Who is an entrepreneur really? It turns out that there are four distinct types of entrepreneurial organizations; small businesses, scalable startups, large companies and social entrepreneurs. They all engage in entrepreneurship. Yet entrepreneurs in one class think that the others aren’t the “real” entrepreneurs. This post looks at the differences and similarities and explains why there’s such confusion.
Small Business Entrepreneurship
My parents came to the United States through Ellis Island in steerage in sight of the Statue of Liberty. As immigrants their biggest dream was opening a small grocery store on the Lower East Side of New York City, which they did in 1939. They didn’t aspire to open a chain of grocery stores, just to feed their family.
My parents were no less of an entrepreneur than I was. They went on an uncharted course, took entrepreneurial risk and only made money if the business succeeded. The only capital available to them was their own savings and what they could borrow from relatives. Both my parents worked as hard as any Silicon Valley entrepreneur but with a different definition of a successful business model; when they made a profit, they could feed our family. When business was bad they figured out why, adapted and worked harder still. They were only accountable to one and other.
Today, the overwhelming number of entrepreneurs and startups in the United States are still small businesses.
Scalable Startup Entrepreneurship
Unlike my parents, Fred Durham and his partner Maheesh Jain started the now $100+ million CafePress, knowing they wanted to build a large company. Founded in offices smaller than my parents grocery store, Fred and Maheesh’s vision was to provide a home for artists who made personalized products assembled in a just-in-time factory that today delivers a customized gift each second. Once they found a profitable business model they realized that scale required external venture capital to fuel rapid expansion. With venture capital came accountability to board members, forecasts, and other people’s agendas. Success for a scalable startup is a three-times (or more) return on the investor’s money – either by a public offering of stock or by selling the company.
Scalable startups in technology centers (Silicon Valley, Shanghai, New York, Bangalore, Israel, etc.) make up a small percentage of entrepreneurs and startups but because of the outsize returns attract almost all the risk capital (and press.)
Large Company Entrepreneurship
At the end of 1980, IBM decided to compete in the rapidly growing personal computer market. They were smart enough to realize that IBM’s existing processes and procedures wouldn’t be agile enough to innovate in this new market. The company established their new PC division (called Entry Systems), as a Skunk Works in Boca Raton Florida a 1000 miles from IBM headquarters. This small group consisted of 12 engineers and designers under the direction of Don Estridge. Success for this new division meant generating substantial revenue and profit for company.
Don Estridge’s paycheck and funding for the division came from IBM and he reported up the organization, but in his own division he was no less entrepreneurial than Michael Dell or Steve Jobs – or Fred Durham or my parents.
Irfan Alam, a 27-year-old from the Indian state of Bihar started the Sammaan Foundation to transform the lives of 10 million rickshaw-pullers in India. Irfan got banks to finance rickshaw-pullers and designed rickshaws that can shelve newspapers, mineral water bottles and other essentials for rickshaw passengers. These rickshaws carry ads and the pullers get 50% of the ad revenue, the remainder going to Sammaan. The rickshaw-pullers end up as owners after re-paying the bank loan in installments. Irfan started off with 100 such rickshaws in 2007 and have 300,000 today.
Irfan doesn’t take a salary but he is as focused on scalability, asset leverage, return on investment and growth metrics as any Silicon Valley entrepreneur ever was.
If you put the four entrepreneurs in the room you would understand what they had in common- they were resilient, agile, tenacious and passionate – the four most common traits of any class of entrepreneur.
Also in common, each of their businesses initially were searching for a business model, and each was instinctively executing a customer discovery and validation process.
Yet there are obvious differences in each type; personal risk, size of vision and goal.
- Four different types of entrepreneurship: Small Business, Scalable, Large Company, Social.
- All searching for a sustainable business model.
- Regardless of type, entrepreneurs have common characteristics: resilient, agile, tenacious and passionate.
- Differences include level of tolerance of personal risk, size and scale of the vision and their personal financial goal.
Filed under: Big Companies versus Startups: Durant versus Sloan