posted on February 15, 2007 11:41
I saw this video about entrepreneurship the other day and felt it was a very compelling topic. As I have been writing my blog on entrepreneurship over the past few months, I sometimes find it tempting to blur the lines between entrepreneurship and small business. But to be clear on my opinion, I agree with the Kauffman Foundation that entrepreneurship is NOT the same thing as small business. In addition, managing an entrepreneurial startup like a small business can have damaging effects that will significantly impact the entrepreneurs’ probability for success. Therefore, I thought that the topic was worth some real estate in this blog.
So to give this topic some attention, I went back to my last few blogs and thought I would quickly analyze the difference between entrepreneurship and small business.
When hiring employees for an entrepreneurial startup, there is both a unique opportunity and a certain type of person that has a higher likelihood of success. Employees that will succeed in an entrepreneurial environment are very different than those that will succeed within a small or large business.
As I mentioned in my earlier blog on hiring top performers, those employees that will succeed in an entrepreneurial business may have more ambition than experience. It is my experience that within an entrepreneurial environment, employees with enough ambition and energy can compensate for lack of hands-on experience.
To succeed in an entrepreneurial environment, employees need BOTH intelligence and a strong work ethic. A strong work ethic without intelligence can run a business into the ground. And intelligence with out work ethic can land great ideas that aren’t executed upon.
Finally, employees that will succeed in an entrepreneurial environment have to value long-term reward over short term financial reward. This helps to ensure that it is NOT ABOUT THE MONEY. It is about making a difference with paradigm-shifting strategy, process, and technology.
A topic that I haven’t touched upon yet in previous blogs is funding partners. For a small business, a bank makes an ideal funding partner. There is a low-risk business case that a bank can understand and the loan can get repaid. There are even lending programs through the SBA for small business start-ups (as is mentioned in the above video).
But if the entrepreneurial start-up is doing their job right, a bank will not “get it”. Entrepreneurs are in the business of fundamentally changing the market. As a result, the business concept that they are pitching will, by definition, not be easily understood by the general business community. This is what makes the risk profile of an entrepreneurial business different from a small business. Therefore, the right funding partner for an entrepreneurial startup is 1) self funding through bootstrapping, 2) angel funding, and 3) early stage venture capital firms.
Commercializing Web 2.0
Now that we are well into the Web 2.0 cycle (and arguable toward its end), the concept of commercializing Web 2.0 is not inherently paradigm shifting. The ability to add comments to a New York Times article is nothing new, adding tags to photos on flickr is no longer revolutionary, nor is posting a video making a fool of yourself on youtube groundbreaking.
Arguably, copycat businesses pitching these types of ideas to a venture capital firm are pitching a small business – not an entrepreneurial business. They are small, single-product, product companies, and me too product companies that are very difficult to monetize. Their best option for monetization is expanding their product lines while selling to vertical markets and/or offering a consumer suite; or selling their business to the big guys, as did flicker and youtube, to yahoo and google. But if the company is a “me too”, it’s a game of musical chairs and it is likely that there are no suitors left.
Nonetheless, there are countless examples of the differences between small and entrepreneurial businesses. In addition, getting them confused during the start-up and management of each has dramatic implications on each model’s probability for success.