Definition of Entrepreneurship: All You Need to Know
You probably heard the word entrepreneurship being thrown around a lot, usually around business conversations. Every third person you meet claims to be an entrepreneur, regardless of their field. But what exactly is the definition of entrepreneurship? Before getting to that it’s important to know what it’s not. First, Entrepreneurship isn’t a young concept as it may seem. The word itself is of French origin dating back to the 18th century. Entrepreneurship is not a loose term that anyone can adopt. There are certain parameters that define an entrepreneur. It’s definitely not a synonym for unemployed. The business world is brutal with no room for those who have nothing to offer. Then how do those “entrepreneurs” who don’t fit in a conventional niche or business field often do so well?
Definition of Entrepreneurship
It’s the process of building a new business, from the ground up, by introducing a new idea or concept. Most of the time these businesses start small but always aim for expansion. These business ventures are risky, because they are based solely on untried products or services. The people who take these risks are called entrepreneurs. People often confuse it with small businesses, due to the fact that they almost always start small. However, not all small businesses necessarily introduce new products or are ambitious enough to qualify as entrepreneurship.
Joseph Schumpeter, a famous economist, once identified the definition of entrepreneurship as “creative destruction.” Creative because they gave birth to new concepts and ideas. Destructive because they rendered old industries outdated and therefore destroyed them. This makes a way of constantly refreshing the market, and an adaptive tool for every economy.
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Role in Economy
Entrepreneurs is now considered to play a vital role in every economy. This wasn’t always the case, however. Until recently, they were thought to offer very little to the economy as they mostly started small. It wasn’t until the Austrian school of economics recognized entrepreneurship as the driving force of every economy, in the 1800s. This is simply because a society’s progress is measured by how much it allows and encourages new ventures and ideas. The facts are: products get outdated (some quicker than others) and this leaves an ever expanding gap between supply and demand. The only way to fill this gap is through entrepreneurship and creating new products.
Simply coming up with a new approach or idea for a product doesn’t fulfil the definition of an entrepreneur. One must be willing to take certain responsibilities that define entrepreneurship. These responsibilities include:
- Making business plans: This includes a complete mapping of the exact steps to be taken from product development, sales and making profit.
- Financing: An entrepreneur has to find ways to provide the funds needed to start working towards their goal.
- Hiring Personnel: Matching the right people with the right job is not easy, especially in an emerging company.
- Leadership: An entrepreneur must be able to inspire his employees to believe in the company’s vision and work towards united business goals.
- Risk aversion: This Basically means finding the path towards business goals with the least risks and highest reward.
- Complete responsibility to success and failure: At the end of the day, the very definition of entrepreneurship is venturing into untested territories. This entails a huge margin of failure that the entrepreneur takes full responsibility for, as well as huge profit potential.
A society’s progress is measured by how well they cope with economic peaks and troughs. This can be done by opening up new markets and businesses through innovative ideas. An entrepreneurial ecosystem is the social and economic environment that surrounds local entrepreneurs and allows them to flourish. There are many external factors that directly affect any business and its profitability. New businesses are especially vulnerable to these factors. These factors are controlled mainly by surrounding businesses and monitored by governments. A productive society should encourage people to become entrepreneurs by minimizing the costs and risks involved. It should also, be supportive and inspiring to new ideas and accommodating to out of the box solutions.
They are companies that provide guidance, support, and sometimes training to entrepreneurs. Incubators are basically a work space for entrepreneurs to develop their ideas. Creativity is boosted when you are surrounded by like-minded individuals, this is because of the risky definition of entrepreneurship that can be off putting if you’re on your own.
Business incubators are mainly focused on small startups. Being private companies however means they are selective with who they provide their services for. Also by agreeing to be part of an incubator you often agree for the business incubator to take stake in your startup, like a certain percentage or share. Some of the services provided include: training, motivation, work space, proprietary protection, and sometimes even living accommodation.
A good idea is only as good as its execution. In order to make your vision a reality, you will need cash flow. One of the most important responsibilities of an entrepreneur is providing finance. Because of the very definition of entrepreneurship, most startups don’t have the necessary funds at first, an entrepreneur sometimes needs to find external investors. Pitching an idea to an investor is more than just inspiring them, it requires a full business plan, because in the end business is about profit. There are many ways to provide funds for an emerging business.
It’s a type of financing done through a private equity firm. Entrepreneurs usually pitch their ideas to many private equity firms that in turn make offers to support the business in exchange for a share in the company. The chosen firm, then provides financial support to get your company on its feet in the agreed upon sum. The venture capital company releases the funds to the startup in stages that are like milestones for the startup. These stages can be renegotiated at any time if there are problems or setbacks.
This is an individual that offers capital for a business, in exchange for a returnable debt with interest, or ownership equity. They are people that invest in potentially profitable businesses that are in need of immediate cash flow. Nowadays, a great deal of angel investors provide their services online through crowd-sourcing websites.
Why Take the Risk?
It’s true that almost everyone wants success and wealth, but when it comes down to it not everyone would risk it all for an idea. It’s important to remember that your idea is not just your pass to the high rollers club. Entrepreneurs, as mentioned earlier, are the backbone of every economy. The definition of entrepreneurship makes them visionaries, ambitious, leaders that guide the business world to the future. New ideas aren’t for the sake of new ideas, but they provide an actual service and make life easier, if only even a little bit. Why take the risk? Because it’s worth it. Because if you believe in your idea enough and do your research, the profit outweighs the risk every time.
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