WHAT IS ENTREPRENUERSHIP

What is entrepreneurship? You probably think that the answer is obvious, and that only an academic would bother to ask this question. As a professor, I suppose I am guilty of mincing words. ut like the terms !strategy" and !business model," the word !entrepreneurship" is elastic. #or some, it refers to venture capital$backed startups and their kin% for others, to any small business. #or some, !corporate entrepreneurship" is a rallying cry% for others, an o&ymoron. 'he history of the word !entrepreneurship" is fascinating and scholars have indeed parsed its meaning. I(ll spare you the results, and focus instead on the definition we use at )arvard usiness *chool. It was formulated by +rofessor )oward *tevenson, the godfather of entrepreneurship studies at ) *. According to *tevenson, entrepreneurship is the pursuit of opportunity beyond resources controlled. Pursuit implies a singular, relentless focus. ,ntrepreneurs often perceive a short window of opportunity. 'hey need to show tangible progress to attract resources, and the mere passage of time consumes limited cash balances. -onsequently, entrepreneurs have a sense of urgency that is seldom seen in established companies, where any opportunity is part of a portfolio and resources are more readily available. Opportunity implies an offering that is novel in one or more of four ways. 'he opportunity may entail. /0 pioneering a truly innovative product% 10 devising a new business model% 20 creating a better or cheaper version of an e&isting product% or 30 targeting an e&isting product to new sets of customers. 'hese opportunity types are not mutually e&clusive. #or e&ample, a new venture might employ a new business model for an innovative product. 4ikewise, the list above is not the collectively e&haustive set of opportunities available to organi5ations. 6any profit improvement opportunities are not novel7and thus are not entrepreneurial7for e&ample, raising a product(s price or, once a firm has a scalable sales strategy, hiring more reps. Beyond resources controlled implies resource constraints. At a new venture(s outset, its founders control only their own human, social, and financial capital. 6any entrepreneurs bootstrap. they keep e&penditures to a bare minimum while investing only their own time and, as necessary, their personal funds. In some cases, this is adequate to bring a new venture to the point where it becomes self$sustaining from internally generated cash flow. With most high$potential ventures, however, founders must mobili5e more resources than they control personally. the venture eventually will require production facilities, distribution channels, working capital, and so forth.

ecause they are pursuing a novel opportunity while lacking access to required resources, entrepreneurs face considerable risk, which comes in four main types. Demand risk relates to prospective customers( willingness to adopt the solution envisioned by the entrepreneur. Technology risk is high when engineering or scientific breakthroughs are required to bring a solution to fruition. Execution risk relates to the entrepreneur(s ability to attract employees and partners who can implement the venture(s plans. Financing risk relates to whether e&ternal capital will be available on reasonable terms. 'he entrepreneur(s task is to manage this uncertainty, while recogni5ing that certain risks cannot be influenced by their actions. ,ntrepreneurs face a -atch$11. 8n the one hand, it can be difficult to reduce risk without resources. #or e&ample, outside capital may be required to develop and market a product and thereby demonstrate that technical and market risks are limited. 8n the other hand, it can be difficult to persuade resource owners to commit to a venture when risk is still high. ,ntrepreneurs employ four tactics in coping with this -atch$11.

4ean e&perimentation allows them to resolve risks quickly and with limited resource e&penditure, by relying on a !minimum viable product," that is, the smallest possible set of activities required to rigorously test a business model hypothesis. *taged investing allows entrepreneurs to address risks sequentially, e&pending only the resources required to meet a given milestone7before committing the resources needed to achieve the ne&t milestone. +artnering allows entrepreneurs to leverage another organi5ation(s resources and thereby shifts risks to parties better able9more willing to bear them. In a variation of this tactic, entrepreneurs rent resources to keep costs variable and to avoid the big fi&ed outlays associated with resource ownership. !*torytelling" by entrepreneurs7con:uring a vision of a better world that could be brought about by their venture7can encourage resource owners to downplay risks and in the process commit more resources than they would if they had not been inspired. *teve ;obs, for e&ample, was famous for his mesmeri5ing !reality distortion field," through which he impelled employees, partners, and investors to go to e&traordinary lengths to help fulfill his dreams. *o, does *tevenson(s definition of entrepreneurship matter, in practical terms? I(d argue that it does, for two reasons. #irst, it sees entrepreneurship as a distinctive approach to managing rather than a specific stage in an organi5ation(s life cycle <i.e., startup0, a specific role for an individual <i.e., founder0, or a constellation of personality attributes <e.g., predisposition for risk taking% preference for independence0. In this view, entrepreneurs can be found in many different types of organi5ations, including large corporations. 'hat should be encouraging if you believe that entrepreneurship is an engine of global economic development and a force for positive change in society. *econd, the definition provides a guidepost for entrepreneurial action% it points to tactics entrepreneurs can take to manage risk and mobili5e resources. 8ne of my former students put it well when asked to give

advice to aspiring entrepreneurs. !#or me, =pursuing opportunity beyond resources controlled( sums up perfectly what I do day$to$day. You need to be inventive, creative, opportunistic, and persuasive, because you rarely have enough resources. ,mbracing this definition helps me in my role."

TYPES OF ENTREPRENUERS

'he#our'ypesof,ntrepreneurship !*tartup," !entrepreneur," and !innovation" now means everything to everyone. Which means in the end they mean nothing. 'here doesn(t seem to be a coherent policy distinction between small business startups, scalable startups, corporations dealing with disruptive innovation and social entrepreneurs. 'he words !startup," !entrepreneur," and !innovation" mean different things in *ilicon >alley, 6ain *treet, -orporate America and ?on +rofits. @nless the people who actually make policy <rather than the great people who advise them0 understand the difference, and can communicate them clearly, the chance of any of the *tartup America policies having a substantive effect on innovation, :obs or the gross domestic product is low. /. *mall usiness ,ntrepreneurship 'oday, the overwhelming number of entrepreneurs and startups in the @nited *tates are still small businesses. 'here are A.B million small businesses in the @.*. 'hey make up CC.BD of all companies and employ AED of all non$ governmental workers. 'ravel agents, internet commerce storefronts, carpenters, plumbers, electricians, etc. 'hey are anyone who runs his9her own business. 'hey hire local employees or family. 6ost are barely profitable. 'heir definition of success is to feed the family and make a profit, not to take over an industry or build a F/EE million business. As they can(t provide the scale to attract venture capital, they fund their businesses via friends9family or small business loans. 1. *calable *tartup ,ntrepreneurship @nlike small businesses, scalable startups are what *ilicon >alley entrepreneurs and their venture investors do. 'hese entrepreneurs start a company knowing from day one that their vision could change the world. 'hey attract investment from equally cra5y financial investors 7 venture capitalists. 'hey hire the best and the brightest. 'heir :ob is to search for a repeatable and scalable business model. When they find it, their focus on scale requires even more venture capital to fuel rapid e&pansion. *calable startups in innovation clusters <*ilicon >alley, *hanghai, ?ew York, angalore, Israel, etc.0 make up a small percentage of entrepreneurs and startups but because of the outsi5e returns, attract almost all the risk capital <and press.0 *tartup America was focussed on this segment of startups.

2. 4arge -ompany ,ntrepreneurship 4arge companies have finite life cycles. 6ost grow through sustaining innovation, offering new products that are variants around their core products. -hanges in customer tastes, new technologies, legislation, new competitors, etc. can create pressure for more disruptive innovation 7 requiring large companies to create entirely new products sold into new customers in new markets. ,&isting companies do this by either acquiring innovative companies or attempting to build a disruptive product inside. Ironically, large company si5e and culture make disruptive innovation e&tremely difficult to e&ecute. 3. *ocial ,ntrepreneurship *ocial entrepreneurs are innovators focus on creating products and services that solve social needs and problems. ut unlike scalable startups their goal is to make the world a better place, not to take market share or to create to wealth for the founders. 'hey may be nonprofit, for$profit, or hybrid.