What Is An Entrepreneur; and Why Does It Matter?

Last month my blog was partly inspired by reading Carol Roth’s The Entrepreneur Equation. This month I’ve been reading Peter Drucker’s Innovation and Entrepreneurship (1985) and Scott Shane’s The Illusions of Entrepreneurship (2008). I must admit that this thematic reading has, in part, been prompted by the LinkedIn question my friend Steve Breitman asked “What do you feel are the biggest small business/entrepreneurship myths?” and the follow-on discussions – particularly with Dave Reading – that have stirred up questions of “what is an entrepreneur?” and what are their characteristics. I am particularly interested in revisiting this question at this time because I’m trying to ensure I understand the entrepreneur market – after all, my current business, and two others that are in the feasibility and planning stage, all target entrepreneurs as their primary market niche.

In The Illusions of Entrepreneurship, Shane acknowledges in his introduction that “some people” define entrepreneurship as acting “in a way that is innovative, creative, and oriented toward growth or opportunity“; but he discounts that and falls back on “simpler definitions“, “ones most closely aligned with common sense“.  In support of his position he quotes the Merriam-Webster Online Dictionary definition: entrepreneurship is “the activity of organizing, managing, and assuming the risks of a business or enterprise“; and the Wikipedia definition, “the practice of starting new organizations, particularly new businesses, generally in response to identified opportunities“.  These contrary views, and my recent discussions with people about them, are at the core of why I asked the question, What Is An Entrepreneur?

Drucker says, in Innovation and Entrepreneurship, that a common definition of an entrepreneur in the U.S. is someone “who starts his own, new and small business“, also quoting the French economist, J.B. Say, “the entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield“; but Drucker takes the opposite position to that of Shane, disagreeing with the broad definition that every new small business is entrepreneurial.  In Drucker’s book he states that “to be entrepreneurial, an enterprise has to have special characteristics over and above being new and small.  Indeed, entrepreneurs are a minority among new businesses.  They create something new, something different; they change or transmute values.” In fact, he says, “an enterprise does not need to be small and new to be an entrepreneur“.

Carol Roth, in The Entrepreneur Equation, defines three different types of start-up or small businesses.

• Jobbie – based on a hobby, often part-time
  
• Job-business – a business that is created to provide income to the owner equivalent to that which could be earned in a job, and in which there is no establishment of equity
  
• Business – an enterprise that generates equity beyond just the output of the owner
  

So while Roth eliminates some of the start-ups from her definition of a business, she still includes in her Business definition businesses that Drucker would consider non-entrepreneurial.

So who is right – Shane, Roth or Drucker? And, does it really matter?

I believe Shane went with the broader definition because his book is based upon statistics – and it is hard to find statistics that separate the ‘Drucker Entrepreneurs’ from the mass of small business owners.

For example, in the U.S. the SBA counts businesses with less than 500 employees as small businesses (some of those can be pretty large), and only distinguishes between ’employer’ and ‘non-employer’ businesses. It is likely that many, if not most, entrepreneurial startups begin with no employees – but there do not seem to be good statistics on how many ‘non-employer’ businesses become ’employer’ businesses.

The SBA also states (here) that while “small firms accounted for 65 percent (or 9.8 million) of the 15 million net new jobs created between 1993 and 2009. Much of the job growth is from fast-growing high impact firms, which represent about 5–6 percent of all firms and are on average 25 years old.” That is 1.4 million out of the approximately 27 million [SBA] small businesses.

So in today’s economic environment, where politicians of all stripes seem to be supporting part of their agendas by stating that we must help small businesses because that’s where most new jobs are created (and of course, arguing about the ‘right’ way to do it!), maybe we should be focusing on what we can do to help – and increase the number of – “high impact firms” and not the broad brush of all small businesses.

I, for one, wouldn’t be surprised if most “high impact firms” fit Drucker’s definition of an entrepreneurial business. Do you have a high-impact, entrepreneurial business?

Excellent Execution