Classification of Entrepreneurs
I am an entrepreneur, and believe I have the qualities of one. However, I feel that the term Entrepreneurship is used too generically. An entrepreneur could be one who opened his/her coffee shop. It could be a scientist who made a new technology and started his own business. It could be a high school kid starting a lawn mowing service. It could be someone finding students to tutor or making money through a one-page website. So what does it mean when I say “I am an entrepreneur?” Which one am I? How do people know?
Yes, I understand the key characteristic is the Entrepreneurial Spirit, in which flows commonly between persistent entrepreneurs, big and small. Many well-known entrepreneurs started off their careers providing a simple service, hence the common reference of the lemonade stand. But I would like to create different classification of Entrepreneurs. Just like Eskimos have more than a dozen words for different kinds of snow, entrepreneurs should have clearer terms for what they do.
I think the type of entrepreneur should be classified by these traits:
- Scale: how many employees, customers, revenue etc.
- Difficulty in Initiation: requires permits and regulations, fund raising, new technology, patents.
- Opportunity Cost: what he needs to give up in order to become an entrepreneur. Could they make $200,000 a year anyway if they didn’t start the business?
- Creativity/Originality: truly created something new in society, or just following the trend.
- Risk Associated: what do you lose if you fail?
- Past Ventures/Experience: whether or not this venture is the first one. Also, one who failed once is often greater than one who succeeded once, because anyone could fail, but it is more entrepreneurial for one to fail and not give up.
With these means of measurement, I made some classifications. Some entrepreneurs fit in two or more of these categories, but I don’t see that as a problem. In addition, many people start with one, acquire experience, and slowly move to a different group.
Classification 1: Solo-Service Entrepreneur
Usually a sole proprietorship (just him/herself) with friends as customers. It’s most often a service that requires time but little or no investment. There are few opportunity costs as Solo-Service Entrepreneur sare mostly students who are selling gum or mowing someone’s lawn. The tasks are usually generally not original. Needless to say, they have limited experiences in entrepreneurship.
Classification 2: Commodity Entrepreneur
These are entrepreneurs who make healthy investments to start something that is somewhat saturated in the market. This means you can find many similar businesses that do the same thing. Most restaurants and coffee shops, as well as common commodity businesses are within this category. They usually follow what the Opportunity Entrepreneur does after it becomes common and adapted. When asked why they started that business, it is usually not because they see a special demand or a better way to do things in the market, but simply because they think it would be interesting (“I always wanted to open a flower shop”), or they are good at the technical work of that business and want to open a business with that skill. Real Estate would be categorized as Commodity Entrepreneurship.
Classification 3: Network Marketing & Franchise Entrepreneur
For those who don’t know, network marketing is the pyramid way of doing business, where you do business, and you recruit other people to run divisions under you. They do the same, and you get some commission from those under. It’s legit business as they truly create some value, as long as they are actually selling a valuable product or service. I feel like the initialization process for this type of entrepreneur is too easy, and the opportunity often comes to search for you with full force, not the other way around (entrepreneurs create opportunities themselves). I feel this is more of a salesman/manager than an entrepreneur, as even though one needs to make entrepreneurial tactical decisions, nothing truly new is created. You just follow someone’s model, use someone’s equipment, and have relatively small investment and risk. 80% of the business is worked out for you. Most people can start without any past experience (as a Starting Entrepreneur). However, it is true that the same problems with stress and creativity runs in Network Marketing, so it is still considered entrepreneurial.
Classification 4: Opportunity Entrepreneur
Opportunity Entrepreneurs look at the newest trends, figure out what works, and do it. They usually identify some competitive advantage and start something that exists, except better. The scale is usually decent and initial investment is usually pretty large. Starting is difficult because one needs to go through all regulations and registrations as well as obtain decent capital. Risk is relatively high because it is hard to rightly evaluate which market trends can be followed and have the technical abilities and timing to do it well. Creativity/Originality is based on how the entrepreneur picks the business and the creative processes to get a solid edge, but it is not completely innovative. In an Economics graph of supply and demand, these are the people that “shift the supply curve forward” when there seems to be profit in an industry. Finally, Opportunity Entrepreneurs often have some past experience as a Solo-Service Entrepreneur.
Classification 5: Innovation Entrepreneur
These people create something new, something no one else has ever done in an industry. They identify something that does not exist yet is missing, and they do what it takes to make it happen. The scale usually would be pretty big in order to bring something completely new into the market. The difficulty in initiation is extremely high, especially in some industries. However, the strongest characteristic about an Innovation Entrepreneur is that they think outside the box, and are willing to take huge risks, as nothing has indicated this business would work at all!
Classification 6: High Tech Entrepreneur
The High Tech Entrepreneur can be some of the most respectable in terms of being entrepreneurial. Instead of creating improvements or introducing something good in an industry, they create industries. These guys invented computers and start the entire computer industry. They invented automobiles and started the automobile industry with all its parts and accessories. As you can tell, it is incredibly hard to initiate such a business. Investments, creativity level, and risk are all extremely high. You are investing for something that might not even be created! (let along being tested and proven) These companies usually need to be backed up by Venture Capitalists, and it also has a high chance of failing due to technology competition (someone might be already almost done with what you are trying to make when you are still mindlessly inventing).
It takes a true Entrepreneur to spend this much time, money, money forfeited elsewhere, and energy for this huge a risk. However, there must not be a mix-up between Inventors and Entrepreneurs. There are cases where the Inventor is also an Entrepreneur (or Entrepreneurial), but many times simply knowing the technological work of making a new product does not make one an Entrepreneur. Inventors create new great products, but entrepreneurs create new great businesses.
Classification 7: Escape Entrepreneur
Some people go on their ventures because they simply want to make a lot of money and/or want to be their own boss. In essence, they are entrepreneurs because they want to “escape” from something else. These are wrong motives and usually result in a failing business (unfortunately, this is the majority of people who start businesses, and is part of why so many businesses fail.) Often times, these entrepreneurs fail because they realize that being an entrepreneur means working twice as much as having a job, and getting paid 1/3 of it, especially in early years. The “grind” will often make them lose motivation and “escape” back to their former career.