What Is Entrepreneurship? A Complete Guide
It can be argued that it has been one of the leading causes of economic and social development. If it wasn’t for the work of entrepreneurs throughout history, the modern way of life that we enjoy today may not exist. The ability of entrepreneurs to turn something relatively small to something that can transform the entire planet is truly exceptional and is a reflection of its power.
Considering the power of entrepreneurship, many people still don’t really know what it means to be an entrepreneurs. In basic terms, entrepreneurship is the process of starting your own business. Another way of looking at is entrepreneurs are able to see large-scale inefficiencies in the market and are able to provide new and innovative solutions to create lasting changing in industries throughout the world.
Examples of entrepreneurs
Examples of entrepreneurs in recent times that were able to change the world include the likes of Jeff Bezos. Jeff Bezos is currently one of the richest men in the world, and is the founder of Amazon. It’s clear that Amazon, which is one of the largest companies in the world today has changed the face of retail and has innovated many of the lackluster and backwards aspect of E-Commerce, logistics and retail since it came into operation in the market.
Thus, it’s clear that entrepreneurs is able to make huge impacts on the world if executed correctly. Although Jeff Bezos is one of the stand-out examples of recent decades, there are many entrepreneurs these days that are making lasting changes to aspects of various industries each and every day.
Whether it be through a small business that only sees a couple million dollars of turnover a year or a industry behemoth that is leading the change in innovation, the process of creating a new company and bringing forth new ideas is the foundation force behind why people become an entrepreneur.
How to become an entrepreneur is relatively simple. As mentioned, at its core, all that is required is to create a business. One of the most alluring aspects to the process of becoming an entrepreneurs is ownership and control. Starting your own business means using your own capital to create a business that is able to provide superior goods and services to the market.
Being able to be accountable for such a process and being able to benefit from any kind of gains or profits that the business makes is tremendously attractive to a lot of individuals that wish to carve out their own place in the world.
This aspect of becoming an entrepreneur is quite in contrast with other careers in the world that involve being a salaried employee. Salaried employees at large corporations do not have any ownership of the company that is employing them, and even if they do, it’s often in amounts so small that they wouldn’t be able to influence any kind of major decision the company is looking to make.
The lack of ownership by salaried employees often leads to them being relatively unmotivated to do the best job possible for their work, other than the allure of a promotion and a higher salary. This is in stark contrast to an entrepreneur who understands that the more effort they put into their business, the motivation they are able to garner for their business, the larger the likelihood they will be able to make exponential profits in the market.
The profits that an entrepreneur will be able to make is literally limitless. Going back to the example of Jeff Bezos, he would probably never would’ve conceived that his otherwise small online E-Commerce website would become one of the largest companies in the world, but it did.
This isn’t the case when it comes to regular salaried jobs at large corporations. The increases in salary are incremental based on predetermined ranks and the highest salary that an employee can hope for is that of the CEO. Even the CEO often has a minuscule share of the company itself and is often replaced after a few years on the job.
Thus, by looking at the comparison between the drivers and motivations of owning a business compared to being a salaried employee, it is easy to see why so many people choose to become entrepreneurs. However, one aspect that salaried employees can enjoy much more than entrepreneur is the concept of security and lack of risk.
Being salaried at a company without any ownership means that there is a clear amount of money that an employee will be able to earn each year regardless of how the company operates, at least in the short term. Furthermore, in established industries such as corporate law, the progression and rankings of each member of the business is well established and incremental increases in salary can be expected and foreseen well in advance.
For example, many young lawyers know that if they work hard enough at a corporate law firm they’ll be able to become partner and earn high six figures, or sometimes seven figure salaries.
For the entrepreneur, this kind of security is virtually nonexistent. There is tremendous risk that comes with starting a business, and many that have failed at entrepreneurship often are left with nothing to call their own. This is because there have been lots of entrepreneurs that have failed to properly execute their business plan, often deciding to finance their projects through means such as putting their own home up as collateral. When their business fails, they lose their home and essentially lose all of the capital that they put into creating their dream.
Darker Side Of Entrepreneurship
This of course is the darker side of entrepreneurship, for every Jeff Bezos that is able to become one of the richest men in the world through entrepreneurship, there are probably thousands that have failed and lost a great portion of their wealth doing so. As you can see, the initial allure of ownership that comes with entrepreneurship has great burdens that come with it. Thus, considering this, it is easy to see why the vast majority of individuals choose to pursue careers in salaried positions that have a straight-forward hierarchy and low level of risk.
However, it is only inherent that becoming an entrepreneur has these risks. After all, many of these things are a trade off at the end of the day. By becoming a salaried employee for your entire career, you essentially trade the ability of becoming a leading business mogul worth tens of millions of dollars for a substantially smaller salary but with nowhere near the same level of risk. The risk that the business will fail is simply too much for many people to handle, and the trade off of having a smaller salary without the possibility of extremely large exponential gains in wealth and salary is well worth it.
With this in mind, those that become entrepreneurs often have the mindset that if they have one shot at becoming the next billionaire, they’ll happily take that risk, even if it means they could end up with nothing at the end. The psychological traits of many entrepreneurs often are those that like to take risks and are inclined to try things that they haven’t done before. Furthermore, they are also generally very creative individuals that like to critically assess things around them and find out if there are any ways that they can improve them.
At its core, entrepreneurship is often dictated by innovation and creating a superior good or service for the market to enjoy. It’s easy to understand that many of those that choose to follow this path are critical thinkers, always looking to improve upon the way we do things today. After all, if you look at the amazing development of technology in recent decades, it has certainly been driven through the notion of improving communication, entertainment and a whole range of other things.
The great development of technology that has created the modern life that we know today could very easily be attributed to the spirit of entrepreneurship. Before the invention of mobile phone devices, many people were sick of having to communicate either through pay phone or at buildings that had phones available for use. Because of this, entrepreneurs were able to get capital to try out many designs for mobile phones, make it a reality, and become immensely rich thanks to it.
Using the technological boom as an example, there have been countless billionaires today that have been able to amass their wealth through providing one of the greatest influences on modern life, which is technology. Looking at the likes of Michael Dell, Bill Gates and Steve Jobs, you can see that they were able to provide great solutions to many problems that were caused by backwards technologies. Bill Gates was able to make computers an essential household item, revolutionizing the way we communicate while doing so, and thus was able to become the richest person in the entire world.
Hence, once again, when looking at the impact an entrepreneur such as Bill Gates was able to make through his desire to change the world, the allure of becoming an entrepreneur becomes stronger and stronger. You will find that for the biggest changes that allowed us to live our modern way of life, there will often be a large company behind it, and behind that large company will usually be an entrepreneur that was able to facilitate the entire thing. Whether it be Apple, Amazon or Microsoft, they were all able to revolutionize our lives and they were all created by an entrepreneur.
You probably won’t be able to think of anyone in a salaried position that was able to enact the significant changes that these entrepreneurs were able to create in the past decades. Of course, there have been many CEOs that were able to create huge impacts in many different industries around the world.
However, what you’ll usually find is that these CEOs are usually the original founders of the company itself or that they are riding previous trends created by an entrepreneur in the industry. As mentioned, considering how entrepreneurs are usually driven by improving and innovating aspects within the market, many revolutionary changes in a given industry can be usually attributed to one.
One key aspect that determines whether or not an entrepreneur is able to succeed is their vision of being able to turn an inefficiency in a market into a profit. There are currently lots of ways that industries can be improved. You’ve probably thought to yourself a way a certain service or good can be improved to provide greater customer satisfaction.
Without even knowing it, you may have thought of the next billion dollar idea. However, one thing that many people fail to realize is that there is so much importance placed on the execution of the idea in entrepreneurship, not the idea itself.
You may think to yourself that the pizza that you ate earlier could be improved by using a better quality cut of meat. However, if you were told that by using the better quality cut of meat the price of the pizza would double, you probably wouldn’t think it’s a great idea after all.
Further, if you found out that using the better cut of meat would increase logistical timeframes and expenses, leading to a lowered margin on the sale of that particular pizza, you would probably once again think the idea was not as good as you thought.
This is one of the problems that plagues entrepreneurship, there are many ideas out there that may seem great at a surface level, but in terms of practical value, it may actually turn out to be quite a bad idea. Lots of failures that have come as a result of entrepreneurship can be attributed to someone coming up with an idea that they believe will be highly influential in the market, only to find out that the practical realities of the idea won’t be able to create a profit.
At the end of the day, a successful entrepreneur has to be able to create a profit and have healthy cash flows in order to sustain their vision. Even if an idea seems great initially, and is able to go through any sort of scrutinization, if it can’t lead to superior profits than it simply isn’t going to succeed.
This is what makes it so difficult to succeed in entrepreneurship, to be successful you need to have the creativity required to come up with amazing ideas that can change the industry, but you also have to have the practical business sense to understand how to make that idea into a profitable business that will be able to thrive and outlast its competitors.
If you look into the statistics surrounding new businesses, you’ll find that only a fraction of them actually survive past their first few years. It can be said that for almost all of those businesses that weren’t able to last, it was due to a problem regarding execution of the idea to allow for profit generation. Hence, it’s vital that any new entrepreneur takes into account this aspect of creating a businesses otherwise they could end up losing everything as they sink all of their resources into an idea that people won’t buy in the market.
This is also another aspect of entrepreneurship that is often overlooked by many. In order to become an entrepreneur you need to have capital. After all, it rings true that in order to make money, you need money. Without properly capital, there simply isn’t a way to start a business and go about creating the lasting change that the entrepreneur has in mind.
The routes available for financing usually manifest itself in two different ways. The entrepreneur can either self-fund the venture, which means that the vast majority of the ownership of the company will be sourced from them. The capital that they use is commonly through the form of savings that they have saved for an extended period of time through a salaried position.
This avenue allows for the greatest amount of control for the business owner and means that the new company that they have created is well and truly theirs. However, it opens up the possibility of huge losses that will be directly attributed to the entrepreneur.
Another avenue that is becoming increasingly popular with tech startups is to search for venture capital from private investors into the company. Through this avenue, the entrepreneur will often have to own a minimum percentage of the company before any venture capitalist worth their salt will consider investing.
This is because one of the biggest selling points to a venture capitalist as to whether they will invest in a startup company is that the entrepreneur seeking funding has stake in the company as well. Furthermore, those that have their own capital in a business will be much more motivated to improve it than one that doesn’t.
The process of securing venture capital funding is usually through the entrepreneur and his or her team going on a road show to various venture capital funds or so called angel investors that are willing to pour capital into their project in return for ownership in the company.
Through this avenue, entrepreneurs are able to raise funds in many multiples of funds that they would be able to raise by themselves. However, the trade-off here is that with greater startup capital, there is less ownership for the entrepreneur. While self funded ventures of entrepreneurship allow for maximum control and ownership as mentioned, those that are funded by venture capital has significantly less control and ownership.
The entrepreneur will now have to answer to the ideas and thoughts expressed by the venture capital investors for his or her project. This means that the entrepreneur may not be able to take the business through avenues they originally would’ve liked to as the venture capitalist investors would disagree.
Whether being self-funded or utilizing venture capital is better for entrepreneurs is up for debate and quite controversial. When it comes to venture capital, even though the entrepreneur has a small stake in the company, perhaps 10 percent, if the company becomes immensely successful this seemingly small 10 percent stake may be forth tens of millions.
Many tech startups in recent times have been funded through venture capital, and the billionaires that resulted, such as Jack Dorsey who had a similar level of stake in the company, but due to such tremendous success, his small stake was worth billions.
The problem that comes with self-funded ventures is the fact that the capital is usually too small and won’t allow for meaningful effects on the market. Many industries have high costs of entry in order to become competitive, especially in more traditional industries. Thus, the self-funded venture may have lost without even starting if the amount of initial capital invested isn’t high enough for the costs of entry of certain industries.
The financing dilemma of entrepreneurs can be once again seen through a risk and reward point of view. Self-funded ventures allow for more control and ownership for the entrepreneur but won’t allow for the level of expansion and financial force that a venture capital backed entrepreneur will be able to enact on the market. On the other hand, the venture capital backed entrepreneur will have a lot more financial power, but will own much less of the power, ceding control to investors.
All in all, entrepreneurship is something that has changed the world as we know it. If it weren’t for the likes of Bill Gates deciding to risk it all to enact their vision onto to the world, we may not enjoy the efficiencies of modern life.
However, it’s important to remember that with the possibility of making extreme profits and wealth, comes immense risk that is simply not observed in salaried positions in established industries. Whether the path of the entrepreneur is fit for you is up to you, however it’s a simple fact that entrepreneurs have been pivotal to the way of life we enjoy today.