The word “entrepreneur” is a French word meaning “one who undertakes”. It is a difficult word to say and far more difficult to spell! The actual dictionary definition of “entrepreneur” is someone who organizes a business interest and assumes the risk for it. For the most part, I agree with this definition. However after having taught entrepreneurship to hundreds of students over the last twelve years, I feel I am somewhat qualified to expand the definition. My definition of an entrepreneur contains three parts. For me an entrepreneur is someone who:
1) Starts, grows and finishes a business,
2) Under the constant threat of competition, volatile markets and fickle customers,
3) With the goal of financial profit and other psychic income.
In the first part of my definition of the word entrepreneur there are four important words. An entrepreneur is someone who starts something. This starting could be an idea for a new business, it could be buying an existing business and running it under new management, it could be inventing a great new product, or even starting a franchise business. In all cases there is a start point, a point at which the idea to do something goes from something just in your head to something concrete and real. So an entrepreneur starts a business. Starting something, especially a business, is really very easy. For example, if you wanted to start a business in my state of Minnesota, it’s as easy as going to the Secretary of States website (www.sos.state.mn.us) and paying $50 to get a Certificate of Assumed Name. What could be easier? Most of us are really good starters.
However, the next important word adds some meat to the definition, and that word is “grow”. To grow something forces you to truly pay attention to it, nurture it, protect it, and yes, even love it. Growing something requires many of the same skills as parenting. You can’t grow a business by merely birthing it and leaving it alone. Growing a business requires the entrepreneur to devote a good portion of their time and energy into the business so that the business doesn’t get sick and die. As any parent will tell you, this growth thing is really hard work, and in the case of businesses, the failure rates can be high. 60,000 businesses started in the State of Minnesota in 2013. Of these 60,000 start-ups it is estimated that only 45,000 will be around after just 12 months, and less than 38,000 will be around at the end of two years. Clearly the ability to grow a business is far more important than starting a business. The first year of a business is critical to its long term success. This first year lays the foundation for long term growth. According to statistics 25% of all businesses fail within the first 12 months. If you are going to start a business, forget most of the long term goals and concentrate on getting the first year under your belt. You will learn so much during the first year of operation that this first year literally becomes the launch point for long term success.
There is a great old adage in businesses that whenever you start something, start with the end in mind. In other words, think about how the business is going to end before you even start it. This is where the word “finish” comes in. As I said, most people are very good starters, but no so good at finishing things. I try and have my students think about the end of their business and then work backwards from there. This really becomes critical when you are raising money by selling shares of stock in your company (equity financing). Most investors will ask what the “exit strategy” is. These investors want to know how they are going to be paid back on their investment. In reality there are only three exit strategies. The first is to take the company public; do an IPO. The second is to sell the Company and the third is to pay dividends. For the small business owner the decision is a little more complicated. Some people start businesses to leave a legacy for themselves and have their children run it after they are gone. Some people start businesses just for a part time income. Others start a business because of the lifestyle the business provides. Whatever the reasons, considering how the business is going to end provides the new entrepreneur with a clear goal to shoot for, and for any new business owner, GOALS ARE GREAT!
The fourth important word in first part of my definition of an entrepreneur is the word “business”. For me, a business is any organization that has money going in and out of it. In many respects a household is a form of business because money goes in through income and money goes out to buy things like food, etc. Churches are a form of a business. Charities are a form of a business and even our government is a form of a business.
If more money goes into a business than goes out of business this is called Positive Cash Flow and this is GOOD. If more money goes out of a business than comes into the business, then this is called Negative Cash Flow and this is BAD. Positive Cash Flow is good, Negative Cash Flow is bad. Positive Cash Flow allows a business to have a long life and grow. A Negative Cash Flow forces a business to get sick and die. You have just learned the most important principle of business growth and success! It is your job as a “rookie” entrepreneur or first year entrepreneur to get your business to positive cash flow as soon as possible!
I will be discussing the other parts of the word “Entrepreneur” in later blog posts. If you would like to ask me a question or comment on this post, email me at email@example.com.