5.1 What Is an Entrepreneur?

[Rokeya]

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CONTENTS
EXPLORING BUSINESS
5.1 What Is an Entrepreneur?
Learning Objectives
Define entrepreneur.
Describe the three characteristics of entrepreneurial activity.
Identify five potential advantages to starting your own business.
Explain the differences among three types of start-up firms.
In developing BTIO and Realityworks Inc., the Jurmains were doing what entrepreneurs do (and doing it very well). In fact, Mary was nominated three times for the Ernst & Young Entrepreneur of the Year Award and named 2001 Wisconsin Entrepreneurial Woman of the Year by the National Association of Women Business Owners. So what, exactly, is an entrepreneur? What does an entrepreneur do? According to one definition, an entrepreneur is an "individual who starts a new business," and that's true as far as it goes. Another definition identifies an entrepreneur as someone who uses "resources to implement innovative ideas for new, thoughtfully planned ventures," (Canadian Foundation for Economic Education, 2008) which is also true as far as it goes. But an important component of a satisfactory definition is still missing. To appreciate fully what it is, let's go back to the story of the Jurmains, for whom entrepreneurship seems to have worked out quite well. We hasten to point out that, in 1993, the Jurmains were both unemployed—Rick had been laid off by General Dynamics Corp., and Mary by the San Diego Gas and Electric Company. While they were watching the show about teenagers and flour sacks, they were living off a loan from her father and the returns from a timely investment in coffee futures. Rick recalls that the idea for a method of creating BTIO came to him while "I was awake in bed, worrying about being unemployed." He was struggling to find a way to feed his family. He had to make the first forty simulators himself, and at the end of the first summer, BTIO had received about four hundred orders—a promising start, perhaps, but, at $250 per baby (less expenses), not exactly a windfall. "We were always about one month away from bankruptcy," recalls Mary.

At the same time, it's not as if the Jurmains started up BTIO simply because they had no "conventional" options for improving their financial prospects. Rick, as we've seen, was an aerospace engineer, and his résumé includes work on space-shuttle missions at NASA. Mary, who has not only a head for business but also a degree in industrial engineering, has worked at the Johnson Space Center. Therefore, the idea of replacing a sack of flour with a computer-controlled simulator wasn't necessarily rocket science for the couple. But taking advantage of that idea—choosing to start a new business and to commit themselves to running it—was a risk. Risk taking is the missing component that we're looking for in a definition of entrepreneurship, and so we'll define an entrepreneur as someone who identifies a business opportunity and assumes the risk of creating and running a business to take advantage of it.

The Nature of Entrepreneurship
If we look a little more closely at the definition of entrepreneurship, we can identify three characteristics of entrepreneurial activity (Dollinger, 2003):

Innovation. Entrepreneurship generally means offering a new product, applying a new technique or technology, opening a new market, or developing a new form of organization for the purpose of producing or enhancing a product.
Running a business. A business, as we saw in Chapter 1 "The Foundations of Business", combines resources to produce goods or services. Entrepreneurship means setting up a business to make a profit.
Risk taking. The term risk means that the outcome of the entrepreneurial venture can't be known. Entrepreneurs, therefore, are always working under a certain degree of uncertainty, and they can't know the outcomes of many of the decisions that they have to make. Consequently, many of the steps they take are motivated mainly by their confidence in the innovation and in their understanding of the business environment in which they're operating.
It isn't hard to recognize all three of these characteristics in the entrepreneurial experience of the Jurmains. They certainly had an innovative idea. But was it a good business idea? In a practical sense, a "good" business idea has to become something more than just an idea. If, like the Jurmains, you're interested in generating income from your idea, you'll probably need to turn it into a product—something that you can market because it satisfies a need. If—again, like the Jurmains—you want to develop a product, you'll need some kind of organization to coordinate the resources necessary to make it a reality (in other words, a business). Risk enters the equation when, like the Jurmains, you make the decision to start up a business and when you commit yourself to managing it.

A Few Things to Know about Going into Business for Yourself

Distinguishing Entrepreneurs from Small Business Owners
Though most entrepreneurial ventures begin as small businesses, not all small business owners are entrepreneurs. Entrepreneurs are innovators who start companies to create new or improved products. They strive to meet a need that's not being met, and their goal is to grow the business and eventually expand into other markets.

In contrast, many people either start or buy small businesses for the sole purpose of providing an income for themselves and their families. They do not intend to be particularly innovative, nor do they plan to expand significantly. This desire to operate is what's sometimes called a "lifestyle business" (Allen, 2001). The neighborhood pizza parlor or beauty shop, the self-employed consultant who works out of the home, and even a local printing company—all of these are typical lifestyle businesses. In Section 5.2 "The Importance of Small Business to the U.S. Economy", we discuss the positive influences that both lifestyle and entrepreneurial businesses have on the U.S. economy.
Key Takeaways
An entrepreneur is someone who identifies a business opportunity and assumes the risk of creating and running a business to take advantage of it.
There are three characteristics of entrepreneurial activity:

Innovating. An entrepreneur offers a new product, applies a new technique or technology, opens a new market, or develops a new form of organization for the purpose of producing or enhancing a product.
Running a business. Entrepreneurship means setting up a business to make a profit from an innovative product or process.
Risk taking. Risk means that an outcome is unknown. Entrepreneurs, therefore, are always working under a certain degree of uncertainty, and they can't know the outcomes of many of the decisions that they have to make.
According to the SBA, a government agency that provides assistance to small businesses, there are five advantages to starting a business—"for the right person":

Be your own boss.
Accommodate a desired lifestyle.
Achieve financial independence.
Enjoy creative freedom.
Use your skills and knowledge.
To determine whether you're one of the "right people" to exploit the advantages of starting your own business, the SBA suggests that you assess your strengths and weaknesses by asking yourself the following questions:

Am I a self-starter?
How well do I get along with different personalities?
How good am I at making decisions?
Do I have the physical and emotional stamina?
How well do I plan and organize?
Is my drive strong enough?
How will my business affect my family?
Though most entrepreneurial ventures begin as small businesses, not all small business owners are entrepreneurs. Entrepreneurs are innovators who start companies to create new or improved products. In contrast, many people start businesses for the purpose of providing an income for themselves and their families. This type of businesses is sometimes called a "lifestyle business."

Source: https://open.lib.umn.edu/exploringbusiness/chapter/5-1-what-is-an-entrepreneur