When asked on a regular basis what I do, I always state that I am an “Entrepreneur and an Investor” which always inevitably leads to the question: ‘yes, but what is it that you do?’ – as though being an entrepreneur isn’t enough, or a valid qualification.
Many entrepreneurs forget that they are NOT defined by their business or businesses. Yes, an entrepreneur owns and operates a business and assumes significant accountability for the inherent risks and the outcome of the enterprise – but if that venture should start making losses or worse still, fails – the business is a failure – not the entrepreneur.
Tracing back to its roots in 1950, our understanding of entrepreneurship owes a lot to the work of Joseph Schumpeter (economist) who defined an entrepreneur as a person who is willing and able to convert a new idea into a successful innovation. Further in 1959, Arthur Cole classified four distinctive types:
1) The innovator
2) The calculating inventor,
3) The over-optimistic promoter,
4) And finally, the organisation builder.
These types were not related to the personality of the entrepreneur – but more to the type of opportunity the entrepreneur will face.
Nowadays, Cole’s categories ,are further broken down, but the main types of categories that are agreed upon are:
The Lifestyle Entrepreneur
This is someone who has decided to build a business to make a living and satisfy his or hers own personal motivations. This entrepreneur would like to create a successful company – but becoming a FTSE 250 company is definitely NOT a necessity nor his/her main driving force. This type of entrepreneur can be classed as ‘income statement affluent’ than any of the other types listed. The choice of businesses he or she will choose to be involved with will be non-scalable, but usually cash generative.
The Empire Builder
This particular entrepreneur can be classed as ‘balance sheet affluent’. This is the entrepreneur that buys – not sells and usually goes ‘long’ on all of his investments and business decisions. This entrepreneur would not really consider selling or exiting from his company, unless it was absolutely essential.
The Serial Entrepreneur
It is fair to state that this entrepreneur’s main motivation will be the exit. Usually this type is not favoured by angel investors, as they may be involved in numerous business ventures and thus mixed priorities. Although, some angel syndicates do prefer this type, as they are focused on a sale or exit.
Understanding what type of an entrepreneur you are is crucial in valuing the amount equity you are willing to exchange for angel investment. For example, the serial entrepreneur will be more open to offers compared to an empire builder or lifestyle entrepreneur as they know that this is not the only business they will be involved in. The article: Valuing Your Equity Correctly is worth a read if you have an early stage or business investment proposal and looking to raise angel investment.
The type of entrepreneur you are should also determine the type of investment funding you should be targeting. E.g. funding from a high net worth individual or funding from a business angel or even a venture capitalist. A lifestyle entrepreneur will not generally need funding from a venture capitalist.
More often than not, it’s best for an entrepreneur to start up on their own or with the help of an angel investor (or angel syndicate if the investment requirement is large). After running and evolving the business, the best course of action is turn to venture capitalists when you believe you are ready to take your company to the next level.
A study published in late 2004 by the Canadian Federation of Independent Business points out that entrepreneurs are commonly believed to have special traits that make them successful. For instance, entrepreneurs are commonly seen as being especially skilled at spotting new business opportunities, or they are regarded as brash or aggressive and ready to take greater risks than their peers. However, the study adds that ‘no one has been able to identify a truly unique set of entrepreneurial personalities’.
A similar view is proposed by the Centre for Bioscience, part of the Higher Education Academy at Leeds University. ‘Increasingly, it is recognised that at least some (and probably the majority) of the skills associated with entrepreneurship, and how to apply them successfully, can be learnt’.
Dr Pauric McGowan, Director of the Northern Ireland Centre for Entrepreneurship, believes that entrepreneurs are both born and made with some people born with entrepreneurial traits and behaviours. Success depends on developing these traits but also learning skills, such as management. He also believes that everyone has the potential to become an entrepreneur and that entrepreneurial traits and skills are useful in well-established businesses as well.
My personal belief is that entrepreneurial-ism is not reserved to certain types of individuals. I truly believe that anyone is capable of being an entrepreneur as long as they are motivated and in the appropriate circumstances.
A common theme amongst entrepreneurs seems to be that they ‘had no choice in the matter’ and that it was through necessity that they had to think and work outside of the box to succeed. An example I refer to is my father who came to London from Northern India in the 1960s and started his career as a factory worker. He was asked to leave his position, and with no income and assets to fall back on, he was forced through necessity (perhaps even survival) to pursue opportunities that eventually led him to create a highly successful business. If he had lived within his comfort zone by staying in his job, he would still be working as an employee.
Whatever your personal belief is in this matter, and whether you believe entrepreneurs are created through nurture or nature, living outside of one’s comfort zone and having the stomach to do this on a regular basis is key to an entrepreneur’s success especially in the start-up stages.