ENTREPRENUERSHIP

What Is an Entrepreneur?
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 business is known as entrepreneurship. The entrepreneur is commonly
seen as an innovator, a source of new ideas, goods, services, and business/or procedures.
Entrepreneurs play a key role in any economy, using the skills and initiative necessary to anticipate needs and
bring good new ideas to market. Entrepreneurship that proves to be successful in taking on the risks of creating
a startup is rewarded with profits, fame, and continued growth opportunities. Entrepreneurship that fails results
in losses and less prevalence in the markets for those involved.
KEY TAKEAWAYS

• A person who undertakes the risk of starting a new business venture is called an entrepreneur.
• An entrepreneur creates a firm to realize their idea, known as entrepreneurship, which aggregates
capital and labor in order to produce goods or services for profit.
• Entrepreneurship is highly risky but also can be highly rewarding, as it serves to generate economic
wealth, growth, and innovation.
• Ensuring funding is key for entrepreneurs: Financing resources include SBA loans and crowdfunding.
• The way entrepreneurs file and pay taxes will depend on how the business is set up in terms of structure.

How Entrepreneurship Works

Entrepreneurship is one of the resources economists categorize as integral to production, the other three being
land/natural resources, labor, and capital. An entrepreneur combines the first three of these to manufacture
goods or provide services. They typically create a business plan, hire labor, acquire resources and financing,
and provide leadership and management for the business.
Entrepreneurs commonly face many obstacles when building their companies. The three that many of them cite
as the most challenging are as follows:

1. Overcoming bureaucracy
2. Hiring talent
3. Obtaining financing
Economists have never had a consistent definition of "entrepreneur" or "entrepreneurship" (the word
"entrepreneur" comes from the French verb entreprendre, meaning "to undertake"). Though the concept of an
entrepreneur existed and was known for centuries, the classical and neoclassical economists left entrepreneurs
out of their formal models: They assumed that perfect information would be known to fully rational actors,
leaving no room for risk-taking or discovery. It wasn't until the middle of the 20th century that economists
seriously attempted to incorporate entrepreneurship into their models.
Three thinkers were central to the inclusion of entrepreneurs: Joseph Schumpeter, Frank Knight, and Israel
Kirzner. Schumpeter suggested that entrepreneurs—not just companies—were responsible for the creation of
new things in the search for profit. Knight focused on entrepreneurs as the bearers of uncertainty and believed
they were responsible for risk premiums in financial markets. Kirzner thought of entrepreneurship as a process
that led to the discovery of opportunities.

Types of Entrepreneur
Not every entrepreneur is the same and not all have the same goals. Here are a few types of entrepreneurs:

1. Builder
Builders seek to create scalable businesses within a short time frame. Builders typically pass $5 million in
revenue in the first two to four years and continue to build up until $100 million or beyond. These individuals
seek to build out a strong infrastructure by hiring the best talent and seeking the best investors. They have
temperamental personalities that are suited to the fast growth they desire but can make personal and business
relationships difficult.

2. Opportunist
Opportunistic entrepreneurs are optimistic individuals with the ability to pick out financial opportunities, get in
at the right time, stay on board during the time of growth, and exit when a business hits its peak.
These types of entrepreneurs are concerned with profits and the wealth they will build, so they are attracted to
ideas where they can create residual or renewal income. Because they are looking to find well-timed
opportunities, opportunistic entrepreneurs can be impulsive.

3. Innovator
Innovators are those rare individuals that come up with a great idea or product that no one has thought of
before. Think of Thomas Edison, Steve Jobs, and Mark Zuckerberg. These individuals worked on what they
loved and found business opportunities through that.
Rather than focusing on money, innovators care more about the impact that their products and services have
on society. These individuals are not the best at running a business as they are idea-generating individuals, so
often they leave the day-to-day operations to those more capable in that respect.
 4. Specialist
These individuals are analytical and risk-averse. They have a strong skill set in a specific area obtained through
education or apprenticeship. A specialist entrepreneur will build out their business through networking and
referrals, resulting in slower growth than a builder entrepreneur.

4 Types of Entrepreneurship
As there are different types of entrepreneurs, there are also different types of businesses they create. Below
are the main different types of entrepreneurship.

1. Small-Business
Small business entrepreneurship is the idea of opening a business without turning it into a large conglomerate
or opening many chains. A single-location restaurant, one grocery shop, or a retail shop to sell your handmade
goods would all be an example of small business entrepreneurship.
These people usually invest their own money and succeed if their businesses turn a profit, which they live off.
They don't have outside investors and will only take a loan if it helps continue the business.

2. Scalable Startup
These are companies that start with a unique idea that can build to a large scale; think Silicon Valley. The hopes
are to innovate with a unique product or service and continue growing the company, continuously scaling up as
time moves on. These types of companies often require investors and large amounts of capital to grow their
idea and reach multiple markets.

3. Large-Company
Large company entrepreneurship is a new business division created within an existing company. The existing
company may be well placed to branch out into other sectors or it may be well placed to become involved in
new technology.
CEOs of these companies either foresee a new market for the company or individuals within the company
generate ideas that they bring to senior management to start the process.

4. Social Entrepreneurship
The goal of social entrepreneurship is to create a benefit to society and humankind. They focus on helping
communities or the environment through their products and services. They are not driven by profits but rather
by helping the world around them.
7 Characteristics of Entrepreneurs
While the prospect of becoming your own boss and raking in a fortune is alluring to entrepreneurial dreamers,
the possible downside to hanging one’s own shingle is vast. Income isn’t guaranteed, employer-sponsored
benefits go by the wayside, and when your business loses money, your personal assets can take a hit; not just
a corporation’s bottom line. But adhering to a few tried and true principles can go a long way in diffusing risk.
The following are a few characteristics required to be a successful entrepreneur.
1. Versatile
When starting out, it’s essential to personally handle sales and other customer interactions whenever possible.
Direct client contact is the clearest path to obtaining honest feedback about what the target market likes and
what you could be doing better. If it’s not always practical to be the sole customer interface, entrepreneurs
should train employees to invite customer comments as a matter of course. Not only does this make customers
feel empowered, but happier clients are more likely to recommend businesses to others.

Personally answering phones is one of the most significant competitive edges home-based entrepreneurs hold
over their larger competitors. In a time of high-tech backlash, where customers are frustrated with automated
responses and touch-tone menus, hearing a human voice is one surefire way to entice new customers and
make existing ones feel appreciated; an important fact, given that a significant percentage of business is
generated from repeat customers.

Paradoxically, while customers value high-touch telephone access, they also expect a highly polished website.
Even if your business isn’t in a high-tech industry, entrepreneurs still must exploit internet technology to get
their message across. A startup garage-based business can have a superior website to an established company
valued at $100 million. Just make sure a live human being is on the other end of the phone number listed.

2. Flexible
Few successful business owners find perfect formulas straight out of the gate. On the contrary: ideas must
morph over time. Whether tweaking product design or altering food items on a menu, finding the perfect sweet
spot takes trial and error.
Former Starbucks Chair and CEO Howard Schultz initially thought playing Italian opera music over store
speakers would accentuate the Italian coffeehouse experience he was attempting to replicate. But customers
saw things differently and didn’t seem to like arias with their espressos. As a result, Schultz jettisoned the opera
and introduced comfortable chairs instead.
3. Money Savvy
At the heart of any successful new business, a venture beats the lifeblood of steady cash flow, which is essential
for purchasing inventory, paying rent, maintaining equipment, and promoting the business. The key to staying
in the black is rigorous, regular cash flow management. And since most new businesses don’t make a profit
within the first year, by setting money aside for this contingency, entrepreneurs can help mitigate the risk of
falling short of funds. Related to this, it’s essential to keep personal and business costs separate, and never
dip into business funds to cover the costs of daily living.
Of course, it’s important to pay yourself a realistic salary that allows you to cover essentials, but not much more;
especially where investors are involved. Of course, such sacrifices can strain relationships with loved ones who
may need to adjust to lower standards of living and endure worry over risking family assets. For this reason,
entrepreneurs should communicate these issues well ahead of time, and make sure significant loved ones are
spiritually on board.

4. Resilient
Running your own business is extremely difficult, especially getting one started from scratch. It requires a lot of
time, dedication, and failure. A successful entrepreneur must show resilience to all the difficulties on the road
ahead. Whenever they meet with failure or rejection they must keep pushing forward.
Starting your business is a learning process and any learning process comes with a learning curve, which can
be frustrating, especially when money is on the line. It's important never to give up through the difficult times if
you want to succeed.

5. Focused
Similar to resilience, a successful entrepreneur must stay focused and eliminate the noise and doubts that come
with running a business. Becoming sidetracked, not believing in your instincts and ideas, and losing sight of the
end goal is a recipe for failure. A successful entrepreneur must always remember why they started the business
and remain on course to see it through.

6. Business Smart
Knowing how to manage money and understanding financial statements are critical for anyone running their
own business. Knowing your revenues, your costs, and how to increase or decrease them, respectively, is
important. Making sure you don't burn through cash will allow you to keep the business alive.
Implementing a sound business strategy, knowing your target market, your competitors, and your strengths and
weaknesses, will allow you to maneuver the difficult landscape of running your business.

7. Communicator
Successful communication is important in almost every facet of life, regardless of what you do. It is also of the
utmost importance in running a business. From conveying your ideas and strategies to potential investors to
sharing your business plan with your employees to negotiating contracts with suppliers all require successful
communication.

How to Become an Entrepreneur

After retiring her professional dancing shoes, Judi Sheppard Missett became an entrepreneur by teaching a
dance class to civilians in order to earn some extra cash. But she soon learned that women who came to her
studio were less interested in learning precise steps than they were in losing weight and toning up. Sheppard
Missett then trained instructors to teach her routines to the masses, and Jazzercise was born. A franchise deal
followed. Today, the company has more than 8,300 locations worldwide.

Following an ice cream making correspondence course, two entrepreneurs, Jerry Greenfield and Ben Cohen
paired $8,000 in savings with a $4,000 loan, leased a Burlington, Vt., gas station, and purchased equipment to
create uniquely flavored ice cream for the local market. Today, Ben & Jerry’s hauls in millions in annual revenue.

Although the self-made person has always been a popular figure in American society, entrepreneurship has
gotten greatly romanticized in the last few decades. In the 21st century, the example of Internet companies like
Alphabet, formerly Google (GOOG), and Meta (META), formerly Facebook, both of which have made their
founders wildly wealthy, have made people enamored with the idea of becoming entrepreneurs.
Unlike traditional professions, where there is often a defined path to follow, the road to entrepreneurship is
mystifying to most. What works for one entrepreneur might not work for the next and vice versa. That said, there
are seven general steps that most, if not all, successful entrepreneurs have followed:

1. Ensure Financial Stability

This first step is not a strict requirement but is definitely recommended. While entrepreneurs have built
successful businesses while being less than financially flush starting out with an adequate cash supply and
stable ongoing funding is a great foundation.
This increases an entrepreneur's personal financial runway and gives them more time to work on building a
successful business, rather than worrying about having to keep raising money or paying back short-term loans.
 2. Build a Diverse Skill Set
Once a person has strong finances, it is important to build a diverse set of skills and then apply those skills in
the real world. The beauty of step two is it can be done concurrently with step one.
Building a skill set can be achieved through learning and trying new tasks in real-world settings. For example,
if an aspiring entrepreneur has a background in finance, they can move into a sales role at their existing
company to learn the soft skills necessary to be successful. Once a diverse skill set is built, it gives an
entrepreneur a toolkit that they can rely on when they are faced with the inevitability of tough situations.
Much has been discussed about whether going to college is necessary to become a successful entrepreneur.
Many well-known entrepreneurs are famous for having dropped out of college: Steve Jobs, Mark Zuckerberg,
and Larry Ellison, to name a few.

3. Consume Content Across Multiple Channels

As important as building a diverse skill set is, the need to consume a diverse array of content is equally so. This
content can be in the form of podcasts, books, articles, or lectures. The important thing is that the content, no
matter the channel, should be varied in what it covers. An aspiring entrepreneur should always familiarize
themself with the world around them so they can look at industries with a fresh perspective, giving them the
ability to build a business around a specific sector.

4. Identify a Problem to Solve

Through the consumption of content across multiple channels, an aspiring entrepreneur is able to identify
various problems to solve. One business adage dictates that a company's product or service needs to solve a
specific pain point; either for another business or for a consumer group. Through the identification of a problem,
an aspiring entrepreneur is able to build a business around solving that problem.
It is important to combine steps three and four so it is possible to identify a problem to solve by looking at
various industries as an outsider. This often provides an aspiring entrepreneur with the ability to see a problem
others might not.

5. Solve That Problem

Successful startups solve a specific pain point for other companies or for the public. This is known as "adding
value within the problem." Only through adding value to a specific problem or pain point does an entrepreneur
become successful.
Say, for example, you identify the process for making a dentist appointment is complicated for patients, and
dentists are losing customers as a result. The value could be to build an online appointment system that makes
it easier to book appointments.

6. Network Like Crazy

Most entrepreneurs can't do it alone. The business world is a cutthroat one and getting any help you can will
always help and reduce the time it takes to achieve a successful business. Networking is critical for any new
entrepreneur. Meeting the right people that can introduce you to contacts in your industry, such as the right
suppliers, financiers, and even mentors can be the difference between success and failure.
Attending conferences, emailing and calling people in the industry, speaking to your cousin's friend's brother
who is in a similar business, will help you get out into the world and discover people that can guide you. Once
you have your foot in the door with the right people, conducting a business becomes a lot easier.

7. Lead by Example
Every entrepreneur needs to be a leader within their company. Simply doing the day-to-day requirements will
not lead to success. A leader needs to work hard, motivate, and inspire their employees to reach their best
potential, which will lead to the success of the company.
Look at some of the greatest and most successful companies; all of them have had great leaders. Apple and
Steve Jobs, Bill Gates and Microsoft, Bob Iger and Disney, and so on. Study these people and read their books
to see how to be a great leader and become the leader that your employees can follow by the example you set.

Entrepreneurship Financing

Given the riskiness of a new venture, the acquisition of capital funding is particularly challenging, and many
entrepreneurs deal with it via bootstrapping.
While some entrepreneurs are lone players struggling to get small businesses off the ground on a shoestring,
others take on partners armed with greater access to capital and other resources. In these situations, new firms
may acquire financing from venture capitalists, angel investors, hedge funds, crowdfunding, or through more
traditional sources such as bank loans.
 1. Resources for Entrepreneurs
There are a variety of financing resources for entrepreneurs starting their own businesses. Obtaining a small
business loan through the Small Business Administration (SBA) can help entrepreneurs get the business off
the ground with affordable loans. SBA helps connect businesses to loan providers.
If entrepreneurs are willing to give up a piece of equity in their business, then they may find financing in the
form of angel investors and venture capitalists. These types of investors also provide guidance, mentorship,
and connections in addition to just capital.
Crowdfunding has also become a popular way for entrepreneurs to raise capital, particularly
through Kickstarter. An entrepreneur creates a page for their product and a monetary goal to reach while
promising certain givebacks to those who donate, such as products or experiences.

2. Bootstrapping for Entrepreneurs

Bootstrapping refers to building a company solely from your savings as an entrepreneur as well as from the
initial sales made from your business. This is a difficult process as all the financial risk is placed on the
entrepreneur and there is little room for error. If the business fails, the entrepreneur also may lose all of their
life savings.
The advantage of bootstrapping is that an entrepreneur can run the business with their own vision and no
outside interference or investors demanding quick profits. That being said, sometimes having an outsider's
assistance can help a business rather than hurt it. Many companies have succeeded with the
bootstrapping strategy, but it is a difficult path.

Small Business vs. Entrepreneurship

A small business and entrepreneurship have a lot in common but they are different. A small business is a
company, usually, a sole-proprietorship or partnership, that is not a medium-sized or large-sized business,
operates locally, and does not have access to a vast amount of resources or capital.
Entrepreneurship is when an individual that has an idea acts on that idea, usually to disrupt the current market
with a new product or service. Entrepreneurship usually starts as a small business but the long-term vision is
much greater, to seek high profits and capture market share with an innovative new idea.

How Entrepreneurs Make Money

Entrepreneurs seek to generate revenues that are greater than costs. Increasing revenues is the goal and that
can be achieved through marketing, word-of-mouth, and networking. Keeping costs low is also critical as it
results in higher profit margins. This can be achieved through efficient operations and eventually economies of
scale.

Taxes for Entrepreneurs

The taxes you will pay as an entrepreneur will depend on how you set up your business in terms of structure.
1. Sole Proprietorship: A business set up this way is an extension of the individual. Business income and
expenses are filed on Schedule C on your U.S. personal tax return and you are taxed at your individual
tax rate.
2. Partnership: For tax purposes, a partnership functions the same way as a sole proprietorship in the
U.S., with the only difference being that income and expenses are split amongst the partners.
Entrepreneurs operating as sole proprietors can deduct any legitimate business expenses from their
income to lower their tax bill. This includes expenses such as their home office and utilities, mileage for
business travel, advertising, and travel expenses.

3. C-Corporation: A C-corporation is a separate legal entity and has separate taxes filed with the IRS
from the entrepreneur. The business income will be taxed at the corporate tax rate rather than the
personal income tax rate.
4. Limited Liability Company (LLC) or S-Corporation: These two options are taxed in the same manner
as a C-corporation but usually at lower amounts.

Entrepreneurship in Economics
In economist-speak, an entrepreneur acts as a coordinating agent in a capitalist economy. This coordination
takes the form of resources being diverted toward new potential profit opportunities. The
entrepreneur moves various resources, both tangible and intangible, promoting capital formation.
In a market full of uncertainty, it is the entrepreneur who can actually help clear up uncertainty, as they make
judgments or assume the risk. To the extent that capitalism is a dynamic profit-and-loss system, entrepreneurs
drive efficient discovery and consistently reveal knowledge.
Established firms face increased competition and challenges from entrepreneurs, which often spurs them
toward research and development efforts as well. In technical economic terms, the entrepreneur disrupts the
course toward steady-state equilibrium.
In 2021, there were 32.5 million small businesses in the United States.
How Entrepreneurship Helps Economies
Nurturing entrepreneurship can have a positive impact on an economy and a society in several ways. For
starters, entrepreneurs create new businesses. They invent goods and services, resulting in employment, and
often create a ripple effect, resulting in more and more development. For example, after a few information
technology companies began in India in the 1990s, businesses in associated industries, like call center
operations and hardware providers, began to develop too, offering support services and products.
Entrepreneurs add to the gross national income. Existing businesses may remain confined to their markets and
eventually hit an income ceiling. But new products or technologies create new markets and new wealth. And
increased employment and higher earnings contribute to a nation’s tax base, enabling greater government
spending on public projects.
Entrepreneurs create social change. They break tradition with unique inventions that reduce dependence on
existing methods and systems, sometimes rendering them obsolete. Smartphones and their apps, for example,
have revolutionized work and play across the globe.
Entrepreneurs invest in community projects and help charities and other non-profit organizations, supporting
causes beyond their own. Bill Gates, for example, has used his considerable wealth for education and public
health initiatives.

Entrepreneurial Ecosystems
There is research that shows high levels of self-employment can stall economic development:
Entrepreneurship, if not properly regulated, can lead to unfair market practices and corruption, and too many
entrepreneurs can create income inequalities in society. Overall, though, entrepreneurship is a critical driver of
innovation and economic growth. Therefore, fostering entrepreneurship is an important part of the economic
growth strategies of many local and national governments around the world.
To this end, governments commonly assist in the development of entrepreneurial ecosystems, which may
include entrepreneurs themselves, government-sponsored assistance programs, and venture capitalists. They
may also include non-government organizations, such as entrepreneurs' associations, business incubators,
and education programs.
For example, California's Silicon Valley is often cited as an example of a well-functioning entrepreneurial
ecosystem. The region has a well-developed venture capital base, a large pool of well-educated talent,
especially in technical fields, and a wide range of government and non-government programs fostering new
ventures and providing information and support to entrepreneurs.

References:
HAYES, A. (2023). Entrepreneur: What It Means to Be One and How to Get Started. Retrieved April 2023 form
https://www.investopedia.com/terms/e/entrepreneur.asp#:~:text=Entrepreneurship%20is%20when%20an%20individual
,with%20an%20innovative%20new%20idea.

https://www.academia.edu/33288238/Technology_and_Livelihood_Education_Entrepreneurship_Module_1_Personal_E
ntrepreneurial_Competencies.

Prepared by: Erjane P. Magdato, LPT, MAEd.