Entrepreneurship: Characteristics, Myths, and Startup Lifecycle

What is Entrepreneurship?

Entrepreneurship is the process where individuals look for opportunities without thinking about the resources they currently have. Another way to define it (non-academic) is the art of turning an idea into a business.

What Entrepreneurs do

Entrepreneurs bring together and combine all the necessary resources (like money, people, the business model, and the strategy) to change an invention or an idea into a business that can actually work and make money.

Corporate Entrepreneurship

This is the idea of "entrepreneurship" happening inside a company. It means encouraging employees to act like entrepreneurs through specific actions and programs. All companies are somewhere on a scale from being very careful (conservative) to being very entrepreneurial. A firm's position on this scale is called its entrepreneurial intensity. However, you don't need to be very entrepreneurial in a market that doesn't change much.

3M is a textbook example of corporate entrepreneurship, allowing employees to dedicate time to personal projects, which led to innovations like Post-it Notes. They provide resources and see failure as part of learning. Some companies, like Google initially, have allowed employees dedicated time for new ideas, though this is easier with spare resources and can lead to productivity issues if not managed well.

Models of Corporate Entrepreneurship

There are four models of corporate entrepreneurship:

1. Opportunist: Focuses on developing resources and identifying ownership throughout the organization, encouraging proactive pursuit of ideas. Best in an engaging, collaborative culture.

2. Enabler: Employees are free to pursue ideas if they benefit the company, sometimes using specific dedicated resources or even a contracted team. Best suits organizations supporting free brainstorming and experimenting. Google initially used a specific budget for this.

3. Advocate: Teams pitch ideas to management for approval and funding, relying on a shared commitment to company growth (organizational ownership).

4. Producer: A dedicated internal team focuses on creating new business ideas and is given special resources. Best for large organizations with sufficient resources.

Why People Become Entrepreneurs

There are three main reasons people become entrepreneurs and start their own companies:

• They want to be their own boss. This can be a long-time dream or because they are unhappy at their current job.

• They want to follow their own ideas. This is often true if their ideas weren't accepted where they used to work.

• They want financial rewards. However, the sources note that this is often overestimated and is a secondary reason.Characteristics of Successful Entrepreneurs

Characteristics of Successful Entrepreneurs

Successful entrepreneurs often have certain characteristics:

Passion for the Business

Passion for the Business: This passion can come from a hobby or personal interest, but it can also come from believing the business will help people's lives, especially for social businesses. Passion is important for five main reasons:

1. The ability to learn and try new things.

2. Being willing to work hard for a long time (if you're passionate, work doesn't feel like work).

3. The ability to handle difficulties and rejection.

4. Being able to listen to feedback about your company's and your own weaknesses.

5. Staying determined and persistent when things get hard. Passion is linked to wanting to learn and gain new information.

• Product/Customer Focus: This means focusing on both products and customers, not just the product. It's about being able to understand things from the customer's point of view. This is often hard for people who want to be entrepreneurs. It involves spotting good product opportunities and making them happen.

• Tenacity Despite Failure: It's normal for new businesses to fail often. Successful entrepreneurs can keep going through setbacks and failures. Tenacity helps them overcome personal and work problems.

• Execution Intelligence: This is the ability to turn a good business idea into a business model that works. Having a good business sense helps here. It also involves changing the business model as the environment changes. As Jeff Bezos said, "Ideas are easy. It's execution that's hard".

Common Myths About Entrepreneurs

• Myth 1: Entrepreneurs Are Born, Not Made: This is wrong because it suggests people are genetically meant to be entrepreneurs. Studies don't support this. Becoming an entrepreneur depends on your environment, life experiences, and choices. While not born, successful entrepreneurs do share common characteristics. Ad example:

  • A moderate risk taker
  • Optimistic disposition
  • Persuasive
  • A networker
  • Promoter
  • Achievement motivated
  • Resource assembler/leverager
  • Alert to opportunities
  • Creative
  • Self-confident
  • Self-starter
  • Decisive
  • Tenacious
  • Energetic
  • Tolerant of ambiguity
  • A strong work ethic
  • Visionary

• Myth 2: Entrepreneurs Are Gamblers: Scientific proof doesn't support this. Most entrepreneurs take only "moderate" risks. This myth might come from entrepreneurs having less structured jobs and facing more uncertain situations than people in traditional jobs. Also, many want to achieve challenging goals, which can be seen as risky.

• Myth 3: Entrepreneurs Are Motivated Primarily by Money: Although entrepreneurs want financial rewards, money is rarely the main reason they start businesses. Some even say focusing on money can be a distraction.

• Myth 4: Entrepreneurs Should Be Young and Energetic: People of different ages start businesses. Being energetic is important, but investors often value the entrepreneur's strength most. Being "strong" to an investor means having experience in the industry, maturity, realism, a good reputation, and a history of success. These factors often favor older entrepreneurs.

• Myth 5: Entrepreneurs Love the Spotlight: Most entrepreneurs do not get public attention. You can probably name a few famous founders like Jeff Bezos or Mark Zuckerberg, but few can name the founders of companies like Netflix or YouTube, even though we use them often.

Micro foundations of Entrepreneurship

This research area aims to understand how factors at the individual level influence organizations. It connects high-level concepts like strategies and routines to the actions, mindsets, and values of individuals and entrepreneurs. Studying microfoundations can help explain why companies are different, starting from individual differences. Research in this area looks at things like entrepreneurial choice, the ability of entrepreneurs to adapt, and entrepreneurship leading to long-term competitive advantage.

Types of Start-up Firms

• Salary-Substitute Firms: These are companies founded to allow individuals to work independently, but without the intention of growing. Banks do not invest in their growth but may still finance them because such companies often require loans, making them valuable banking clients. These businesses need long-term support, but they are generally unattractive to investors like business angels, who are unwilling to invest significant amounts in them.

• Lifestyle Firms: These businesses exhibit limited innovation. The owners are satisfied with their income and often generate additional earnings through other ventures. Would a bank invest in such firms? It depends. If the firm is scalable, banks might hesitate due to the risk of losing money. Business angels typically do not invest in lifestyle firms.

• Entrepreneurial Firms: These are created with the goal of growth and of bringing more efficient and innovative products or services to the market. The innovation level must be high (though not necessarily technological). Business angels and venture capitalists may be willing to invest, but banks' interest depends on the perceived risk and potential return.

Salary-Substitute Firms Lifestyle Firms Entrepreneurial Firms Firms that basically provide their owner or owners a similar level of income to what they would be able to earn in a conventional job Firms that provide their owner or owners the opportunity to pursue a particular lifestyle, and make a living at it Firms that bring new products and services to the market by creating and seizing opportu- nities regardless of the resources they currently control After learning the job, I want to become my own boss I want to earn money doing what I like (yoga teacher, B&B owner, golf master) Born to bring "something new" or "something different" to the market Normally innovation is limited Normally innovation is limited Normally innovation is high

Changing demographic of Entrepreneurs

Women Entrepreneurs

Women Entrepreneurs: More men start businesses than women, but the number of women-owned businesses is growing. In the U.S., this growth has been five times faster than the national average over the past nine years. The work-life balance challenge has changed since COVID-19.

• Minority Entrepreneurs: There has been a big increase in minority entrepreneurs in the U.S. and globally. In the U.S. alone, there was a 38% increase since 2007. Many organizations help minority entrepreneurs, which is a key factor in their growth.

• Senior Entrepreneurs: A significant and growing number of people aged 60 and older are starting businesses. Many have lots of business experience, money, and good health and energy, making them great candidates to start businesses.

• Millennial Entrepreneurs: Many millennials want to have entrepreneurial careers. However, in 2013, only 3.6% of U.S. businesses were owned by someone under 30. The main challenges for millennials starting businesses are lack of money, fear of failure, and not knowing how to start a business.

Positive Effects of Entrepreneurship

• Creative Destruction: According to Schumpeter's theory, entrepreneurs create new products and technologies that eventually make old ones useless. Start-up companies are very effective at doing this. Entrepreneurs are seen as "innovators" or "agents of change".

• Innovation: Small innovative companies are more productive in terms of patents per employee than larger ones.

• Job Creation: Small businesses create a large number of new jobs globally. (though large companies employ the most people overall).

• Impact on Society: Innovations from entrepreneurial firms greatly affect society, making lives easier, improving work productivity, health, and entertainment.

• Impact on Larger Firms: Many entrepreneurial companies build their business models around creating products and services that help larger companies be more efficient. Sometimes, entrepreneurial firms start specifically to meet the needs of larger companies.

What is an Opportunity?

An opportunity is a good situation that creates a need for a new product, service, or business. It is different from an idea, which is just a thought. Opportunities can be:

• Recognized from outside factors ("window of opportunity") > represents a limited time frame during which the opportunity can be exploited. If entrepreneurs do not act within this window, the chance to benefit from that opportunity disappears. This type of opportunity is often compared to a fruit ready to be picked.

• Created from inside, based on a need or problem to fix. More recently, the idea is that the entrepreneur creates opportunities from problems or issues.

Characteristics of Opportunities

Opportunities must be able to make money (economically sustainable).

• Attractive: An opportunity is attractive if it is potentially profitable or financially sustainable over the long term. This means that the business is expected to generate enough revenue to survive and remain viable, at least in the medium term.

Timely Opportunities

Timely: The opportunity must come at the right time for the company. The firm should already have the necessary internal resources or the ability to form relationships that allow access to external resources.

• Durable: There should be sufficient time to invest and see returns. The opportunity must not be just a temporary trend or "fad", but something with lasting potential.

• Anchored in Value Creation: The opportunity should be based on a product, service, or business that clearly creates or adds value for its customer or end user. It must be clear what value is being delivered and to whom. The "hanging fruit" (i.e., the easiest and most obvious target segment) should be clearly identifiable.