Chapter 1: Entrepreneurship Introduction
Entrepreneurship Today
As we dive into the study of entrepreneurship, let’s define what we mean by the word entrepreneur. There are many definitions, but for this course, we’ll think of entrepreneur as someone who identifies and acts on an idea or problem that no one else has identified or acted on. This combination of recognizing an opportunity to bring something new to the world and acting on that opportunity is what distinguishes an entrepreneur from a small business owner. A small business owner is someone who owns or starts a business that already has an existing model, such as a restaurant, whereas an entrepreneur is someone who creates something new. For example, this new creation can be a new process or product, a business that identifies a new or unique target market, or a combination of ideas that creates a new approach or method (OpenStax, 2020).
Large organizations can try to replicate this by fostering “intrapreneurship.” Intrapreneurship encourages employees to think like entrepreneurs and develop fresh perspectives that can lead to new ideas for the company. These workers may have more freedom, but the organization still has control over the project and takes on any associated risks. We’ll discuss intrapreneurship in more detail in the next chapter (Stanford, n.d.).
Entrepreneurs bring advantages to all sectors, whether it’s big corporations or small businesses.
In a broader sense, what people consider an entrepreneur can vary. Some scholars strictly differentiate between entrepreneurs and small business owners. Others acknowledge that a small business owner may also be an entrepreneur—they are not mutually exclusive. Someone may start a venture that is not a completely new idea but introduces a product or service to a new region or market.
Where does a franchise fall in this discussion? Again, there is not complete agreement, with some claiming that a franchisee and entrepreneur cannot be the same, and others arguing that a franchise is, indeed, an entrepreneurial venture. Small business owners and franchisees can be considered entrepreneurs. For the purposes of this course, we’ll learn the key principles of entrepreneurship alongside the concepts, strategies, and tools needed to succeed as a small business owner or franchisee.
Entrepreneurs have many different talents and focus on a variety of different areas, taking advantage of many opportunities for entrepreneurial ventures. An entrepreneurial venture is the creation of any business, organization, project, or operation of interest that includes a level of risk in acting on an opportunity that has not previously been established. For some entrepreneurs, this could be a for-profit venture; for other entrepreneurs, this could be a venture focused on social needs and take the form of a nonprofit endeavor. Entrepreneurs might take a variety of approaches to their entrepreneurial venture, such as those shown in Table 1.1.
Types of Entrepreneurs
Understanding the different types of entrepreneurs as shown in Table 1.1 is important because it helps provide the right support and resources for their specific needs. This knowledge also highlights how each type of entrepreneur uniquely contributes to the economy and society, which will be discussed in later chapters.
Table 1.1: Types of Entrepreneurs
| Type of Entrepreneur | Approach to Venture |
|---|---|
| Traditional entrepreneur | Someone who identifies and acts on an idea or problem that no one else has identified or acted on in the same way |
| Social entrepreneur | Someone who has an interest in solving a social, environmental, or economic problem |
| Serial entrepreneur | Someone who starts a business and once it is up and running, they start a new business and repeat this cycle |
| Small business owner | Someone who owns or starts a business that already has an existing model, such as a restaurant |
| Solopreneur | Someone who is an entrepreneur or small business owner and is the only person working in the business |
| Intrapreneur | Someone who has the same mindset as an entrepreneur but acts within the confines of an existing organization (Libretexts, 2024) |
Types of Business Ownership
Before we continue, it’s important to understand the different types of business ownership structures that exist. See Table 1.2 for a description of commonly found business ownership structures and liability information. Structures are often chosen because of their tax implications and personal liability to the owners (Bitler, 2024).
Table 1.2: Business Ownership Structure Types
| Business Ownership Type | Description | Personal Liability |
|---|---|---|
| Sole Proprietorship | An unincorporated business entity operated by a single person; simple to set up and operate and with profits/losses passing directly to the owner. | Yes |
| Partnership | A business co-owned by two or more individuals, with management, profits, and liabilities depending on the type of partnership formed. | Yes (varies by type) |
| C Corporation | A separate legal entity from its owners, paying corporate income tax, with potential for unlimited investors and perpetual existence. | No |
| S Corporation | A separate entity with shareholder liability protection, avoiding double taxation by passing profits/losses through to shareholders’ personal taxes. | No |
| Limited Liability Company (LLC) | Combines elements of sole proprietorships, partnerships, and corporations, offering liability protection and pass-through taxation without complex regulations. | No |
| Nonprofit Corporation | Formed for charitable, educational, religious, literary, or scientific purposes; exempt from state and federal income taxes, with profits directed toward charitable goals. | No |
| Franchise | A business model where an individual (franchisee) operates a business under the brand and business model of a larger company (franchisor), typically with a mix of ownership benefits and obligations. | Yes (varies by contract) |
Personal liability refers to an individual’s legal responsibility for the debts and obligations of their business. If a business incurs debts, is sued, or faces other financial obligations, the owner’s personal assets (such as their home, car, and savings) can be used to satisfy these obligations. This concept is critical in determining the extent to which a business owner is financially exposed to risks associated with their business operations.
While there can be much to consider, the Small Business Administration has guidance on how to structure a business, along with other resources entrepreneurs find valuable.
Social Entrepreneurship
A social entrepreneur has an interest in solving a social, environmental, or economic problem. A social entrepreneur identifies a problem with a social or community focus, a concern for quality of life, or concern for our entire planet’s health (OpenStax, 2020).
One such person is Angad Daryani, a young serial inventor. Daryani left school in the ninth grade to join the Media Lab at the Massachusetts Institute of Technology (MIT), where he worked on an industrial-scale air filter to clean pollutants and carcinogens out of our planet’s air. Daryani’s home country of India is the world’s third largest emitter of carbon dioxide, according to Global Carbon Atlas, behind China and the United States (Figure 1.1).
Daryani is interested in not only solutions for air pollution, but his product will also provide financial gains and add to his personal credibility as a serial entrepreneur, or someone who starts and harvests multiple entrepreneurial ventures. Daryani describes himself as an inventor and social entrepreneur, combining his interest in improving lives through a variety of entrepreneurial ventures, including products like Sharkits (a do-it-yourself-kit company that teaches children how to build technology), the SharkBot 3D printer (an attractive, low-cost, and reliable 3D printer), and several other projects that combine technology and human needs. As each of these products advances to commercialization, the products and technology are becoming more applicable for other uses as well. For more examples of projects that Daryani is working on, take a look at his Abgadmakes website, which includes videos and articles and also highlights the international recognition he has received for his innovative work.
Entrepreneur In Action
Research Angad Daryani and his technology to remove air pollution by visiting this CNN article.
- What other products besides the originally intended application of improving air quality could this technology or methodology be used for?
- What critical decisions would you anticipate that Angad will face in creating and commercializing his product?
- How would you define success for Angad or this air-cleaning company?
Pause and Reflect
Consider a social issue that you might feel compelled to take on as a passion project. Some social issues include childhood hunger, access to clean water, access to education, or opioid abuse.
Watch Johann Hari’s Ted Talk on addiction to learn more. (TEDGlobal, 2015)
- Do you have any ideas for creating an entrepreneurial venture around the idea of building quality relationships and communities?
- How would you balance a passion project with an entrepreneurial purpose?
Entrepreneurial Lifestyle and Career
Being an entrepreneur has become synonymous with being an innovator, a change agent, or a risk taker. Regardless of job titles or descriptive characteristics, entrepreneurship has a universal appeal for how people think and engage with the world (OpenStax, 2020).
Choosing the path of entrepreneurship requires a willingness to take on calculated risks. The difference between risk and calculated risk is conducting the necessary research and investigation to make informed decisions that minimize risk. There can be personal financial risk when starting a new venture. Some startup entrepreneurs continue with their current employment while working on the side to develop their idea into a venture that eventually will generate an income. Until the venture requires near full-time work and generates income, maintaining an outside income works well for many entrepreneurial teams.
Industry Example
Consider the eyeglass startup Warby Parker (Figure 1.2). Dave Gilboa and Neil Blumenthal, lead entrepreneurs for Warby Parker, were still working their day jobs when they approached an angel investor with their idea. The angel investor asked a few questions and wasn’t impressed. This investor believed that Gilboa and Blumenthal should demonstrate their solid commitment to the venture by quitting their day jobs to dedicate more time and energy to Warby Parker. Instead of following that advice, Gilboa and Blumenthal kept their day jobs while they continued to work toward building their venture, and Warby Parker eventually became highly successful. There are many paths to becoming an entrepreneur and many paths to creating a successful venture. For an entrepreneur’s life and for their venture, it is crucial to identify the path that works best. This path should support their goals, unique situation, and visions.
Pause and Reflect
The Entrepreneur as a Problem Solver
What are some challenges you face in your life? Have you ever actively thought about how you could solve those problems? Or have you actively identified exactly what the problem is from an analytical perspective? We often rush from recognizing a problem to choosing a solution without fully understanding whether we have correctly identified the issue. Properly defining the problem and assessing the potential, innovation, and practicality of your solution are crucial for effective problem-solving. Often, when we start to explore the problem, we find that it has multiple causes, such as the following:
- The need for something to be better, faster, or easier
- The effects of changes in the world on your industry, product, or service
- Market trends based on geography, demographics, or the psychology of the customers
One characteristic of a savvy entrepreneur is recognizing the ability to identify a problem from an opportunity-identification perspective. We might identify feeling hungry as a problem, but an entrepreneur would identify the problem using an opportunity-identifying perspective by determining how the problem could be translated into an opportunity to create a new venture—perhaps combining the problem of feeling hungry between meals into a street kiosk or a vending machine with food choices or creating a new snack that is nutritious, satisfying, and portable. When people have a busy day with no time or easy access to food, they often end up hungry. Rephrasing the problem, or need, from an opportunity viewpoint opens the search for a sustainable solution beyond the simple awareness of feeling hungry. We might solve this problem by opening a snack bar with offerings containing essential vitamins and proteins and is easy to transport with a long shelf life. Understanding the problem from the perspective of how to solve it for one person into how to solve it for multiple people rephrases the problem into an opportunity-identification perspective.
3M’s Post-It Note
DID YOU KNOW? The Post-it note was created by Arthur Fry, an intrapreneur. He wanted to solve the problem of saving his church hymnal page without damaging it. He found that bookmarks would often fall out. He soon realized his creation could help others when colleagues kept stopping by his desk for “bookmarks.” (Bellis, 2019)
You might also have an interest in solving food-related problems on a larger scale. People trapped in a war-torn region may not be able to leave the safety of their shelters to find, grow, barter, or buy food. They may not have the money to buy food. How could you reach your target market within a war-torn area? Red Cross emergency response teams provided more than 4.5 million meals and snacks with their partners to communities affected by disasters in 2023. Could your idea of creating a snack bar fit into a partnership with the Red Cross (American Red Cross, 2023)?
Although this might seem like a simple problem with a simple solution, recognizing a problem, finding a realistic solution, and creating a successful venture requires an entrepreneurial mindset. Every day, people become entrepreneurs as they identify and solve problems, or face new challenges or frustrations, and resolve them in creating products or services to address these issues.
Pause and Reflect
Recognizing Problems
In your daily life, what problems do you encounter? What would make your life easier? How would you finish this sentence: “If only ________ existed, my life would be better or easier”? To spur your creativity, you might research global problems to find an area that interests you and sparks your passion for living a fulfilling life. When identifying a problem, consider process-related problems, as well as service-related problems.
- What problem have you identified?
- What can you do to resolve that problem?
The Entrepreneurial Personality
Studies of the entrepreneurial personality find that entrepreneurs share certain key traits. Most entrepreneurs have the following characteristics:
- Ambitious: They are competitive and have a high need for achievement.
- Independent: They are individualists and self-starters who prefer to lead rather than follow.
- Self-confident: They understand the challenges of starting and operating a business and are decisive and confident in their ability to solve problems.
- Calculated Risk-takers: Although they are not averse to risk, most successful entrepreneurs favor business opportunities that carry a moderate degree of risk where they can better control the outcome over highly risky ventures where luck plays a large role.
- Visionary: Their ability to spot trends and act on them sets entrepreneurs apart from small-business owners and managers.
- Creative: To compete with larger firms, entrepreneurs need to have creative product designs, bold marketing strategies, and innovative solutions to managerial problems.
- Energetic: Starting and operating a business takes long hours. Even so, some entrepreneurs start their companies while still employed full-time elsewhere.
- Passionate: Entrepreneurs love their work.
- Committed: Because they are so committed to their companies, entrepreneurs are willing to make personal sacrifices to achieve their goals.
This is not an exhaustive list of traits. What other traits would you add to the list above?
Pause and Reflect
How Can You Put Your Strengths to Work?
Create a list of ten strengths that you currently possess. If you need help creating your list, ask your friends or family what they believe you are good at doing. Think about what achievements you have accomplished, what compliments you have received, and what people say about you. The answers to these questions will help you identify your strengths.
- Create a list of ideas that build off your strengths or are related to your strengths.
- Analyze this list to create another list of possible businesses that you could start that relate to your strengths.
Key Takeaways
- An entrepreneur identifies and acts on a unique idea or problem, whereas a small business owner operates within an existing model. This distinction highlights the innovative nature of entrepreneurship compared to traditional business ownership.
- Entrepreneurs can be categorized into various types, including traditional, social, serial, small business owners, solopreneurs, and intrapreneurs. Each type approaches ventures differently, with intrapreneurs innovating within existing organizations.
- Social entrepreneurs focus on solving social, environmental, or economic problems. An example is Angad Daryani, who creates technologies to address issues like air pollution while achieving financial and personal success.
- Successful entrepreneurs often share traits such as ambition, independence, self-confidence, calculated risk-taking, vision, creativity, energy, passion, and commitment. These characteristics enable them to innovate and drive their ventures forward.
- Entrepreneurs excel at identifying problems and rephrasing them as opportunities for innovation. This mindset allows them to create sustainable solutions that address needs on a larger scale, transforming everyday challenges into business opportunities.
Knowledge Check
Can you match each type of entrepreneur to its definition?
Someone who identifies and acts on an idea or problem that no one else has identified or acted on.
Someone who owns or starts a business that already has an existing model, such as a restaurant.
An intrapreneur is someone working in a business who receives encouragement to think like an entrepreneur and develop fresh perspectives that can lead to new ideas for the company. These workers may have more freedom, but the organization still has control over the project and takes on any associated risks.
An entrepreneurial venture is the creation of any business, organization, project, or operation of interest that includes a level of risk in acting on an opportunity that has not previously been established.
An unincorporated business entity operated by a single person, simple to set up and operate, with profits/losses passing directly to the owner.
A business co-owned by two or more individuals, with management, profits, and liabilities depending on the type of partnership formed.
A separate legal entity from its owners, paying corporate income tax, with potential for unlimited investors and perpetual existence.
A separate entity with shareholder liability protection, avoiding double taxation by passing profits/losses through to shareholders' personal taxes.
Combines elements of sole proprietorships, partnerships, and corporations, offering liability protection and pass-through taxation without complex regulations.
Formed for charitable, educational, religious, literary, or scientific purposes, exempt from state and federal income taxes, with profits directed toward charitable goals.
A business model where an individual (franchisee) operates a business under the brand and business model of a larger company (franchisor), typically with a mix of ownership benefits and obligations.
A social entrepreneur has an interest in solving a social, environmental, or economic problem. A social entrepreneur identifies a problem with a social or community focus, a concern for quality of life, or concern for our entire planet’s health.
An angel investor is an individual who provides financial backing for small startups or entrepreneurs.
Determining how a problem could be translated into an opportunity to create a new venture.