalsourcessuchasbankloans. ResourcesforEntrepreneurs Thereareavarietyoffinancingresourcesforentrepreneursstartingtheirownbusinesses.ObtainingasmallbusinessloanthroughtheSmallBusinessAdministration(SBA)canhelpentrepreneursgetthebusinessoffthegroundwithaffordableloans.SBAhelpsconnectbusinessestoloanproviders. Ifentrepreneursarewillingtogiveupapieceofequityintheirbusiness,thentheymayfindfinancingintheformofangelinvestorsandventurecapitalists.Thesetypesofinvestorsalsoprovideguidance,mentorship,andconnectionsinadditiontojustcapital. Crowdfundinghasalsobecomeapopularwayforentrepreneurstoraisecapital,particularlythroughKickstarter.Anentrepreneurcreatesapagefortheirproductandamonetarygoaltoreachwhilepromisingcertaingivebackstothosewhodonate,suchasproductsorexperiences. BootstrappingforEntrepreneurs Bootstrappingreferstobuildingacompanysolelyfromyoursavingsasanentrepreneuraswellasfromtheinitialsalesmadefromyourbusiness.Thisisadifficultprocessasallthefinancialriskisplacedontheentrepreneurandthereislittleroomforerror.Ifthebusinessfails,theentrepreneuralsomaylosealloftheirlifesavings. Theadvantageofbootstrappingisthatanentrepreneurcanrunthebusinesswiththeirownvisionandnooutsideinterferenceorinvestorsdemandingquickprofits.Thatbeingsaid,sometimeshavinganoutsider'sassistancecanhelpabusinessratherthanhurtit.Manycompanieshavesucceededwiththebootstrappingstrategy,butitisadifficultpath. SmallBusinessvs.Entrepreneurship Asmallbusinessandentrepreneurshiphavealotincommonbuttheyaredifferent.Asmallbusinessisacompany,usually,asole-proprietorshiporpartnership,thatisnotamedium-sizedorlarge-sizedbusiness,operateslocally,anddoesnothaveaccesstoavastamountofresourcesorcapital. Entrepreneurshipreferstoanindividualthathasanideaandintendstoexecuteonthatidea,usuallytodisruptthecurrentmarketwithanewproductorservice.Entrepreneurshipusuallystartsasasmallbusinessbutthelong-termvisionismuchgreater,toseekhighprofitsandcapturemarketsharewithaninnovativenewidea. HowEntrepreneursMakeMoney Entrepreneursmakemoneylikeanybusiness:theyseektogeneraterevenuesthataregreaterthancosts.Increasingrevenuesisthegoalandthatcanbeachievedthroughmarketing,word-of-mouth,andnetworking.Keepingcostslowisalsocriticalasitresultsinhigherprofitmargins.Thiscanbeachievedthroughefficientoperationsandeventuallyeconomiesofscale. TaxesforEntrepreneurs Thetaxesyouwillpayasanentrepreneurwilldependonhowyousetupyourbusinessintermsofstructure. SoleProprietorship:Abusinesssetupthiswayisanextensionoftheindividual.BusinessincomeandexpensesarefiledonScheduleConyourpersonaltaxreturnandyouaretaxedatyourindividualtaxrate. Partnership:Fortaxpurposes,apartnershipfunctionsthesamewayasasoleproprietorship,withtheonlydifferencebeingthatincomeandexpensesaresplitamongstthepartners. Therearemanybenefitsentrepreneurscanachievethroughtaxes,suchasdeductingtheirhomeofficeandutilities,mileageforbusinesstravel,advertising,andtravelexpenses. C-Corporation:AC-corporationisaseparatelegalentityandhasseparatetaxesfiledwiththeIRSfromtheentrepreneur.Thebusinessincomewillbetaxedatthecorporatetaxrateratherthanthepersonalincometaxrate. LimitedLiabilityCompany(LLC)orS-Corporation:ThesetwooptionsaretaxedinthesamemannerasaC-corporationbutusuallyatloweramounts. 7CharacteristicsofEntrepreneurs Whatelsedoentrepreneurialsuccessstorieshaveincommon?Theyinvariablyinvolveindustriouspeopledivingintothingsthey’renaturallypassionateabout. Givingcredencetotheadage,“findawaytogetpaidforthejobyou’ddoforfree,”passionisarguablythemostimportantcomponentstartupbusinessownersmusthave,andeveryedgehelps. Whiletheprospectofbecomingyourownbossandrakinginafortuneisalluringtoentrepreneurialdreamers,thepossibledownsidetohangingone’sownshingleisvast.Incomeisn’tguaranteed,employer-sponsoredbenefitsgobythewayside,andwhenyourbusinesslosesmoney,yourpersonalassetscantakeahit;notjustacorporation’sbottomline.Butadheringtoafewtriedandtrueprinciplescangoalongwayindiffusingrisk.Thefollowingareafewcharacteristicsrequiredtobeasuccessfulentrepreneur. 1.Versatile Whenstartingout,it’sessentialtopersonallyhandlesalesandothercustomerinteractionswheneverpossible.Directclientcontactistheclearestpathtoobtaininghonestfeedbackaboutwhatthetargetmarketlikesandwhatyoucouldbedoingbetter.Ifit’snotalwayspracticaltobethesolecustomerinterface,entrepreneursshouldtrainemployeestoinvitecustomercommentsasamatterofcourse.Notonlydoesthismakecustomersfeelempowered,buthappierclientsaremorelikelytorecommendbusinessestoothers. Personallyansweringphonesisoneofthemostsignificantcompetitiveedgeshome-basedentrepreneursholdovertheirlargercompetitors.Inatimeofhigh-techbacklash,wherecustomersarefrustratedwithautomatedresponsesandtouch-tonemenus,hearingahumanvoiceisonesurefirewaytoenticenewcustomersandmakeexistingonesfeelappreciated;animportantfact,giventhatsome80%ofallbusinessisgeneratedfromrepeatcustomers. Paradoxically,whilecustomersvaluehigh-touchtelephoneaccess,theyalsoexpectahighlypolishedwebsite.Evenifyourbusinessisn’tinahigh-techindustry,entrepreneursstillmustexploitinternettechnologytogettheirmessageacross.Astartupgarage-basedbusinesscanhaveasuperiorwebsitethananestablished$100millioncompany.Justmakesurealivehumanbeingisontheotherendofthephonenumberlisted. 2.Flexible Fewsuccessfulbusinessownersfindperfectformulasstraightoutofthegate.Onthecontrary:ideasmustmorphovertime.Whethertweakingproductdesignoralteringfooditemsonamenu,findingtheperfectsweetspottakestrialanderror. FormerStarbucksChairandCEOHowardSchultzinitiallythoughtplayingItalianoperamusicoverstorespeakerswouldaccentuatetheItaliancoffeehouseexperiencehewasattemptingtoreplicate.Butcustomerssawthingsdifferentlyanddidn’tseemtolikeariaswiththeirespressos.Asaresult,Schultzjettisonedtheoperaandintroducedcomfortablechairsinstead. 3.MoneySavvy Throughtheheartofanysuccessfulnewbusiness,aventurebeatsthelifebloodofsteadycashflow,whichisessentialforpurchasinginventory,payingrent,maintainingequipment,andpromotingthebusiness.Thekeytostayingintheblackisrigorousbookkeepingofincomeversusexpenses.Andsincemostnewbusinessesdon’tmakeaprofitwithinthefirstyear,bysettingmoneyasideforthiscontingency,entrepreneurscanhelpmitigatetheriskoffallingshortoffunds.Relatedtothis,it’sessentialtokeeppersonalandbusinesscostsseparate,andneverdipintobusinessfundstocoverthecostsofdailyliving. Ofcourse,it’simportanttopayyourselfarealisticsalarythatallowsyoutocoveressentials,butnotmuchmore;especiallywhereinvestorsareinvolved.Ofcourse,suchsacrificescanstrainrelationshipswithlovedoneswhomayneedtoadjusttolowerstandardsoflivingandendureworryoverriskingfamilyassets.Forthisreason,entrepreneursshouldcommunicatetheseissueswellaheadoftime,andmakesuresignificantlovedonesarespirituallyonboard. 4.Resilient Runningyourownbusinessisextremelydifficult,especiallygettingonestartedfromscratch.Itrequiresalotoftime,dedication,andfailure.Asuccessfulentrepreneurmustshowresiliencetoallthedifficultiesontheroadahead.Whenevertheymeetwithfailureorrejectiontheymustkeeppushingforward. Startingyourbusinessisalearningprocessandanylearningprocesscomeswithalearningcurve,whichcanbefrustrating,especiallywhenmoneyisontheline.It'simportantnevertogiveupthroughthedifficulttimesifyouwanttosucceed. 5.Focused Similartoresilience,asuccessfulentrepreneurmuststayfocusedandeliminatethenoiseanddoubtsthatcomewithrunningabusiness.Becomingsidetracked,notbelievinginyourinstinctsandideas,andlosingsightoftheendgoalisarecipeforfailure.Asuccessfulentrepreneurmustalwaysrememberwhytheystartedthebusinessandremainoncoursetoseeitthrough. 6.BusinessSmart Knowinghowtomanagemoneyandunderstandingfinancialstatementsarecriticalforanyonerunningtheirownbusiness.Knowingyourrevenues,yourcosts,andhowtoincreaseordecreasethem,respectively,isimportant.Makingsureyoudon'tburnthroughcashwillallowyoutokeepthebusinessalive. Implementingasoundbusinessstrategy,knowingyourtargetmarket,yourcompetitors,yourstrengthsandweaknesses,willallowyoutomaneuverthedifficultlandscapeofrunningyourbusiness. 7.Communicators Successfulcommunicationisimportantinalmosteveryfacetoflife,regardlessofwhatyoudo.Itisalsooftheutmostimportanceinrunningabusiness.Fromconveyingyourideasandstrategiestopotentialinvestorstosharingyourbusinessplanwithyouremployeestonegotiatingcontractswithsuppliersallrequiresuccessfulcommunication. TypesofEntrepreneurs Noteveryentrepreneuristhesameandnotallhavethesamegoals.Hereareafewtypesofentrepreneurs: Builder Buildersseektocreatescalablebusinesseswithinashorttimeframe.Builderstypicallypass$5millioninrevenueinthefirsttwotofouryearsandcontinuetobuildupuntil$100millionorbeyond.Theseindividualsseektobuildoutastronginfrastructurebyhiringthebesttalentandseekingthebestinvestors.Theyhavetemperamentalpersonalitiesthataresuitedtothefastgrowththeydesirebutcanmakepersonalandbusinessrelationshipsdifficult. Opportunist Opportunisticentrepreneursareoptimisticindividualswiththeabilitytopickoutfinancialopportunities,gettinginattherighttime,stayingonboardduringthetimeofgrowth,andexitingwhenabusinesshitsitspeak. Thesetypesofentrepreneursareconcernedwithprofitsandthewealththeywillbuild,sotheyareattractedtoideaswheretheycancreateresidualorrenewalincome.Becausetheyarelookingtofindwell-timedopportunities,opportunisticentrepreneurscanbeimpulsive. Innovator Innovatorsarethoserareindividualsthatcomeupwithagreatideaorproductthatnoonehasthoughtofbefore.ThinkofThomasEdison,SteveJobs,andMarkZuckerberg.Theseindividualsworkedonwhattheylovedandfoundbusinessopportunitiesthroughthat. Ratherthanfocusingonmoney,innovatorscaremoreabouttheimpactthattheirproductsandserviceshaveonsociety.Theseindividualsarenotthebestatrunningabusinessastheyareidea-generatingindividuals,sooftentheyleavetheday-to-dayoperationstothosemorecapableinthatrespect. Specialist Theseindividualsareanalyticalandrisk-averse.Theyhaveastrongskillsetinaspecificareaobtainedthrougheducationorapprenticeship.Aspecialistentrepreneurwillbuildouttheirbusinessthroughnetworkingandreferrals,resultinginslowergrowththanabuilderentrepreneur. 4TypesofEntrepreneurship Astherearedifferenttypesofentrepreneurs,therearealsodifferenttypesofbusinessestheycreate.Belowarethemaindifferenttypesofentrepreneurship. SmallBusinessEntrepreneurship Smallbusinessentrepreneurshipistheideaofopeningabusinesswithoutturningitintoalargeconglomerateoropeningmanychains.Asingle-locationrestaurant,onegroceryshop,oraretailshoptosellyourhandmadegoodswouldallbeanexampleofsmallbusinessentrepreneurship. Theseindividualsusuallyinvesttheirownmoneyandsucceediftheirbusinessturnsaprofit,whichtheyliveoffof.Theydon'thaveoutsideinvestorsandwillonlytakealoanifithelpscontinuethebusiness. ScalableStartup Thesearecompaniesthatstartwithauniqueidea;thinkSiliconValley.Thehopesaretoinnovatewithauniqueproductorserviceandcontinuegrowingthecompany,continuouslyscalingupastimemoveson.Thesetypesofcompaniesoftenrequireinvestorsandlargeamountsofcapitaltogrowtheirideaandreachmultiplemarkets. LargeCompany Largecompanyentrepreneurshipisanewbusinessdivisioncreatedwithinanexistingcompany.Theexistingcompanymaybewellplacedtobranchoutintoothersectorsoritmaybewellplacedtobecomeinvolvedinnewtechnology. CEOsofthesecompanieseitherforeseeanewmarketforthecompanyorindividualswithinthecompanygenerateideasthattheybringtoseniormanagementtostarttheprocess. SocialEntrepreneurship Thegoalofsocialentrepreneurshipistocreateabenefittosocietyandhumankind.Theyfocusonhelpingcommunitiesortheenvironmentthroughtheirproductsandservices.Theyarenotdrivenbyprofitsbutratherbyhelpingtheworldaroundthem. EntrepreneursandtheEconomy Ineconomist-speak,anentrepreneuractsasacoordinatingagentinacapitalisteconomy.Thiscoordinationtakestheformofresourcesbeingdivertedtowardnewpotentialprofitopportunities.Theentrepreneurmovesvariousresources,bothtangibleandintangible,promotingcapitalformation. Asof2021,thereare32.5millionsmallbusinessesintheUnitedStates. Inamarketfullofuncertainty,itistheentrepreneurwhocanactuallyhelpclearupuncertainty,astheymakejudgmentsorassumetherisk.Totheextentthatcapitalismisadynamicprofit-and-losssystem,entrepreneursdriveefficientdiscoveryandconsistentlyrevealknowledge. Establishedfirmsfaceincreasedcompetitionandchallengesfromentrepreneurs,whichoftenspursthemtowardresearchanddevelopmenteffortsaswell.Intechnicaleconomicterms,theentrepreneurdisruptsthecoursetowardsteady-stateequilibrium. HowEntrepreneurshipHelpsEconomies Nurturingentrepreneurshipcanhaveapositiveimpactonaneconomyandasocietyinseveralways.Forstarters,entrepreneurscreatenewbusinesses.Theyinventgoodsandservices,resultinginemployment,andoftencreatearippleeffect,resultinginmoreandmoredevelopment.Forexample,afterafewinformationtechnologycompaniesbeganinIndiainthe1990s,businessesinassociatedindustries,likecallcenteroperationsandhardwareproviders,begantodeveloptoo,offeringsupportservicesandproducts. Entrepreneursaddtothegrossnationalincome.Existingbusinessesmayremainconfinedtotheirmarketsandeventuallyhitanincomeceiling.Butnewproductsortechnologiescreatenewmarketsandnewwealth.Andincreasedemploymentandhigherearningscontributetoanation’staxbase,enablinggreatergovernmentspendingonpublicprojects. Entrepreneurscreatesocialchange.Theybreaktraditionwithuniqueinventionsthatreducedependenceonexistingmethodsandsystems,sometimesrenderingthemobsolete.Smartphonesandtheirapps,forexample,haverevolutionizedworkandplayacrosstheglobe. Entrepreneursinvestincommunityprojectsandhelpcharitiesandothernon-profitorganizations,supportingcausesbeyondtheirown.BillGates,forexample,hasusedhisconsiderablewealthforeducationandpublichealthinitiatives. EntrepreneurialEcosystems Thereisresearchthatshowshighlevelsofself-employmentcanstalleconomicdevelopment:Entrepreneurship,ifnotproperlyregulated,canleadtounfairmarketpracticesandcorruption,andtoomanyentrepreneurscancreateincomeinequalitiesinsociety.Overall,though,entrepreneurshipisacriticaldriverofinnovationandeconomicgrowth.Therefore,fosteringentrepreneurshipisanimportantpartoftheeconomicgrowthstrategiesofmanylocalandnationalgovernmentsaroundtheworld. Tothisend,governmentscommonlyassistinthedevelopmentofentrepreneurialecosystems,whichmayincludeentrepreneursthemselves,government-sponsoredassistanceprograms,andventurecapitalists.Theymayalsoincludenon-governmentorganizations,suchasentrepreneurs'associations,businessincubators,andeducationprograms. Forexample,California'sSiliconValleyisoftencitedasanexampleofawell-functioningentrepreneurialecosystem.Theregionhasawell-developedventurecapitalbase,alargepoolofwell-educatedtalent,especiallyintechnicalfields,andawiderangeofgovernmentandnon-governmentprogramsfosteringnewventuresandprovidinginformationandsupporttoentrepreneurs. QuestionsforEntrepreneurs Embarkingontheentrepreneurialcareerpathto“beingyourownboss”isexciting.Butalongwithallyourresearch,makesuretodoyourhomeworkaboutyourselfandyoursituation. AFewQuestionstoAskYourself: DoIhavethepersonality,temperament,andmindsetoftakingontheworldonmyownterms?DoIhavetherequiredambianceandresourcestodevoteallmytimetomyventure?DoIhaveanexitplanreadywithaclearlydefinedtimelineincasemyventuredoesnotwork?DoIhaveaconcreteplanforthenext"x"numberofmonthsorwillIfacechallengesmidwayduetofamily,financial,orothercommitments?DoIhaveamitigationplanforthosechallenges?DoIhavetherequirednetworktoseekhelpandadviceasneeded?HaveIidentifiedandbuiltbridgeswithexperiencedmentorstolearnfromtheirexpertise?HaveIpreparedtheroughdraftofacompleteriskassessment,includingdependenciesonexternalfactors?HaveIrealisticallyassessedthepotentialofmyofferingandhowitwillfigureintheexistingmarket?Ifmyofferingisgoingtoreplaceanexistingproductinthemarket,howwillmycompetitorsreact?Tokeepmyofferingsecure,willitmakesensetogetapatent?DoIhavethecapacitytowaitthatlong?HaveIidentifiedmytargetcustomerbasefortheinitialphase?DoIhavescalabilityplansreadyforlargermarkets?HaveIidentifiedsalesanddistributionchannels? QuestionsThatDelveintoExternalFactors: Doesmyentrepreneurialventuremeetlocalregulationsandlaws?Ifnotfeasiblelocally,canIandshouldIrelocatetoanotherregion?Howlongdoesittaketogetthenecessarylicenseorpermissionsfromconcernedauthorities?CanIsurvivethatlong?DoIhaveaplanaboutgettingthenecessaryresourcesandskilledemployees,andhaveImadecostconsiderationsforthesame?Whatarethetentativetimelinesforbringingthefirstprototypetomarketorforservicestobeoperational?Whoaremyprimarycustomers?WhoarethefundingsourcesImayneedtoapproachtomakethisbig?Ismyventuregoodenoughtoconvincepotentialstakeholders?WhattechnicalinfrastructuredoIneed?Oncethebusinessisestablished,willIhavesufficientfundstogetresourcesandtakeittothenextlevel?Willotherbigfirmscopymymodelandkillmyoperation? FrequentlyAskedQuestionsAboutEntrepreneurship WhatDoesItMeantoBeanEntrepreneur? Anentrepreneurisanindividualwhotakestherisktostarttheirownbusinessbasedonanideatheyhaveoraproducttheyhavecreatedwhileassumingmostoftherisksandreapingmostoftherewardsofthebusiness. WhatIstheBestDefinitionofEntrepreneurship? Entrepreneurshipistheprocessofsettingupabusiness,takingitfromanideatorealization. WhatArethe4TypesofEntrepreneurs? Smallbusiness,scalablestartup,largecompany,andsocial. WhatArethe7CharacteristicsofEntrepreneurs? Versatile,resilient,flexible,money-savvy,businesssmart,focused,andcommunicators. TheBottomLine Anentrepreneurisanindividualwhotakesanideaorproductandcreatesabusiness,aprocessknownasentrepreneurship.Creatingabusinessrequiresalotofworkanddedication,whichnoteveryoneiscutoutfor.Entrepreneursarehighlymotivatedrisk-takersthathaveavisionandsacrificealottoachievethatvision. Entrepreneursenterthemarketbecausetheylovewhattheydo,believetheirproductwillhaveapositiveimpact,andhopetomakeprofitsfromtheirefforts.Thestepsentrepreneurstakefueltheeconomy;theycreatebusinessesthatemploypeopleandmakeproductsandservicesthatconsumersbuy. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. Jazzercise."AboutUs."AccessedNov.12,2021. Ben&Jerry's."OurHistory."AccessedNov.12,2021. InternalRevenueService."2020InstructionsforScheduleC(2020)."AccessedNov.12,2021. InternalRevenueService."Publication535,BusinessExpenses."AccessedNov.12,2021. InternalRevenueService."FormingaCorporation."AccessedNov.12,2021. InternalRevenueService."SCorporations."AccessedNov.12,2021. Forbes."The4TypesofEntrepreneurs--WhichAreYou?"AccessedNov.12,2021. U.S.SmallBusinessAdministration,OfficeofAdvocacy."AdvocacyReleases2021SmallBusinessProfilesforStates."AccessedNov.12,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms WhatIstheAmericanDream? TheAmericanDreamisthebeliefthatanyonecanattaintheirownversionofsuccessinasocietywhereupwardmobilityispossibleforeveryone. more WhatAreFactorsofProduction? Factorsofproductionaretheinputsneededforthecreationofagoodorservice,theseincludelabor,entrepreneurship,andcapital. more UnderstandingStartupCapital Startupcapitalismoneyinvestedtolaunchanewbusiness.Venturecapitalistsprovidefundinginreturnforanownershipshareinthebusiness. more GoodCustomerServiceMatters Customerserviceisthedirectone-on-oneinteractionbetweenaconsumermakingapurchaseandarepresentativeofthecompanythatissellingit. more The4PsofMarketing The4Psofmarketingarethekeycategoriesinvolvedinthemarketingofagoodorservice.The4Psreferstoproduct,price,place,andpromotion. more Intrapreneur Anintrapreneurisanemployeewhoistaskedwithdevelopinganinnovativeideawithinacompanyandcandrawonitsresourcestodoso. more PartnerLinks RelatedArticles HomeEquity Somehomeownersturntotheirhomestofundtheirnewbusiness. 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