definition of business plan in entrepreneurship

What is a Business Plan? Definition, Tips, and Templates

Published: June 07, 2023

In an era where more than 20% of small enterprises fail in their first year, having a clear, defined, and well-thought-out business plan is a crucial first step for setting up a business for long-term success.

Business plans are a required tool for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?

In this post, we'll explain what a business plan is, the reasons why you'd need one, identify different types of business plans, and what you should include in yours.

What is a business plan?

A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement. Key staff who are responsible for achieving the goals may also be included in the business plan along with a timeline.

The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.

What is a business plan used for?

The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.

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Purposes of a Business Plan

Chances are, someone drafting a business plan will be doing so for one or more of the following reasons:

1. Securing financing from investors.

Since its contents revolve around how businesses succeed, break even, and turn a profit, a business plan is used as a tool for sourcing capital. This document is an entrepreneur's way of showing potential investors or lenders how their capital will be put to work and how it will help the business thrive.

All banks, investors, and venture capital firms will want to see a business plan before handing over their money, and investors typically expect a 10% ROI or more from the capital they invest in a business.

Therefore, these investors need to know if — and when — they'll be making their money back (and then some). Additionally, they'll want to read about the process and strategy for how the business will reach those financial goals, which is where the context provided by sales, marketing, and operations plans come into play.

2. Documenting a company's strategy and goals.

A business plan should leave no stone unturned.

Business plans can span dozens or even hundreds of pages, affording their drafters the opportunity to explain what a business' goals are and how the business will achieve them.

To show potential investors that they've addressed every question and thought through every possible scenario, entrepreneurs should thoroughly explain their marketing, sales, and operations strategies — from acquiring a physical location for the business to explaining a tactical approach for marketing penetration.

These explanations should ultimately lead to a business' break-even point supported by a sales forecast and financial projections, with the business plan writer being able to speak to the why behind anything outlined in the plan.

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Free Business Plan [Template]

Fill out the form to access your free business plan., 3. legitimizing a business idea..

Everyone's got a great idea for a company — until they put pen to paper and realize that it's not exactly feasible.

A business plan is an aspiring entrepreneur's way to prove that a business idea is actually worth pursuing.

As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, entrepreneurs likely come across a few hiccups that will make them second guess their strategies and metrics — and that's exactly what the business plan is for.

It ensures an entrepreneur's ducks are in a row before bringing their business idea to the world and reassures the readers that whoever wrote the plan is serious about the idea, having put hours into thinking of the business idea, fleshing out growth tactics, and calculating financial projections.

4. Getting an A in your business class.

Speaking from personal experience, there's a chance you're here to get business plan ideas for your Business 101 class project.

If that's the case, might we suggest checking out this post on How to Write a Business Plan — providing a section-by-section guide on creating your plan?

What does a business plan need to include?

• Business Plan Subtitle
• Executive Summary
• Company Description
• The Business Opportunity
• Competitive Analysis
• Target Market
• Marketing Plan
• Financial Summary
• Funding Requirements

1. Business Plan Subtitle

Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.

2. Executive Summary

Although this is the last part of the business plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.

3. Company Description

This brief part of your business plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader in a compelling and concise way.

4. The Business Opportunity

The business opportunity should convince investors that your organization meets the needs of the market in a way that no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition as well as some high-level information about your target market.

5. Competitive Analysis

Just about every industry has more than one player in the market. Even if your business owns the majority of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll take an objective look at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.

6. Target Market

Who are the core customers of your business and why? The target market portion of your business plan outlines this in detail. The target market should explain the demographics, psychographics, behavioristics, and geographics of the ideal customer.

7. Marketing Plan

Marketing is expansive, and it’ll be tempting to cover every type of marketing possible, but a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan will suffice.

Think broadly and narrow down from there: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.

8. Financial Summary

Money doesn’t grow on trees and even the most digital, sustainable businesses have expenses. Outlining a financial summary of where your business is currently and where you’d like it to be in the future will substantiate this section. Consider including any monetary information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all useful adds here.

So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you have to offer. Who’s responsible for turning all this high-level talk into results? The "team" section of your business plan answers that question by providing an overview of the roles responsible for each goal. Don’t worry if you don’t have every team member on board yet, knowing what roles to hire for is helpful as you seek funding from investors.

10. Funding Requirements

Remember that one of the goals of a business plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.

Types of Business Plans

• Startup Business Plan
• Feasibility Business Plan
• Internal Business Plan
• Strategic Business Plan
• Business Acquisition Plan
• Business Repositioning Plan
• Expansion or Growth Business Plan

There’s no one size fits all business plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every type of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of business plans.

For even more examples, check out these sample business plans to help you write your own .

1. Startup Business Plan

As one of the most common types of business plans, a startup business plan is for new business ideas. This plan lays the foundation for the eventual success of a business.

The biggest challenge with the startup business plan is that it’s written completely from scratch. Startup business plans often reference existing industry data. They also explain unique business strategies and go-to-market plans.

Because startup business plans expand on an original idea, the contents will vary by the top priority goals.

For example, say a startup is looking for funding. If capital is a priority, this business plan might focus more on financial projections than marketing or company culture.

2. Feasibility Business Plan

This type of business plan focuses on a single essential aspect of the business — the product or service. It may be part of a startup business plan or a standalone plan for an existing organization. This comprehensive plan may include:

• A detailed product description
• Market analysis
• Technology needs
• Production needs
• Financial sources
• Production operations

According to CBInsights research, 35% of startups fail because of a lack of market need. Another 10% fail because of mistimed products.

Some businesses will complete a feasibility study to explore ideas and narrow product plans to the best choice. They conduct these studies before completing the feasibility business plan. Then the feasibility plan centers on that one product or service.

3. Internal Business Plan

Internal business plans help leaders communicate company goals, strategy, and performance. This helps the business align and work toward objectives more effectively.

Besides the typical elements in a startup business plan, an internal business plan may also include:

• Department-specific budgets
• Target demographic analysis
• Market size and share of voice analysis
• Action plans
• Sustainability plans

Most external-facing business plans focus on raising capital and support for a business. But an internal business plan helps keep the business mission consistent in the face of change.

4. Strategic Business Plan

Strategic business plans focus on long-term objectives for your business. They usually cover the first three to five years of operations. This is different from the typical startup business plan which focuses on the first one to three years. The audience for this plan is also primarily internal stakeholders.

These types of business plans may include:

• Relevant data and analysis
• Assessments of company resources
• Vision and mission statements

It's important to remember that, while many businesses create a strategic plan before launching, some business owners just jump in. So, this business plan can add value by outlining how your business plans to reach specific goals. This type of planning can also help a business anticipate future challenges.

5. Business Acquisition Plan

Investors use business plans to acquire existing businesses, too — not just new businesses.

A business acquisition plan may include costs, schedules, or management requirements. This data will come from an acquisition strategy.

A business plan for an existing company will explain:

• How an acquisition will change its operating model
• What will stay the same under new ownership
• Why things will change or stay the same
• Acquisition planning documentation
• Timelines for acquisition

Additionally, the business plan should speak to the current state of the business and why it's up for sale.

For example, if someone is purchasing a failing business, the business plan should explain why the business is being purchased. It should also include:

• What the new owner will do to turn the business around
• Historic business metrics
• Sales projections after the acquisition
• Justification for those projections

6. Business Repositioning Plan

When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.

This plan will:

• Acknowledge the current state of the company.
• State a vision for the future of the company.
• Explain why the business needs to reposition itself.
• Outline a process for how the company will adjust.

Companies planning for a business reposition often do so — proactively or retroactively — due to a shift in market trends and customer needs.

For example, shoe brand AllBirds plans to refocus its brand on core customers and shift its go-to-market strategy. These decisions are a reaction to lackluster sales following product changes and other missteps.

7. Expansion or Growth Business Plan

When your business is ready to expand, a growth business plan creates a useful structure for reaching specific targets.

For example, a successful business expanding into another location can use a growth business plan. This is because it may also mean the business needs to focus on a new target market or generate more capital.

This type of plan usually covers the next year or two of growth. It often references current sales, revenue, and successes. It may also include:

• SWOT analysis
• Growth opportunity studies
• Financial goals and plans
• Marketing plans
• Capability planning

These types of business plans will vary by business, but they can help businesses quickly rally around new priorities to drive growth.

Getting Started With Your Business Plan

At the end of the day, a business plan is simply an explanation of a business idea and why it will be successful. The more detail and thought you put into it, the more successful your plan — and the business it outlines — will be.

When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot's Free Business Plan Template below to get started.

Editor's note: This post was originally published in August 2020 and has been updated for comprehensiveness.

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11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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What Is a Business Plan? Definition and Planning Essentials Explained

Posted february 21, 2022 by kody wirth.

What is a business plan? It’s the roadmap for your business. The outline of your goals, objectives, and the steps you’ll take to get there. It describes the structure of your organization, how it operates, as well as the financial expectations and actual performance. 

A business plan can help you explore ideas, successfully start a business, manage operations, and pursue growth. In short, a business plan is a lot of different things. It’s more than just a stack of paper and can be one of your most effective tools as a business owner. 

Let’s explore the basics of business planning, the structure of a traditional plan, your planning options, and how you can use your plan to succeed. 

What is a business plan?

A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. Again, it’s a guide that helps you, and anyone else, better understand how your business will succeed.  

Why do you need a business plan?

The primary purpose of a business plan is to help you understand the direction of your business and the steps it will take to get there. Having a solid business plan can help you grow up to 30% faster and according to our own 2021 Small Business research working on a business plan increases confidence regarding business health—even in the midst of a crisis. 

These benefits are directly connected to how writing a business plan makes you more informed and better prepares you for entrepreneurship. It helps you reduce risk and avoid pursuing potentially poor ideas. You’ll also be able to more easily uncover your business’s potential. By regularly returning to your plan you can understand what parts of your strategy are working and those that are not.

That just scratches the surface for why having a plan is valuable. Check out our full write-up for fifteen more reasons why you need a business plan .  

What can you do with your plan?

So what can you do with a business plan once you’ve created it? It can be all too easy to write a plan and just let it be. Here are just a few ways you can leverage your plan to benefit your business.

Test an idea

Writing a plan isn’t just for those that are ready to start a business. It’s just as valuable for those that have an idea and want to determine if it’s actually possible or not. By writing a plan to explore the validity of an idea, you are working through the process of understanding what it would take to be successful. 

The market and competitive research alone can tell you a lot about your idea. Is the marketplace too crowded? Is the solution you have in mind not really needed? Add in the exploration of milestones, potential expenses, and the sales needed to attain profitability and you can paint a pretty clear picture of the potential of your business.

Document your strategy and goals

For those starting or managing a business understanding where you’re going and how you’re going to get there are vital. Writing your plan helps you do that. It ensures that you are considering all aspects of your business, know what milestones you need to hit, and can effectively make adjustments if that doesn’t happen. 

With a plan in place, you’ll have an idea of where you want your business to go as well as how you’ve performed in the past. This alone better prepares you to take on challenges, review what you’ve done before, and make the right adjustments.

Pursue funding

Even if you do not intend to pursue funding right away, having a business plan will prepare you for it. It will ensure that you have all of the information necessary to submit a loan application and pitch to investors. So, rather than scrambling to gather documentation and write a cohesive plan once it’s relevant, you can instead keep your plan up-to-date and attempt to attain funding. Just add a use of funds report to your financial plan and you’ll be ready to go.

The benefits of having a plan don’t stop there. You can then use your business plan to help you manage the funding you receive. You’ll not only be able to easily track and forecast how you’ll use your funds but easily report on how it’s been used. 

Better manage your business

A solid business plan isn’t meant to be something you do once and forget about. Instead, it should be a useful tool that you can regularly use to analyze performance, make strategic decisions, and anticipate future scenarios. It’s a document that you should regularly update and adjust as you go to better fit the actual state of your business.

Doing so makes it easier to understand what’s working and what’s not. It helps you understand if you’re truly reaching your goals or if you need to make further adjustments. Having your plan in place makes that process quicker, more informative, and leaves you with far more time to actually spend running your business.

What should your business plan include?

The content and structure of your business plan should include anything that will help you use it effectively. That being said, there are some key elements that you should cover and that investors will expect to see. 

Executive summary

The executive summary is a simple overview of your business and your overall plan. It should serve as a standalone document that provides enough detail for anyone—including yourself, team members, or investors—to fully understand your business strategy. Make sure to cover the problem you’re solving, a description of your product or service, your target market, organizational structure, a financial summary, and any necessary funding requirements.

This will be the first part of your plan but it’s easiest to write it after you’ve created your full plan.

Products & Services

When describing your products or services, you need to start by outlining the problem you’re solving and why what you offer is valuable. This is where you’ll also address current competition in the market and any competitive advantages your products or services bring to the table. Lastly, be sure to outline the steps or milestones that you’ll need to hit to successfully launch your business. If you’ve already hit some initial milestones, like taking pre-orders or early funding, be sure to include it here to further prove the validity of your business. 

Market analysis

A market analysis is a qualitative and quantitative assessment of the current market you’re entering or competing in. It helps you understand the overall state and potential of the industry, who your ideal customers are, the positioning of your competition, and how you intend to position your own business. This helps you better explore the long-term trends of the market, what challenges to expect, and how you will need to initially introduce and even price your products or services.

Check out our full guide for how to conduct a market analysis in just four easy steps .  

Marketing & sales

Here you detail how you intend to reach your target market. This includes your sales activities, general pricing plan, and the beginnings of your marketing strategy. If you have any branding elements, sample marketing campaigns, or messaging available—this is the place to add it. 

Additionally, it may be wise to include a SWOT analysis that demonstrates your business or specific product/service position. This will showcase how you intend to leverage sales and marketing channels to deal with competitive threats and take advantage of any opportunities.

Check out our full write-up to learn how to create a cohesive marketing strategy for your business. 

Organization & management

This section addresses the legal structure of your business, your current team, and any gaps that need to be filled. Depending on your business type and longevity, you’ll also need to include your location, ownership information, and business history. Basically, add any information that helps explain your organizational structure and how you operate. This section is particularly important for pitching to investors but should be included even if attempted funding is not in your immediate future.

Financial projections

Possibly the most important piece of your plan, your financials section is vital for showcasing the viability of your business. It also helps you establish a baseline to measure against and makes it easier to make ongoing strategic decisions as your business grows. This may seem complex on the surface, but it can be far easier than you think. 

Focus on building solid forecasts, keep your categories simple, and lean on assumptions. You can always return to this section to add more details and refine your financial statements as you operate. 

Here are the statements you should include in your financial plan:

• Sales and revenue projections
• Profit and loss statement
• Cash flow statement
• Balance sheet

The appendix is where you add additional detail, documentation, or extended notes that support the other sections of your plan. Don’t worry about adding this section at first and only add documentation that you think will be beneficial for anyone reading your plan.

Types of business plans explained

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. So, to get the most out of your plan, it’s best to find a format that suits your needs. Here are a few common business plan types worth considering. 

Traditional business plan

The tried-and-true traditional business plan is a formal document meant to be used for external purposes. Typically this is the type of plan you’ll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or any other situation where the full details of your business must be understood by another individual. 

This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix. We recommend only starting with this business plan format if you plan to immediately pursue funding and already have a solid handle on your business information. 

Business model canvas

The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea. 

The structure ditches a linear structure in favor of a cell-based template. It encourages you to build connections between every element of your business. It’s faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations. This is really best for those exploring their business idea for the first time, but keep in mind that it can be difficult to actually validate your idea this way as well as adapt it into a full plan.

One-page business plan

The true middle ground between the business model canvas and a traditional business plan is the one-page business plan. This format is a simplified version of the traditional plan that focuses on the core aspects of your business. It basically serves as a beefed-up pitch document and can be finished as quickly as the business model canvas.

By starting with a one-page plan, you give yourself a minimal document to build from. You’ll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan. This plan type is useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Now, the option that we here at LivePlan recommend is the Lean Plan . This is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance.

It holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27-minutes . However, it’s even easier to convert into a full plan thanks to how heavily it’s tied to your financials. The overall goal of Lean Planning isn’t to just produce documents that you use once and shelve. Instead, the Lean Planning process helps you build a healthier company that thrives in times of growth and stable through times of crisis.

It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

Try the LivePlan Method for Lean Business Planning

Now that you know the basics of business planning, it’s time to get started. Again we recommend leveraging a Lean Plan for a faster, easier, and far more useful planning process. 

To get familiar with the Lean Plan format, you can download our free Lean Plan template . However, if you want to elevate your ability to create and use your lean plan even further, you may want to explore LivePlan. 

It features step-by-step guidance that ensures you cover everything necessary while reducing the time spent on formatting and presenting. You’ll also gain access to financial forecasting tools that propel you through the process. Finally, it will transform your plan into a management tool that will help you easily compare your forecasts to your actual results. 

Check out how LivePlan streamlines Lean Planning by downloading our Kickstart Your Business ebook .

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An Introduction to Business Plans Why is a business plan so vital to the health of your business? Read the first section of our tutorial on How to Build a Business Plan to find out.

A business plan is a written description of your business's future. That's all there is to it--a document that desribes what you plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope describing your business strategy, you've written a plan, or at least the germ of a plan.

Business plans can help perform a number of tasks for those who write and read them. They're used by investment-seeking entrepreneurs to convey their vision to potential investors. They may also be used by firms that are trying to attract key employees, prospect for new business, deal with suppliers or simply to understand how to manage their companies better.

So what's included in a business plan, and how do you put one together? Simply stated, a business plan conveys your business goals, the strategies you'll use to meet them, potential problems that may confront your business and ways to solve them, the organizational structure of your business (including titles and responsibilities), and finally, the amount of capital required to finance your venture and keep it going until it breaks even.

Sound impressive? It can be, if put together properly. A good business plan follows generally accepted guidelines for both form and content. There are three primary parts to a business plan:

• The first is the business concept , where you discuss the industry, your business structure, your particular product or service, and how you plan to make your business a success.
• The second is the marketplace section , in which you describe and analyze potential customers: who and where they are, what makes them buy and so on. Here, you also describe the competition and how you'll position yourself to beat it.
• Finally, the financial section contains your income and cash flow statement, balance sheet and other financial ratios, such as break-even analyses. This part may require help from your accountant and a good spreadsheet software program.

Breaking these three major sections down even further, a business plan consists of seven key components:

• Executive summary
• Business description
• Market strategies
• Competitive analysis
• Design and development plan
• Operations and management plan
• Financial factors

In addition to these sections, a business plan should also have a cover, title page and table of contents.

How Long Should Your Business Plan Be? Depending on what you're using it for, a useful business plan can be any length, from a scrawl on the back of an envelope to, in the case of an especially detailed plan describing a complex enterprise, more than 100 pages. A typical business plan runs 15 to 20 pages, but there's room for wide variation from that norm. Much will depend on the nature of your business. If you have a simple concept, you may be able to express it in very few words. On the other hand, if you're proposing a new kind of business or even a new industry, it may require quite a bit of explanation to get the message across.

The purpose of your plan also determines its length. If you want to use your plan to seek millions of dollars in seed capital to start a risky venture, you may have to do a lot of explaining and convincing. If you're just going to use your plan for internal purposes to manage an ongoing business, a much more abbreviated version should be fine.

Who Needs a Business Plan?

About the only person who doesn't need a business plan is one who's not going into business. You don't need a plan to start a hobby or to moonlight from your regular job. But anybody beginning or extending a venture that will consume significant resources of money, energy or time, and that is expected to return a profit, should take the time to draft some kind of plan.

Startups. The classic business plan writer is an entrepreneur seeking funds to help start a new venture. Many, many great companies had their starts on paper, in the form of a plan that was used to convince investors to put up the capital necessary to get them under way.

Most books on business planning seem to be aimed at these startup business owners. There's one good reason for that: As the least experienced of the potential plan writers, they're probably most appreciative of the guidance. However, it's a mistake to think that only cash-starved startups need business plans. Business owners find plans useful at all stages of their companies' existence, whether they're seeking financing or trying to figure out how to invest a surplus.

Established firms seeking help. Not all business plans are written by starry-eyed entrepreneurs. Many are written by and for companies that are long past the startup stage. WalkerGroup/Designs, for instance, was already well-established as a designer of stores for major retailers when founder Ken Walker got the idea of trademarking and licensing to apparel makers and others the symbols 01-01-00 as a sort of numeric shorthand for the approaching millennium. Before beginning the arduous and costly task of trademarking it worldwide, Walker used a business plan complete with sales forecasts to convince big retailers it would be a good idea to promise to carry the 01-01-00 goods. It helped make the new venture a winner long before the big day arrived. "As a result of the retail support up front," Walker says, "we had over 45 licensees running the gamut of product lines almost from the beginning."

These middle-stage enterprises may draft plans to help them find funding for growth just as the startups do, although the amounts they seek may be larger and the investors more willing. They may feel the need for a written plan to help manage an already rapidly growing business. Or a plan may be seen as a valuable tool to be used to convey the mission and prospects of the business to customers, suppliers or others.

Plan an Updating Checklist Here are seven reasons to think about updating your business plan. If even just one applies to you, it's time for an update.

• A new financial period is about to begin. You may update your plan annually, quarterly or even monthly if your industry is a fast-changing one.
• You need financing , or additional financing. Lenders and other financiers need an updated plan to help them make financing decisions.
• There's been a significant market change . Shifting client tastes, consolidation trends among customers and altered regulatory climates can trigger a need for plan updates.
• Your firm develops or is about to develop a new product , technology , service or skill. If your business has changed a lot since you wrote your plan the first time around, it's time for an update.
• You have had a change in management . New managers should get fresh information about your business and your goals.
• Your company has crossed a threshold, such as moving out of your home office, crossing the $1 million sales mark or employing your 100th employee .
• Your old plan doesn't seem to reflect reality any more. Maybe you did a poor job last time; maybe things have just changed faster than you expected. But if your plan seems irrelevant, redo it.

Finding the Right Plan for You

Business plans tend to have a lot of elements in common, like cash flow projections and marketing plans. And many of them share certain objectives as well, such as raising money or persuading a partner to join the firm. But business plans are not all the same any more than all businesses are.

Depending on your business and what you intend to use your plan for, you may need a very different type of business plan from another entrepreneur. Plans differ widely in their length, their appearance, the detail of their contents, and the varying emphases they place on different aspects of the business.

The reason that plan selection is so important is that it has a powerful effect on the overall impact of your plan. You want your plan to present you and your business in the best, most accurate light. That's true no matter what you intend to use your plan for, whether it's destined for presentation at a venture capital conference, or will never leave your own office or be seen outside internal strategy sessions.

When you select clothing for an important occasion, odds are you try to pick items that will play up your best features. Think about your plan the same way. You want to reveal any positives that your business may have and make sure they receive due consideration.

Types of Plans Business plans can be divided roughly into four separate types. There are very short plans, or miniplans. There are working plans, presentation plans and even electronic plans. They require very different amounts of labor and not always with proportionately different results. That is to say, a more elaborate plan is not guaranteed to be superior to an abbreviated one, depending on what you want to use it for.

• The Miniplan. A miniplan may consist of one to 10 pages and should include at least cursory attention to such key matters as business concept, financing needs, marketing plan and financial statements, especially cash flow, income projection and balance sheet. It's a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It can also serve as a valuable prelude to a full-length plan later on.

Be careful about misusing a miniplan. It's not intended to substitute for a full-length plan. If you send a miniplan to an investor who's looking for a comprehensive one, you're only going to look foolish.

• The Working Plan. A working plan is a tool to be used to operate your business. It has to be long on detail but may be short on presentation. As with a miniplan, you can probably afford a somewhat higher degree of candor and informality when preparing a working plan.

A plan intended strictly for internal use may also omit some elements that would be important in one aimed at someone outside the firm. You probably don't need to include an appendix with resumes of key executives, for example. Nor would a working plan especially benefit from, say, product photos.

Fit and finish are liable to be quite different in a working plan. It's not essential that a working plan be printed on high-quality paper and enclosed in a fancy binder. An old three-ring binder with "Plan" scrawled across it with a felt-tip marker will serve quite well.

Internal consistency of facts and figures is just as crucial with a working plan as with one aimed at outsiders. You don't have to be as careful, however, about such things as typos in the text, perfectly conforming to business style, being consistent with date formats and so on. This document is like an old pair of khakis you wear into the office on Saturdays or that one ancient delivery truck that never seems to break down. It's there to be used, not admired.

• The Presentation Plan. If you take a working plan, with its low stress on cosmetics and impression, and twist the knob to boost the amount of attention paid to its looks, you'll wind up with a presentation plan. This plan is suitable for showing to bankers, investors and others outside the company.

Almost all the information in a presentation plan is going to be the same as your working plan, although it may be styled somewhat differently. For instance, you should use standard business vocabulary, omitting the informal jargon, slang and shorthand that's so useful in the workplace and is appropriate in a working plan. Remember, these readers won't be familiar with your operation. Unlike the working plan, this plan isn't being used as a reminder but as an introduction.

You'll also have to include some added elements. Among investors' requirements for due diligence is information on all competitive threats and risks. Even if you consider some of only peripheral significance, you need to address these concerns by providing the information.

The big difference between the presentation and working plans is in the details of appearance and polish. A working plan may be run off on the office printer and stapled together at one corner. A presentation plan should be printed by a high-quality printer, probably using color. It must be bound expertly into a booklet that is durable and easy to read. It should include graphics such as charts, graphs, tables and illustrations.

It's essential that a presentation plan be accurate and internally consistent. A mistake here could be construed as a misrepresentation by an unsympathetic outsider. At best, it will make you look less than careful. If the plan's summary describes a need for $40,000 in financing, but the cash flow projection shows $50,000 in financing coming in during the first year, you might think, "Oops! Forgot to update that summary to show the new numbers." The investor you're asking to pony up the cash, however, is unlikely to be so charitable.

• The Electronic Plan. The majority of business plans are composed on a computer of some kind, then printed out and presented in hard copy. But more and more business information that once was transferred between parties only on paper is now sent electronically. So you may find it appropriate to have an electronic version of your plan available. An electronic plan can be handy for presentations to a group using a computer-driven overhead projector, for example, or for satisfying the demands of a discriminating investor who wants to be able to delve deeply into the underpinnings of complex spreadsheets.

Source: The Small Business Encyclopedia , Business Plans Made Easy , Start Your Own Business and Entrepreneur magazine .

Continue on to the next section of our Business Plan How-To >> Plan Your Plan

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What is Entrepreneurship: How To Become an Entrepreneur

Entrepreneurship is a dynamic and exciting field that drives economic growth, fosters innovation, and empowers individuals to transform their ideas into successful businesses.

Aspiring entrepreneurs are overflowing, with the likes of Steve Jobs, Elon Musk, Jeff Bezos, Sir Richard Branson and many more having inspired a generation. Not only this, they've also proved that you don't need to have attended Harvard Business School to be a business owner and succeed in launching your next innovative idea.

However, in today's ever-changing landscape, understanding the fundamentals of entrepreneurship is crucial for aspiring entrepreneurs and small business owners.

In this article, we will explore the definition of an entrepreneur, the key traits and skills of successful entrepreneurs, the pros and cons of entrepreneurship, reasons why entrepreneurs fail, the most common types of entrepreneurs, and how to become a successful entrepreneur.

What is the Definition of an Entrepreneur?

At its core, an entrepreneur is an individual who identifies and exploits opportunities to create new business ventures.

The definition of entrepreneurship goes beyond just starting a small business. Entrepreneurs are driven by their passion for innovation and the desire to make a positive impact on society. They possess a unique ability to spot gaps in the market and develop creative solutions to address them.

Entrepreneurs often take calculated risks and are willing to invest their time, resources, and capital to turn their vision into reality.

What Makes a Successful Entrepreneur?

Successful entrepreneurs possess a combination of traits, skills, and experiences that contribute to their achievements. While there is no one-size-fits-all formula for success, some common attributes are often associated with thriving entrepreneurs:

Visionary Thinking: Successful entrepreneurs are natural innovators and have a clear vision of what they want to achieve and possess the ability to think strategically, setting long-term goals for their businesses.

Passion and Persistence: Passion fuels an entrepreneur's drive and determination to overcome obstacles and persevere in the face of challenges. Successful entrepreneurs possess an unwavering commitment to their goals and are willing to put in the hard work required to succeed.

Adaptability and Resilience: Entrepreneurship is a dynamic journey filled with uncertainty. Successful entrepreneurs are adaptable and resilient, readily adjusting their strategies to navigate changing market conditions and setbacks.

Strong Leadership: Entrepreneurs are often responsible for guiding their teams and making critical decisions. Effective leadership skills, including communication, delegation, and motivation, are essential for creating a cohesive and productive work environment.

Networking and Relationship Building: Successful entrepreneurs understand the importance of building a strong network of contacts. They actively seek opportunities to connect with industry experts, mentors, potential partners, and customers, leveraging these relationships for business growth and support.

In the next section we'll be discussing what skills are required to become an entrepreneur in todays world.

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What Skills Does an Entrepreneur Need?

In addition to the traits mentioned above, entrepreneurs must develop a wide range of skills to thrive in the competitive business landscape. Here are some key skills that entrepreneurs should cultivate:

Creativity and Innovation: Entrepreneurs need the ability to think outside the box and come up with innovative ideas that differentiate their businesses from the competition.

Problem Solving: Entrepreneurship often involves facing complex challenges. Strong problem-solving skills enable entrepreneurs to identify and implement effective solutions.

Financial Management: Understanding financial concepts, such as budgeting, cash flow management, and investment strategies, is crucial for entrepreneurs to make informed decisions and ensure the financial health of their businesses.

Marketing and Sales: Entrepreneurs must be skilled in promoting their products or services, identifying target markets, and developing effective marketing strategies to attract customers and generate revenue.

Communication and Negotiation: Effective communication skills are vital for entrepreneurs to convey their ideas, pitch to investors, negotiate deals, and build relationships with stakeholders.

Learn how to develop the most in-demand skills for your future career!

Discover how you can acquire the most in-demand skills with our free report, and open the doors to a successful career. 

Now you know the set of skills you should obtain to successfully navigate your entrepreneurial journey, let's touch on the qualities of a good entrepreneur.

What are the Qualities of a Good Entrepreneur?

Apart from specific skills, there are certain qualities that set successful entrepreneurs apart:

Self-Motivation and Discipline: Entrepreneurs often face a lack of external structure and must be self-driven to stay focused and productive.

Risk-Taking: Successful entrepreneurs are comfortable with taking calculated risks, recognizing that opportunities often come with inherent uncertainty

Resourcefulness: Entrepreneurs must be resourceful, finding creative solutions to problems and leveraging available resources to achieve their goals.

Flexibility: Entrepreneurship often requires flexibility, adaptability, and a willingness to pivot when necessary to respond to changes in the market or business environment.

Perseverance: Building a successful business takes time, effort, and dedication. Entrepreneurs must be persistent in pursuing their goals, even when faced with obstacles or setbacks.

What are the Pros and Cons of Entrepreneurship?

Entrepreneurship offers many benefits, including the ability to pursue one's passions, the potential for financial independence, and the opportunity to make a positive impact on society. However, there are also challenges and risks associated with starting and running a business. Here are some of the main pros and cons of entrepreneurship:

Control: Entrepreneurs have the freedom to make their own decisions, set their own schedules, and choose their own projects.

Fulfillment: Entrepreneurship offers the opportunity to pursue one's passions and make a positive impact on society.

Financial Independence: Successful entrepreneurs can achieve financial independence, building wealth through their businesses.

Personal Growth: Entrepreneurship provides opportunities for personal growth and development, challenging individuals to learn new skills and take on new responsibilities.

Risk: Starting a business involves inherent risks, including financial, legal, and market risks.

Uncertainty: Entrepreneurship is inherently unpredictable, with no guarantee of success or stability. This can make the road to entrepreneurship particularly challenging.

Time Commitment: Starting and running a business requires a significant time commitment, often demanding long hours and sacrificing work-life balance.

Financial Instability: Entrepreneurship can be financially unstable, with inconsistent income streams and the need to invest significant resources in the business.

What are the Reasons Why Entrepreneurs Fail?

Entrepreneurship is a challenging journey that requires a combination of skills, traits, and experiences to succeed. Despite best efforts, many entrepreneurs fail for various reasons, including:

Lack of Market Demand: Entrepreneurs may have a great idea, but if there is no market demand for their product or service, the business is unlikely to succeed.

Poor Financial Management: Financial risk is inherent to being an entrepreneur. Inadequate financial planning, budgeting, or cash flow management can quickly lead to financial instability and business failure.

Ineffective Marketing: Poor marketing strategies, ineffective sales processes, or inadequate branding can make it challenging for entrepreneurs to attract and retain customers.

Lack of Focus: Entrepreneurs may struggle with focusing on their core business activities, leading to distractions and wasted resources.

Inability to Adapt: Entrepreneurs who fail to adapt to changing market conditions or customer needs are at risk of falling behind their competitors and losing their market share.

Now that we've discussed the most common reasons why a startup entrepreneur can fail, you can safely navigate around these obstacles.

Let's learn more about the 4 types of entrepreneurship in the next section.

What is the Most Common Type of Entrepreneur?

Entrepreneurship encompasses a wide range of business activities, from starting a small business to creating innovative products and services. Some common types of entrepreneurs include:

Small Business Entrepreneurs: These entrepreneurs start and run small businesses, such as local shops, restaurants, or service providers.

Social Entrepreneurs: Social entrepreneurs use business strategies to address social problems, creating businesses with a social impact, to help change the world for the better. A business focused on social entrepreneurship can take the form of a nonprofit organization, a for-profit enterprise, or a combination of the two.

Serial Entrepreneurs: Serial entrepreneurs are individuals who start multiple businesses over their careers, leveraging their experiences and skills to achieve success.

Large Company Entrepreneurs: Large company entrepreneurs are individuals who work within established companies but drive innovation and growth through new product development or business ventures.

Now that we've discussed the types of entrepreneurship that exists, let's focus on how you can become one!

How Do I Become a Successful Entrepreneur?

Becoming a successful entrepreneur requires dedication, hard work, and a willingness to learn from both successes and failures. Here are some steps aspiring entrepreneurs can take to increase their chances of success:

Develop a Business Idea: Identify a need in the market or a problem to solve and develop a unique business idea.

Conduct Market Research: Research the market, competition, and potential customers to validate the business idea and identify opportunities for growth.

Create a Business Plan: Develop a comprehensive business plan that outlines the business idea, target market, marketing strategies, financial projections, and operational plan.

Secure Funding: Identify funding sources, such as venture capital, loans, or grants, and secure the necessary funding to start and grow the business.

Build a Team: Assemble a team of talented and dedicated individuals with the necessary skills and experience to support the business.

Implement Strategies: Implement marketing, sales, and operational strategies to grow the business, attract customers, and achieve financial stability.

Embrace Innovation: Embrace innovation and stay current with market trends and technologies to remain competitive and drive growth.

Learn from Mistakes: Accept that mistakes will happen, but view them as opportunities to learn and improve.

Conclusion 

In conclusion, at the core of entrepreneurship, it is the process of identifying a need in the market or a problem to solve and creating a unique business idea to meet that need.

Successful entrepreneurs possess a combination of skills, traits, and experiences, including creativity, risk-taking, resourcefulness, flexibility, and perseverance.

While entrepreneurship offers many benefits, it also comes with challenges and risks, including financial instability, uncertainty, and a significant time commitment.

To increase the chances of success, aspiring entrepreneurs should develop a solid business idea, conduct thorough market research, create a comprehensive business plan, secure funding, build a talented team, implement effective strategies, embrace innovation, and learn from mistakes... Oh and maintain that strong entrepreneurial flare.

With dedication, hard work, and a willingness to learn, anyone can become a successful entrepreneur and make a positive impact on society.

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1.1: Chapter 1 – Introduction to Entrepreneurship

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• Lee A. Swanson
• University of Saskatchewan

Whilst there is no universally accepted definition of entrepreneurship, it is fair to say that it is multi-dimensional. It involves analyzing people and their actions together with the ways in which they interact with their environments, be these social, economic, or political, and the institutional, policy, and legal frameworks that help define and legitimize human activities. – Blackburn (2011, p. xiii)

Entrepreneurship involves such a range of activities and levels of analysis that no single definition is definitive. – Lichtenstein (2011, p. 472)

It is complex, chaotic, and lacks any notion of linearity. As educators, we have the responsibility to develop our students’ discovery, reasoning, and implementation skills so they may excel in highly uncertain environments. – Neck and Greene (2011, p. 55)

Learning Objectives

• Examine the challenges associated with defining the concepts of entrepreneur and entrepreneurship
• Discuss how the evolution of entrepreneurship thought has influenced how we view the concept of entrepreneurship today
• Discuss how the list of basic questions in entrepreneurship research can be expanded to include research inquiries that are important in today’s world
• Discuss how the concepts of entrepreneurial uniqueness, entrepreneurial personality traits, and entrepreneurial cognitions can help society improve its support for entrepreneurship
• Apply the general venturing script to the study of entrepreneurship

This chapter provides you with an overview of entrepreneurship and of the language of entrepreneurship. The challenges associated with defining entrepreneur and entrepreneurship are explored, as is an overview of how entrepreneurship can be studied.

The objective is to enable you to apply current concepts in entrepreneurship to the evaluation of entrepreneurs, their ventures, and the venturing environment. You will develop skills, including the capability to add value in the new venture sector of the economy. You will acquire and practice evaluation skills useful in consulting, advising, and making new venture decisions.

Entrepreneurs and Entrepreneurship

Considerations influencing definitions of entrepreneur and entrepreneurship.

It is necessary to be able to determine exactly who entrepreneurs are before we can, among other things, study them, count them, provide special loans for them, and calculate how and how much they contribute to our economy.

• Does someone need to start a business from scratch to be called an entrepreneur?
• Can we call someone an entrepreneur if they bought an ongoing business from someone else or took over the operations of a family business from their parents?
• If someone starts a small business and never needs to hire employees, can they be called an entrepreneur?
• If someone buys a business but hires professional managers to run it so they don’t have to be involved in the operations, are they an entrepreneur?
• Is someone an entrepreneur if they buy into a franchise so they can follow a well-established formula for running the operation?
• Is someone an entrepreneur because of what they do or because of how they think?
• Can someone be an entrepreneur without owning their own business?
• Can a person be an entrepreneur because of the nature of the work that they do within a large corporation?

It is also necessary to fully understand what we mean by entrepreneurship before we can study the concept.

Gartner (1990) identified 90 attributes that showed up in definitions of entrepreneurs and entrepreneurship provided by entrepreneurs and other experts in the field. The following are a few of these attributes:

• Innovation – Does a person need to be innovative to be considered an entrepreneur? Can an activity be considered to be entrepreneurial if it is not innovative?
• Activities – What activities does a person need to do to be considered an entrepreneur?
• Creation of a new business – Does someone need to start a new business to be considered to be an entrepreneur, or can someone who buys a business, buys into a franchise, or takes over an existing family business be considered an entrepreneur?
• Starts an innovative venture within an established organization – Can someone who works within an existing organization that they don’t own be considered an entrepreneur if they start an innovative venture for their organization?
• Creation of a not-for-profit business – Can a venture be considered to be entrepreneurial if it is a not-for-profit, or should only for-profit businesses be considered entrepreneurial?

After identifying the 90 attributes, Gartner (1990) went back to the entrepreneurs and other experts for help in clustering the attributes into themes that would help summarize what people concerned with entrepreneurship thought about the concept. He ended up with the following eight entrepreneurship themes:

1. The Entrepreneur – The entrepreneur theme is the idea that entrepreneurship involves individuals with unique personality characteristics and abilities (e.g., risk-taking, locus of control, autonomy, perseverance, commitment, vision, creativity). Almost 50% of the respondents rated these characteristics as not important to a definition of entrepreneurship (Gartner, 1990, p. 21, 24).

• “The question that needs to be addressed is: Does entrepreneurship involve entrepreneurs (individuals with unique characteristics)?” (Gartner, 1990, p. 25).

2. Innovation – The innovation theme is characterized as doing something new as an idea, product, service, market, or technology in a new or established organization. The innovation theme suggests that innovation is not limited to new ventures, but recognized as something which older and/or larger organizations may undertake as well (Gartner, 1990, p. 25). Some of the experts Gartner questioned believed that it was important to include innovation in definitions of entrepreneurship and others did not think it was as important.

• “Does entrepreneurship involve innovation?” (Gartner, 1990, p. 25).

3. Organization Creation – The organization creation theme describes the behaviors involved in creating organizations. This theme described acquiring and integrating resource attributes (e.g., Brings resources to bear, integrates opportunities with resources, mobilizes resources, gathers resources) and attributes that described creating organizations (new venture development and the creation of a business that adds value). (Gartner, 1990, p. 25)

• “Does entrepreneurship involve resource acquisition and integration (new venture creation activities)?” (Gartner, 1990, p. 25)

4. Creating Value – This theme articulated the idea that entrepreneurship creates value. The attributes in this factor indicated that value creation might be represented by transforming a business, creating a new business growing a business, creating wealth, or destroying the status quo.

• “Does entrepreneurship involve creating value?” (Gartner, 1990, p. 25).

5. Profit or Nonprofit

• “Does entrepreneurship involve profit-making organizations only” (Gartner, 1990, p. 25)?
• Should a focus on growth be a characteristic of entrepreneurship?

7. Uniqueness – This theme suggested that entrepreneurship must involve uniqueness. Uniqueness was characterized by attributes such as a special way of thinking, a vision of accomplishment, ability to see situations in terms of unmet needs, and creates a unique combination.

• “Does entrepreneurship involve uniqueness?” (Gartner, 1990, p. 26).

8. The Owner-Manager – Some of the respondents questioned by Gartner (1990) did not believe that small mom-and-pop types of businesses should be considered to be entrepreneurial. Some respondents felt that an important element of a definition of entrepreneurship was that a venture be owner-managed.

• To be entrepreneurial, does a venture need to be owner-managed?

Examples of Definitions of Entrepreneur

An entrepreneur can be described as “one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying significant opportunities and assembling the necessary resources to capitalize on them” (Zimmerer & Scarborough, 2008, p. 5).

An entrepreneur is “one who organizes, manages, and assumes the risks of a business or enterprise” (Entrepreneur, n.d.).

Examples of Definitions of Entrepreneurship

Entrepreneurship can be defined as a field of business that

seeks to understand how opportunities to create something new (e.g., new products or services, new markets, new production processes or raw materials, new ways of organizing existing technologies) arise and are discovered or created by specific persons, who then use various means to exploit or develop them, thus producing a wide range of effects (Baron, Shane, & Reuber, 2008, p. 4)

A concise definition of entrepreneurship “is that it is the process of pursuing opportunities without limitation by resources currently in hand” (Brooks, 2009, p. 3) and “the process of doing something new and something different for the purpose of creating wealth for the individual and adding value to society” (Kao, 1993, p. 70)

The Evolution of Entrepreneurship Thought

This section includes an overview of how entrepreneurship has evolved to the present day.

The following timeline shows some of the most influential entrepreneurship scholars and the schools of thought (French, English, American, German, and Austrian) their perspectives helped influence and from which their ideas evolved. Schools of thought are essentially groups of people who might or might not have personally known each other, but who shared common beliefs or philosophies.

Figure 1 – Historical and Evolutionary Entrepreneurship Thought (Illustration by Lee A. Swanson)

The Earliest Entrepreneurship

The function, if not the name, of the entrepreneur is probably as old as the institutions of barter and exchange. But only after economic markets became an intrusive element of society did the concept take on pivotal importance. Many economists have recognized the pivotal role of the entrepreneur in a market economy. Yet despite his central importance in economic activity, the entrepreneur has been a shadowy and elusive figure in the history of economic theory (Hebert & Link, 2009, p. 1).

Historically those who acted similarly to the ways we associate with modern day entrepreneurs – namely those who strategically assume risks to seek economic (or other) gains – were military leaders, royalty, or merchants. Military leaders planned their campaigns and battles while assuming significant risks, but by doing so they also stood to gain economic benefits if their strategies were successful. Merchants, like Marco Polo who sailed out of Venice in the late 1200s to search for a trade route to the Orient, also assumed substantial risks in the hope of becoming wealthy (Hebert & Link, 2009).

The entrepreneur, who was also called adventurer , projector , and undertaker during the eighteenth century, was not always viewed in a positive light (Hebert & Link, 2009).

Development of Entrepreneurship as a Concept

Risk and uncertainty.

Richard Cantillon (1680-1734) was born in France and belonged to the French School of thought although he was an Irish economist. He appears to be the person who introduced the term entrepreneur to the world. “According to Cantillon, the entrepreneur is a specialist in taking on risk, ‘insuring’ workers by buying their output for resale before consumers have indicated how much they are willing to pay for it” (Casson & Godley, 2005p. 26). The workers’ incomes are mostly stable, but the entrepreneur risks a loss if market prices fluctuate.

Cantillon distinguished entrepreneurs from two other classes of economic agents; landowners, who were financially independent, and hirelings (employees) who did not partake in the decision-making in exchange for relatively stable incomes through employment contracts. He was the first writer to provide a relatively refined meaning for the term entrepreneurship . Cantillon described entrepreneurs as individuals who generated profits through exchanges. In the face of uncertainty, particularly over future prices, they exercise business judgment. They purchase resources at one price and sell their product at a price that is uncertain, with the difference representing their profit (Chell, 2008; Hebert & Link, 2009).

Farmers were the most prominent entrepreneurs during Cantillon’s lifetime, and they interacted with “arbitrageurs” – or middlemen between farmers and the end consumers – who also faced uncertain incomes, and who were also, therefore, entrepreneurs. These intermediaries facilitated the movement of products from the farms to the cities where more than half of the farm output was consumed. Cantillon observed that consumers were willing to pay a higher price per unit to be able to purchase products in the smaller quantities they wanted, which created the opportunities for the intermediaries to make profits. Profits were the rewards for assuming the risks arising from uncertain conditions. The markets in which profits were earned were characterized by incomplete information (Chell, 2008; Hebert & Link, 2009).

Adolph Reidel (1809-1872), form the German School of thought, picked up on Cantillon’s notion of uncertainty and extended it to theorize that entrepreneurs take on uncertainty so others, namely income earners, do not have to be subject to the same uncertainty. Entrepreneurs provide a service to risk-averse income earners by assuming risk on their behalf. In exchange, entrepreneurs are rewarded when they can foresee the impacts of the uncertainty and sell their products at a price that exceeds their input costs (including the fixed costs of the wages they commit to paying) (Hebert & Link, 2009).

Frank Knight (1885-1972) founded the Chicago School of Economics and belonged to the American School of thought. He refined Cantillon’s perspective on entrepreneurs and risk by distinguishing insurable risk as something that is separate from uncertainty, which is not insurable. Some risks can be insurable because they have occurred enough times in the past that the expected loss from such risks can be calculated. Uncertainty, on the other hand, is not subject to probability calculations. According to Knight, entrepreneurs can’t share the risk of loss by insuring themselves against uncertain events, so they bear these kinds of risks themselves, and profit is the reward that entrepreneurs get from assuming uninsurable risks (Casson & Godley, 2005).

Distinction Between Entrepreneur and Manager

Jean-Baptiste Say (1767-1832), also from the French School, advanced Cantillon’s work, but added that entrepreneurship was essentially a form of management. Say “put the entrepreneur at the core of the entire process of production and distribution” (Hebert & Link, 2009, p. 17). Say’s work resulted in something similar to a general theory of entrepreneurship with three distinct functions; “scientific knowledge of the product; entrepreneurial industry – the application of knowledge to useful purpose; and productive industry – the manufacture of the item by manual labour” (Chell, 2008, p. 20).

Frank Knight made several contributions to entrepreneurship theory, but another of note is how he distinguished an entrepreneur from a manager. He suggested that a manager crosses the line to become an entrepreneur “when the exercise of his/her judgment is liable to error and s/he assumes the responsibility for its correctness” (Chell, 2008, p. 33). Knight said that entrepreneurs calculate the risks associated with uncertain business situations and make informed judgments and decisions with the expectation that – if they assessed the situation and made the correct decisions – they would be rewarded by earning a profit. Those who elect to avoid taking these risks choose the relative security of being employees (Chell, 2008).

Alfred Marshall (1842-1924), from the English School of thought, was one of the founders of neoclassical economics. His research involved distinguishing between the terms capitalist, entrepreneur, and manager. Marshall saw capitalists as individuals who “committed themselves to the capacity and honesty of others, when he by himself had incurred the risks for having contributed with the capital” (Zaratiegui & Rabade, 2005, p. 775). An entrepreneur took control of money provided by capitalists in an effort to leverage it to create more money; but would lose less if something went wrong then would the capitalists. An entrepreneur, however, risked his own reputation and the other gains he could have made by pursuing a different opportunity.

Let us suppose that two men are carrying on smaller businesses, the one working with his own, the other chiefly with borrowed capital. There is one set of risks which is common to both; which may be described as the trade risks of the particular business … But there is another set of risks, the burden of which has to be borne by the man working with borrowed capital, and not by the other; and we may call them personal risks (Marshall, 1961, p. 590; Zaratiegui & Rabade, 2005, p. 776).

Marshall recognized that the reward capitalists received for contributing capital was interest income and the reward entrepreneurs earned was profits. Managers received a salary and, according to Marshall, fulfilled a different function than either capitalists or entrepreneurs – although in some cases, particularly in smaller firms, one person might be both an entrepreneur and a manager. Managers “were more inclined to avoid challenges, innovations and what Schumpeter called the ‘perennial torment of creative destruction’ in favour of a more tranquil life” (Zaratiegui & Rabade, 2005, p. 781). The main risks they faced from firm failure were to their reputations or to their employment status. Managers had little incentive to strive to maximize profits (Zaratiegui & Rabade, 2005).

Amasa Walker (1799-1875) and his son Francis Walker (1840-1897) were from the American School of thought, and they helped shape an American perspective of entrepreneurship following the Civil War of 1861-1865. These scholars claimed that entrepreneurs created wealth, and thus played a different role than capitalists. They believed that entrepreneurs had the power of foresight and leadership qualities that enabled them to organize resources and inject energy into activities that create wealth (Chell, 2008).

Entrepreneurship versus Entrepreneur

Adam Smith (1723-1790), from the English School of thought, published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776. In a departure from the previous thought into entrepreneurship and economics, Smith did not dwell on a particular class of individual. He was concerned with studying how all people fit into the economic system. Smith contended that the economy was driven by self-interest in the marketplace (Chell, 2008).

Also from the English School, David Ricardo (1772-1823) was influenced by Smith, Say, and others. His work focused on how the capitalist system worked. He explained how manufacturers must invest their capital in response to the demand for the products they produce. If demand decreases, manufacturers should borrow less and reduce their workforces. When demand is high, they should do the reverse (Chell, 2008).

Carl Menger (1840-1921), from the Austrian School of thought, ranked goods according to their causal connections to human satisfaction. Lower order goods include items like bread that directly satisfy a human want or need like hunger. Higher order goods are those more removed from satisfying a human need. A second order good is the flour that was used to make the bread. The grain used to make the flour is an even higher order good. Entrepreneurs coordinate these factors of production to turn higher order goods into lower order goods that more directly satisfy human wants and needs (Hebert & Link, 2009).

Menger (1950 [1871], p. 160) established that entrepreneurial activity includes: (a) obtaining information about the economic situation, (b) economic calculation – all the various computations that must be made if a production process is to be efficient, (c) the act of will by which goods of higher order are assigned to a particular production process, and (d) supervising the execution of the production plan so that it may be carried through as economically as possible (Hebert & Link, 2009, p. 43).

Entrepreneurship and Innovation

Jeremy Bentham (1748-1832), from the English School of thought, considered entrepreneurs to be innovators. They “depart from routine, discover new markets, find new sources of supply, improve existing products and lower the costs of production” (Chell, 2008).

Joseph Schumpeter’s (1883-1950) parents were Austrian, he studied at the University of Vienna, conducted research at the University of Graz, served as Austria’s Minister of Finance, and was the president of a bank in the country. Because of the rise of Hitler in Europe, he went to the United States and conducted research at Harvard until he retired in 1949. Because of this, he is sometimes associated with the American School of thought on entrepreneurship (Chell, 2008).

Whereas Menger saw entrepreneurship as occurring because of economic progress, Schumpeter took the opposite stance. Schumpeter saw economic activity as leading to economic development (Hebert & Link, 2009). Entrepreneurs play a central role in Schumpeter’s theory of economic development, and economic development can occur when the factors of production are assembled in new combinations .

Schumpeter (1934) viewed innovation as arising from new combinations of materials and forces. He provided the following five cases of new combinations.

• The introduction of a new good – that is one with which consumers are not yet familiar – or of a new quality of good.
• The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially.
• The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before.
• The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created.
• The carrying out of the new organisation of any industry, like the creation of a monopoly position … or the breaking up of a monopoly position (Schumpeter, 1934, p. 66).

Another concept popularized by Schumpeter – in addition to the notion of new combinations – was creative destruction . This was meant to indicate that the existing ways of doing things need to be dismantled – to be destroyed – to enable a transformation through innovation to a new way of doing things. Entrepreneurs use innovation to disrupt how things are done and to establish a better way of doing those things.

Basic Questions in Entrepreneurship Research

According to Baron (2004a), there are three basic questions of interest in the field of entrepreneurship:

• Why do some persons but not others choose to become entrepreneurs?
• Why do some persons but not others recognize opportunities for new products or services that can be profitably exploited?
• Why are some entrepreneurs so much more successful than others (Baron, 2004a, p. 221)?

To understand where these foundational research questions came from and what their relevance is today, it is useful to study what entrepreneurship research has uncovered so far.

Entrepreneurial Uniqueness

Efforts to teach entrepreneurship have included descriptions of entrepreneurial uniqueness based on personality, behavioural, and cognitive traits (Chell, 2008; Duening, 2010).

• Need for achievement
• Internal locus of control (a belief by an individual that they are in control of their own destiny)
• Risk-taking propensity
• Behavioural traits
• Cognitive skills of successful entrepreneurs

Past studies of personality characteristics and behavioural traits have not been overly successful at identifying entrepreneurial uniqueness.

As it turned out, years of painstaking research along this line has not borne significant fruit. It appears that there are simply not any personality characteristics that are either essential to, or defining of, entrepreneurs that differ systematically from non-entrepreneurs…. Again, investigators proposed a number of behavioural candidates as emblematic of entrepreneurs. Unfortunately, this line of research also resulted in a series of dead ends as examples of successful entrepreneurial behaviours had equal counterparts among samples of non-entrepreneurs. As with the personality characteristic school of thought before it, the behavioural trait school of thought became increasingly difficult to support (Duening, 2010, p. 4-5).

This shed doubt on the value of trying to change personality characteristics or implant new entrepreneurial behaviours through educational programs in an effort to promote entrepreneurship.

New research, however, has resurrected the idea that there might be some value in revisiting personality traits as a topic of study. Additionally, Duening (2010) and has suggested that an important approach to teaching and learning about entrepreneurship is to focus on the “cognitive skills that successful entrepreneurs seem uniquely to possess and deploy” (p. 2). In the next sections we consider the new research on entrepreneurial personality traits and on entrepreneurial cognitions.

Entrepreneurial Personality Traits

While acknowledging that research had yet to validate the value of considering personality and behaviour traits as ways to distinguish entrepreneurs from non-entrepreneurs or unsuccessful ones, Chell (2008) suggested that researchers turn their attention to new sets of traits including: “the proactive personality, entrepreneurial self-efficacy, perseverance and intuitive decision-making style. Other traits that require further work include social competence and the need for independence” (p. 140).

In more recent years scholars have considered how the Big Five personality traits – extraversion, agreeableness, conscientiousness, neuroticism (sometimes presented as emotional stability ), and openness to experience (sometimes referred to as intellect) – might be used to better understand entrepreneurs. It appears that the Big Five traits might be of some use in predicting entrepreneurial success. Research is ongoing in this area, but in one example, Caliendo, Fossen, and Kritikos (2014) studied whether personality constructs might “influence entrepreneurial decisions at different points in time” (p. 807), and found that “high values in three factors of the Big Five approach—openness to experience, extraversion, and emotional stability (the latter only when we do not control for further personality characteristics)—increase the probability of entry into self-employment” (p. 807). They also found “that some specific personality characteristics, namely risk tolerance, locus of control, and trust, have strong partial effects on the entry decision” (p. 807). They also found that people who scored higher on agreeableness were more likely to exit their businesses, possibly meaning that people with lower agreeableness scores might prevail longer as entrepreneurs. When it came to specific personality traits, their conclusions indicated that those with an external locus of control were more likely to stop being self-employed after they had run their businesses for a while. There are several implications for research like this, including the potential to better understand why some entrepreneurs behave as they do based upon their personality types and the chance to improve entrepreneurship education and support services.

Entrepreneurial Cognitions

It is only fairly recently that entrepreneurship scholars have focused on cognitive skills as a primary factor that differentiates successful entrepreneurs from non-entrepreneurs and less successful entrepreneurs. This approach deals with how entrepreneurs think differently than non-entrepreneurs (Duening, 2010; Mitchell et al., 2007).

Entrepreneurial cognitions are the knowledge structures that people use to make assessments, judgments or decisions involving opportunity evaluation and venture creation and growth. In other words, research in entrepreneurial cognition is about understanding how entrepreneurs use simplifying mental models to piece together previously unconnected information that helps them to identify and invent new products or services, and to assemble the necessary resources to start and grow businesses (Mitchell, Busenitz, et al., 2002, p. 97).

Mitchell, Smith, et al. (2002) provided the example of how the decision to create a new venture (dependent variable) was influenced by three sets of cognitions (independent variables). They described these cognitions as follows:

Arrangements cognitions are the mental maps about the contacts, relationships, resources, and assets necessary to engage in entrepreneurial activity; willingness cognitions are the mental maps that support commitment to venturing and receptivity to the idea of starting a venture; ability cognitions consist of the knowledge structures or scripts (Glaser, 1984) that individuals have to support the capabilities, skills, norms, and attitudes required to create a venture (Mitchell et al., 2000). These variables draw on the idea that cognitions are structured in the minds of individuals (Read, 1987), and that these knowledge structures act as “scripts” that are the antecedents of decision making (Leddo & Abelson, 1986, p. 121; Mitchell, Smith, et al., 2002, p. 10)

Cognitive Perspective to Understanding Entrepreneurship

According to Baron (2004a), by taking a cognitive perspective, we might better understand entrepreneurs and the role they play in the entrepreneurial process.

The cognitive perspective emphasizes the fact that everything we think, say, or do is influenced by mental processes—the cognitive mechanisms through which we acquire store, transform, and use information. It is suggested here that this perspective can be highly useful to the field of entrepreneurship. Specifically, it can assist the field in answering three basic questions it has long addressed: (1) Why do some persons but not others choose to become entrepreneurs? (2) Why do some persons but not others recognize opportunities for new products or services that can be profitably exploited? And (3) Why are some entrepreneurs so much more successful than others (Baron, 2004a, p. 221-222)?

Baron (2004a), illustrated how cognitive differences between people might explain why some people end up pursuing entrepreneurial pursuits and others do not. For example, prospect theory (Kahneman & Tversky, 1977) and other decision-making or behavioural theories might be useful in this regard. Research into cognitive biases might also help explain why some people become entrepreneurs.

Baron (2004a) also revealed ways in which cognitive concepts like signal detection theory, regulation theory, and entrepreneurial might help explain why some people are better at entrepreneurial opportunity recognition. He also illustrated how some cognitive models and theories – like risk perception, counterfactual thinking, processing style, and susceptibility to cognitive errors – might help explain why some entrepreneurs are more successful than others.

Cognitive Perspective and the Three Questions

• Prospect Theory
• Cognitive Biases
• Signal Detection Theory
• Regulation Theory
• Entrepreneurial Alertness
• Risk Perception
• Counterfactual Thinking
• Processing Style
• Susceptibility to Cognitive Errors

Entrepreneurial Scripts

• “Cognition has emerged as an important theoretical perspective for understanding and explaining human behavior and action” (Dutta & Thornhill, 2008, p. 309).
• Cognitions are all processes by which sensory input is transformed, reduced, elaborated, stored, recovered, and used (Neisser, 1976).
• Cognitions lead to the acquisition of knowledge, and involve human information processing.
• Is a mental model, or information processing short-cut that can give information form and meaning, and enable subsequent interpretation and action.
• The subsequent interpretation and actions can result in expert performance … they can also result in thinking errors.
• the processes that transfer expertise, and
• the actual expertise itself.
• Scripts are generally framed as a linear sequence of steps, usually with feedback loops, that can explain how to achieve a particular task – perhaps like developing a business plan.
• Sometimes scripts can be embedded within other scripts. For example, within a general venturing script that outlines the sequences of activities that can lead to a successful business launch, there will probably be sub-scripts describing how entrepreneurs can search for ideas, screen those ideas until one is selected, plan how to launch a sustainable business based upon that idea and including securing the needed financial resources, setting up the business, starting it, effectively managing its ongoing operations, and managing the venture such that that entrepreneur can extract the value that they desire from the enterprise at the times and in the ways they want it.
• The most effective scripts include an indication of the norms that outline performance standards and indicate how to determine when any step in the sequence has been properly completed.

General Venturing Script

Generally, entrepreneurship is considered to consist of the following elements, or subscripts (Brooks, 2009; Mitchell, 2000).

• Idea Screening
• Planning and Financing
• Ongoing Operations

Searching (also called idea formulation or opportunity recognition)

• This script begins when a person decides they might be a potential entrepreneur (or when an existing entrepreneur decides they need more ideas in their idea pool ).
• This script ends when there are a sufficient number of ideas in the idea pool.
• overcome mental blockages to creativity which might hinder this person’s ability to identify viable ideas;
• implement steps to identify a sufficient number of ideas (most likely 5 or more) which the person is interested in investigating to determine whether they might be viable given general criteria such as this person’s personal interests and capabilities;

Idea Screening (also called concept development)

• This script begins when the person with the idea pool is no longer focusing on adding new ideas to it; but is instead taking steps to choose the best idea for them given a full range of specific criteria .
• This script ends when one idea is chosen from among those in the idea pool.
• Evaluate the political, economic, social, technological, environmental, and legal climates
• Evaluate the degree of competitiveness in the industry, the threat of substitutes emerging, the threat of new entrants to the industry, the degree of bargaining power of buyers, and the degree of bargaining power of suppliers.
• Do a market profile analysis to assess the attractiveness of the position within the industry that the potential venture will occupy.
• Formulate and evaluate potential strategies to leverage organizational strengths, overcome/minimize weaknesses, take advantage of opportunities, and overcome/minimize threats;
• Complete financial projections and analyze them to evaluate financial attractiveness;
• Assess the founder fit with the ideas;
• Evaluate the core competencies of the organization relative to the idea;
• Assess advice solicited from trusted advisers

Planning and Financing (also called resource determination and acquisition)

• This script begins when the idea screening script ends and when the person begins making the plans to implement the single idea chosen from the idea pool, which is done in concert with securing financing to implement the venture idea.
• This script ends when sufficient business planning has been done and when adequate financing has been arranged.
• The scripting process involves a logical flow of steps to develop a business plan and secure adequate financing to start the business.

Set-Up (also called launch)

• This script begins when the planning and financing script ends and when the person begins implementing the plans needed to start the business.
• This script ends when the business is ready to start-up.
• The scripting process involves a logical flow of steps, including purchasing and installing equipment, securing the venture location and finishing all the needed renovations, recruiting and hiring any staff needed for start-up, and the many other steps needed to prepare for start-up.
• Start-Up (also called launch)
• This script begins when the set-up script ends and when the business opens and begins making sales.
• This script ends when the business has moved beyond the point where the entrepreneur must continually fight for the business’s survival and persistence. It ends when the entrepreneur can instead shift emphasis toward business growth or maintaining the venture’s stability.
• The scripting process involves a logical flow of steps needed to establish a new venture.

Ongoing Operations (also called venture growth)

• This script begins when the start-up script ends and when the business has established persistence and is implementing growth (or maintenance) strategies.
• This script ends when the entrepreneur chooses to harvest the value they generated with the venture.
• The scripting process involves a logical flow of steps needed to grow (or maintain) a venture.

Studying Entrepreneurship

The following quotations from two preeminent entrepreneurship and entrepreneurship education researchers indicate the growing interest in studies in this field.

Entrepreneurship has emerged over the last two decades as arguably the most potent economic force the world has ever experienced. With that expansion has come a similar increase in the field of entrepreneurship education. The recent growth and development in the curricula and programs devoted to entrepreneurship and new-venture creation have been remarkable. The number of colleges and universities that offer courses related to entrepreneurship has grown from a handful in the 1970s to over 1,600 in 2005 (Kuratko, 2005, p. 577).

Interest in entrepreneurship has heightened in recent years, especially in business schools. Much of this interest is driven by student demand for courses in entrepreneurship, either because of genuine interest in the subject, or because students see entrepreneurship education as a useful hedge given uncertain corporate careers (Venkataraman, 1997, p. 119).

Approaches to Studying Entrepreneurship

Entrepreneurship is a discipline, which means an individual can learn about it, and about how to be an effective entrepreneur. It is a myth that people are born entrepreneurs and that others cannot learn to become entrepreneurs (Drucker, 1985). Kuratko (2005) asserted that the belief previously held by some that entrepreneurship cannot be taught has been debunked, and the focus has shifted to what topics should be taught and how they should be covered.

Solomon (2007) summarized some of the research on what should be covered in entrepreneurship courses, and how it should be taught. While the initial focus was on actions like developing business plans and being exposed to real entrepreneurs, more recently this approach has been supplemented by an emphasis on technical, industry, and personal experience. “It requires critical thinking and ethical assessment and is based on the premise that successful entrepreneurial activities are a function of human, venture and environmental conditions” (p. 172). Another approach “calls for courses to be structured around a series of strategic development challenges including opportunity identification and feasibility analysis; new venture planning, financing and operating; new market development and expansion strategies; and institutionalizing innovation” (p. 172). This involves having students interact with entrepreneurs by interviewing them, having them act as mentors, and learning about their experiences and approaches through class discussions.

Sources of Information for Studying Entrepreneurship

According to Kuratko (2005), “three major sources of information supply the data related to the entrepreneurial process or perspective” (p. 579).

• Academic journals like Entrepreneurship Theory and Practice , Journal of Business Venturing , and Journal of Small Business Management
• Proceedings of conferences like Proceedings of the Academy of Management and Proceedings of the Administrative Sciences Association of Canada
• Textbooks on entrepreneurship
• Books about entrepreneurship
• Biographies or autobiographies of entrepreneurs
• News periodicals like Canadian Business and Profit
• Trade periodicals like Entrepreneur and Family Business
• Government publications available through sources like the Enterprise Saskatchewan and Canada-Saskatchewan Business Service Centre (CSBSC) websites and through various government resource centers
• Data might be collected from entrepreneurs and about entrepreneurs through surveys, interviews, or other methods applied by researchers.
• Speeches and presentations by practicing entrepreneurs

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Entrepreneurship: A Working Definition

• Tom Eisenmann

Being clear on what it means is not just an academic exercise.

What is entrepreneurship? You probably think that the answer is obvious, and that only an academic would bother to ask this question. As a professor, I suppose I am guilty of mincing words. But like the terms “strategy” and “business model,” the word “entrepreneurship” is elastic. For some, it refers to venture capital-backed startups and their kin; for others, to any small business. For some, “corporate entrepreneurship” is a rallying cry; for others, an oxymoron.

• Tom Eisenmann is the Howard H. Stevenson Professor of Business Administration at Harvard Business School, the Peter O. Crisp Faculty Chair of the Harvard Innovation Labs, and the author of Why Startups Fail: A New Roadmap for Entrepreneurial Success (Currency, 2021).

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What Is an Entrepreneur?

Why are entrepreneurs important, what are different types of entrepreneurs, 4 types of entrepreneurship, social entrepreneurship, how to become an entrepreneur, entrepreneurship financing, 7 characteristics of entrepreneurs, entrepreneurship in economics, questions for entrepreneurs, the bottom line.

• Business Essentials

Entrepreneur: What It Means to Be One and How to Get Started

Learn about the challenges facing entrepreneurs as they start new businesses

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. The process of setting up a business is known as entrepreneurship .

Entrepreneurs play a key role in any economy, using the skills and initiative necessary to anticipate needs and bring new ideas to market . Entrepreneurship that proves to be successful in taking on the risks of creating a startup is rewarded with profits and growth opportunities.

Key Takeaways

• A person who undertakes the risk of starting a new business venture is called an entrepreneur.
• An entrepreneur creates a firm to realize their idea, known as entrepreneurship, which aggregates capital and labor in order to produce goods or services for profit.
• Entrepreneurship is highly risky but also can be highly rewarding, as it serves to generate economic wealth, growth, and innovation.
• Ensuring funding is key for entrepreneurs: Financing resources include Small Business Administration loans and crowdfunding.
• The way entrepreneurs file and pay taxes will depend on how the business is set up in terms of structure.

Investopedia / Yurle Villegas

Entrepreneurship is one of the resources economists categorize as integral to production, the other three being land/natural resources, labor, and capital. An entrepreneur combines the first three of these to manufacture goods or provide services. They typically create a business plan , hire labor, acquire resources and financing, and provide leadership and management for the business.

Economists have never had a consistent definition of "entrepreneur" or "entrepreneurship" (the word "entrepreneur" comes from the French verb entreprendre , meaning "to undertake"). Though the concept of an entrepreneur existed and was known for centuries, the classical and neoclassical economists left entrepreneurs out of their formal models. They assumed that perfect information would be known to fully rational actors, leaving no room for risk-taking or discovery. It wasn't until the middle of the 20th century that economists seriously attempted to incorporate entrepreneurship into their models.

Three thinkers were central to the inclusion of entrepreneurs: Joseph Schumpeter, Frank Knight, and Israel Kirzner. Schumpeter suggested that entrepreneurs—not just companies—were responsible for the creation of new things in the search for profit. Knight focused on entrepreneurs as the bearers of uncertainty and believed they were responsible for risk premiums in financial markets . Kirzner thought of entrepreneurship as a process that led to the discovery of opportunities.

Fast-forward to today, entrepreneurs commonly face many obstacles when building their companies. The three that many of them cite as the most challenging include overcoming bureaucracy, hiring talent, and obtaining financing.

Not every entrepreneur is the same and not all have the same goals. Here are a few types of entrepreneurs:

Builders seek to create scalable businesses within a short time frame. Builders typically pass $5 million in revenue in the first two to four years and continue to build up until $100 million or beyond. These individuals seek to build out a strong infrastructure by hiring the best talent and seeking the best investors. Sometimes, they have temperamental personalities that are suited to the fast growth they desire but may make personal and business relationships difficult.

Opportunist

Opportunistic entrepreneurs are optimistic individuals with the ability to pick out financial opportunities, get in at the right time, stay on board during the time of growth, and exit when a business hits its peak.

These types of entrepreneurs are concerned with profits and the wealth they will build, so they are attracted to ideas where they can create residual or renewal income. Because they are looking to find well-timed opportunities, opportunistic entrepreneurs can be impulsive.

Innovators are those rare individuals that come up with a great idea or product that no one has thought of before. Think of Thomas Edison, Steve Jobs, and Mark Zuckerberg. These individuals worked on what they loved and found business opportunities through their vision and ideas.

Rather than focusing on money, innovators tend to care more about the impact that their products and services have on society. These individuals are not the best at running a business as they are idea-generating individuals, so they often leave the day-to-day operations to those more capable in that respect.

These individuals are analytical and risk-averse. They have a strong skill set in a specific area obtained through education or apprenticeship. A specialist entrepreneur will build out their business through networking and referrals, sometimes resulting in slower growth than a builder entrepreneur.

As there are different types of entrepreneurs, there are also different types of businesses they create. Below are the main different types of entrepreneurship.

Small-business

Small business entrepreneurship refers to opening a business without turning it into a large conglomerate or opening many chains. A single-location restaurant, one grocery shop, or a retail shop to sell goods or services would all be examples of small business entrepreneurship.

These people usually invest their own money and succeed if their businesses turn a profit, which serves as their income. Sometimes, they don't have outside investors and will only take a loan if it helps continue the business.

Scalable startup

These are companies that start with a unique idea that can be built to a large scale—think Silicon Valley. The hopes are to innovate with a unique product or service and continue growing the company, continuously scaling up over time. These types of companies often require investors and large amounts of capital to grow their idea and expand into multiple markets.

Large-company

Large company entrepreneurship is a new business division created within an existing company. The existing company may be well placed to branch out into other sectors or it may be positioned well to become involved in new technology.

CEOs of these companies either foresee a new market for the company or individuals within the company generate ideas that they bring to senior management to start the process and development.

The goal of social entrepreneurship is to create a benefit to society and humankind. This form of business focuses on helping communities or the environment through their products and services. They are not driven by profits but rather by helping the world around them.

After retiring her professional dancing shoes, Judi Sheppard Missett became an entrepreneur by teaching a dance class in order to earn some extra cash. But she soon learned that women who came to her studio were less interested in learning precise steps than they were in losing weight and toning up. Sheppard Missett then trained instructors to teach her routines to the masses, and Jazzercise was born. Soon, a franchise deal followed and today, the company has more than 8,300 locations worldwide.

Following an ice cream–making correspondence course, two entrepreneurs, Jerry Greenfield and Ben Cohen, paired $8,000 in savings with a $4,000 loan, leased a Burlington, Vt., gas station, and purchased equipment to create uniquely flavored ice cream for the local market. Today, Ben & Jerry’s hauls in millions in annual revenue.

In the 21st century, the example of Internet giants like Alphabet, the parent company to Google ( GOOG), and Meta ( META ; formerly Facebook), both of which have made their founders wildly wealthy, have been clear examples of the lasting impact of entrepreneurs on society.

Unlike traditional professions, where there is often a defined path to follow, the road to entrepreneurship is mystifying to most. What works for one entrepreneur might not work for the next and vice versa. That said, there are seven general steps that many successful entrepreneurs have followed:

Ensure financial stability

This first step is not a strict requirement but is definitely recommended. While entrepreneurs have built successful businesses while being less than financially flush, starting out with an adequate cash supply and stable ongoing funding is a great foundation.

This increases an entrepreneur's personal financial runway and gives them more time to work on building a successful business, rather than worrying about having to keep raising money or paying back short-term loans.

Build a diverse skill set

Once a person has strong finances, it is important to build a diverse set of skills and then apply those skills in the real world. The beauty of step two is it can be done concurrently with step one.

Building a skill set can be achieved through learning and trying new tasks in real-world settings. For example, if an aspiring entrepreneur has a background in finance, they can move into a sales role at their existing company to learn the soft skills necessary to be successful. Once a diverse skill set is built, it gives an entrepreneur a toolkit that they can rely on when they are faced with the inevitability of tough situations.

Much has been discussed about whether going to college is necessary to become a successful entrepreneur. Many well-known entrepreneurs are famous for having dropped out of college: Steve Jobs, Mark Zuckerberg, and Larry Ellison, to name a few.

Though going to college isn't necessary to build a successful business, it can teach young individuals a lot about the world in many other ways. And these famous college dropouts are the exception rather than the norm. College may not be for everyone and the choice is personal, but it is something to think about, especially with the high price tag of a college education in the U.S.

Consume content across multiple channels

As important as developing a diverse skill set is, the need to consume a diverse array of information and knowledge-building materials is equally so. This content can be in the form of podcasts, books, articles, or lectures. The important thing is that the content, no matter the channel, should be varied in what it covers. Aspiring entrepreneurs should always familiarize themselves with the world around them so they can look at industries with a fresh perspective, giving them the ability to build a business around a specific sector .

Identify a problem to solve

Through the consumption of content across multiple channels, an aspiring entrepreneur is able to identify various problems in need of solutions. One business adage dictates that a company's product or service needs to solve a specific pain point, either for another business or for a consumer group. Through the identification of a problem, an aspiring entrepreneur is able to build a business around solving that problem.

It is important to combine steps three and four so it is possible to identify a problem to solve by looking at various industries as an outsider. This often provides an aspiring entrepreneur with the ability to see a problem others might not.

Solve That Problem

Successful startups solve a specific pain point for other companies or for the public. This is known as "adding value within the problem." Only through adding value to a specific problem or pain point does an entrepreneur become successful.

Say, for example, you identify that the process for making a dental appointment is complicated for patients, and dentists are losing customers as a result. The value could be to build an online appointment system that makes it easier to book appointments.

Network like crazy

Most entrepreneurs can't do it alone. The business world is a cutthroat one and getting any help you can will likely help and reduce the time it takes to achieve a successful business. Networking is critical for any new entrepreneur. Meeting the right people who can introduce you to contacts in your industry, such as the right suppliers, financiers, and even mentors, can mean the difference between success and failure.

Attending conferences, emailing and calling people in the industry, speaking to your cousin's friend's brother who is in a similar business, will help you get out into the world and discover people who can guide you. Once you have your foot in the door with the right people, conducting a business becomes easier.

Lead by example

Every entrepreneur needs to be a leader within their company. Simply doing the day-to-day requirements will not lead to success . A leader needs to work hard, motivate, and inspire their employees to reach their best potential, which will lead to the success of the company.

Look at some of the greatest and most successful companies; all of them have had great leaders. Apple and Steve Jobs, Bill Gates and Microsoft, Bob Iger and Disney, are just a few examples. Study these people and read their books to see how to be a great leader and become the leader that your employees can follow by the example you set.

Given the riskiness of a new venture, the acquisition of capital funding is particularly challenging, and many entrepreneurs deal with it via bootstrapping: financing a business using methods such as using their own money, providing sweat equity to reduce labor costs, minimizing inventory, and factoring receivables.

While some entrepreneurs are lone players struggling to get small businesses off the ground on a shoestring , others take on partners armed with greater access to capital and other resources. In these situations, new firms may acquire financing from venture capitalists, angel investors, hedge funds, crowdfunding, or through more traditional sources such as bank loans.

Resources for entrepreneurs

There are a variety of financing resources for entrepreneurs starting their own businesses. Obtaining a small business loan through the Small Business Administration (SBA) can help entrepreneurs get the business off the ground with affordable loans. Here, the SBA helps connect businesses to loan providers.

If entrepreneurs are willing to give up a piece of equity in their business, then they may find financing in the form of angel investors and venture capitalists. These types of investors also provide guidance, mentorship, and connections in addition to capital.

Crowdfunding has also become a popular way for entrepreneurs to raise capital, particularly through Kickstarter or Indiegogo . In this way, an entrepreneur creates a page for their product and a monetary goal to reach while promising certain givebacks to those who donate, such as products or experiences.

Bootstrapping for entrepreneurs

Bootstrapping refers to building a company solely from your savings as an entrepreneur as well as from the initial sales made from your business. This is a difficult process as all the financial risk is placed on the entrepreneur and there is little room for error. If the business fails, the entrepreneur also may lose all of their life savings.

The advantage of bootstrapping is that an entrepreneur can run the business with their own vision and no outside interference or investors demanding quick profits. That being said, sometimes having an outsider's assistance can help a business rather than hurt it. Many companies have succeeded with a bootstrapping strategy, but it is a difficult path.

Small business vs. entrepreneurship

A small business and entrepreneurship have a lot in common but they are different. A small business is a company—usually, a sole-proprietorship or partnership—that is not a medium-sized or large-sized business, operates locally, and does not have access to a vast amount of resources or capital.

Entrepreneurship is when an individual who has an idea acts on that idea, usually to disrupt the current market with a new product or service. Entrepreneurship usually starts as a small business but the long-term vision is much greater, to seek high profits and capture market share with an innovative new idea.

How entrepreneurs make money

Entrepreneurs seek to generate revenues that are greater than costs. Increasing revenues is the goal and that can be achieved through marketing, word-of-mouth, and networking. Keeping costs low is also critical as it results in higher profit margins . This can be achieved through efficient operations and eventually economies of scale .

How do taxes work for entrepreneurs?

The taxes you will pay as an entrepreneur will depend on how you structure your business.

Sole proprietorship: A business set up this way is an extension of the individual. Business income and expenses are filed on Schedule C on your U.S. personal tax return and you are taxed at your individual tax rate.

Partnership: For tax purposes, a partnership functions the same way as a sole proprietorship in the U.S., with the only difference being that income and expenses are split amongst the partners.

Entrepreneurs operating as sole proprietors can deduct any legitimate business expenses from their income to lower their tax bill. This includes expenses such as their home office and utilities, mileage for business travel, advertising, and travel expenses.

C-corporation: A C-corporation is a separate legal entity and has separate taxes filed with the IRS from the entrepreneur. The business income will be taxed at the corporate tax rate rather than the personal income tax rate.

Limited liability company (LLC) or S-corporation: These two options are taxed in the same manner as a C-corporation but usually at lower amounts.

What else do entrepreneurial success stories have in common? They invariably involve industrious people diving into things they’re naturally passionate about.

Giving credence to the adage, “find a way to get paid for the job you’d do for free,” passion is arguably the most important attribute entrepreneurs must have, and every edge helps.

While the prospect of becoming your own boss and raking in a fortune is alluring to entrepreneurial dreamers, the possible downside to hanging out one’s own shingle is vast. Income isn’t guaranteed, employer-sponsored benefits go by the wayside, and when your business loses money, your personal assets can take a hit; it's not a corporation’s bottom line. But adhering to a few tried and true principles can go a long way in diffusing risk. The following are a few characteristics required to be a successful entrepreneur.

1. Versatility

When starting out, it’s essential to personally handle sales and other customer interactions whenever possible. Direct client contact is the clearest path to obtaining honest feedback about what the target market likes and what you could be doing better. If it’s not always practical to be the sole customer interface, entrepreneurs should train employees to invite customer comments as a matter of course. Not only does this make customers feel empowered, but happier clients are more likely to recommend businesses to others.

Personally answering phones is one of the most significant competitive edges home-based entrepreneurs hold over their larger competitors. In a time of high-tech backlash, where customers are frustrated with automated responses and touch-tone menus, hearing a human voice is one surefire way to entice new customers and make existing ones feel appreciated—an important fact, given that a significant percentage of business is generated from repeat customers.

Paradoxically, while customers value high-touch telephone access, they also expect a highly polished website. Even if your business isn’t in a high-tech industry, entrepreneurs still must exploit internet technology to get their message across. A startup garage-based business can have a superior website to an established company valued at $100 million. Just make sure a live human being is on the other end of the phone number listed.

2. Flexibility

Few successful business owners find perfect formulas straight out of the gate. On the contrary: ideas must morph over time. Whether tweaking product design or altering food items on a menu, finding the perfect sweet spot takes trial and error.

Former Starbucks Chair and CEO Howard Schultz initially thought playing Italian opera music over store speakers would accentuate the Italian coffeehouse experience he was attempting to replicate. But customers saw things differently and didn’t seem to like arias with their espressos. As a result, Schultz jettisoned the opera and introduced comfortable chairs instead.

3. Money savviness

At the heart of any successful new business, is steady cash flow, which is essential for purchasing inventory, paying rent, maintaining equipment, and promoting the business. The key to staying in the black is rigorous, regular cash flow management. And since most new businesses don’t make a profit within the first year, by setting money aside for this contingency, entrepreneurs can help mitigate the risk of falling short of funds. Related to this, it’s essential to keep personal and business costs separate, and never dip into business funds to cover the costs of daily living.

Of course, it’s important to pay yourself a realistic salary that allows you to cover essentials, but not much more—especially where investors are involved. Of course, such sacrifices can strain relationships with loved ones who may need to adjust to lower standards of living and endure worry over risking family assets. For this reason, entrepreneurs should communicate these issues well ahead of time, and make sure significant loved ones are on board.

4. Resiliency

Running your own business is extremely difficult, especially getting one started from scratch. It requires a lot of time, dedication, and often failure. A successful entrepreneur must show resilience to all the difficulties on the road ahead. Whenever they meet with failure or rejection they must keep pushing forward.

Starting your business is a learning process and any learning process comes with a learning curve, which can be frustrating, especially when money is on the line. It's important never to give up through the difficult times if you want to succeed.

Similar to resilience, a successful entrepreneur must stay focused and eliminate the noise and doubts that come with running a business. Becoming sidetracked, not believing in your instincts and ideas, and losing sight of the end goal is a recipe for failure. A successful entrepreneur must always remember why they started the business and remain on course to see it through.

6. Business smarts

Knowing how to manage money and understanding financial statements are critical for anyone running their own business. Knowing your revenues, your costs, and how to increase or decrease them, respectively, is important. Making sure you don't burn through cash will allow you to keep the business alive.

Implementing a sound business strategy, knowing your target market, your competitors, and your strengths and weaknesses will allow you to maneuver the difficult landscape of running your business.

7. Communication skills

Successful communication is important in almost every facet of life, regardless of what you do. It is also of the utmost importance in running a business. From conveying your ideas and strategies to potential investors to sharing your business plan with your employees and negotiating contracts with suppliers—all require successful communication.

In economist-speak, an entrepreneur acts as a coordinating agent in a capitalist economy . This coordination takes the form of resources being diverted toward new potential profit opportunities. The entrepreneur moves various resources, both tangible and intangible, promoting capital formation.

In a market full of uncertainty, it is the entrepreneur who can actually help clear up uncertainty, as they make judgments or assume risk. To the extent that capitalism is a dynamic profit-and-loss system, entrepreneurs drive efficient discovery and consistently reveal knowledge.

Established firms face increased competition and challenges from entrepreneurs, which often spurs them toward research and development efforts as well. In technical economic terms, the entrepreneur disrupts the course toward steady-state equilibrium .

In 2022, there were 33.2 million small businesses in the United States.

How entrepreneurship helps economies

Nurturing entrepreneurship can have a positive impact on an economy and society in several ways. For starters, entrepreneurs create new businesses. They invent goods and services, resulting in employment, and often create a ripple effect, resulting in more and more development. For example, after a few information technology companies began in India in the 1990s, businesses in associated industries, like call center operations and hardware providers, began to develop too, offering support services and products.

Entrepreneurs add to the gross national income . Existing businesses may remain confined to their markets and eventually hit an income ceiling. But new products or technologies create new markets and new wealth. Additionally, increased employment and higher earnings contribute to a nation’s tax base, enabling greater government spending on public projects.

Entrepreneurs create social change. They break tradition with unique inventions that reduce dependence on existing methods and systems, sometimes rendering them obsolete. Smartphones and their apps, for example, have revolutionized work and play across the globe.

Entrepreneurs invest in community projects and help charities and other non-profit organizations, supporting causes beyond their own. Bill Gates , for example, has used his considerable wealth for education and public health initiatives.

Entrepreneurial ecosystems

Research shows that high levels of self-employment can stall economic development: Entrepreneurship, if not properly regulated, can lead to unfair market practices and corruption, and too many entrepreneurs can create income inequalities in society. Overall, though, entrepreneurship is a critical driver of innovation and economic growth. Therefore, fostering entrepreneurship is an important part of the economic growth strategies of many local and national governments around the world.

To this end, governments commonly assist in the development of entrepreneurial ecosystems, which may include entrepreneurs themselves, government-sponsored assistance programs, and venture capitalists. They may also include non-government organizations, such as entrepreneurs' associations, business incubators, and education programs.

California's Silicon Valley is often cited as an example of a well-functioning entrepreneurial ecosystem. The region has a well-developed venture capital base, a large pool of well-educated talent, especially in technical fields, and a wide range of government and non-government programs fostering new ventures and providing information and support to entrepreneurs.

Embarking on the entrepreneurial career path to “being your own boss” is exciting. But along with all your research, make sure to do your homework about yourself and your situation.

A few questions to ask yourself:

• Do I have the personality, temperament, and mindset of taking on the world on my own terms?
• Do I have the required resources to devote all my time to my venture?
• Do I have an exit plan ready with a clearly defined timeline in case my venture does not work?
• Do I have a concrete plan for the next "x" number of months or will I face challenges midway due to family, financial, or other commitments? Do I have a mitigation plan for those challenges?
• Do I have the required network to seek help and advice as needed?
• Have I identified and built bridges with experienced mentors to learn from their expertise?
• Have I prepared the rough draft of a complete risk assessment, including dependencies on external factors?
• Have I realistically assessed the potential of my offering and how it will figure in the existing market?
• If my offering is going to replace an existing product in the market, how will my competitors react?
• To keep my offering secure, will it make sense to get a patent? Do I have the capacity to wait until I receive it?
• Have I identified my target customer base for the initial phase? Do I have scalability plans ready for larger markets?
• Have I identified sales and distribution channels?

Questions that delve into external factors:

• Does my entrepreneurial venture meet local regulations and laws? If not feasible locally, can I and should I relocate to another region?
• How long does it take to get the necessary license or permissions from concerned authorities? Can I survive that long?
• Do I have a plan for getting the necessary resources and skilled employees, and have I made cost considerations for the same?
• What are the tentative timelines for bringing the first prototype to market or for services to be operational?
• Who are my primary customers?
• Who are the funding sources I may need to approach to make this big? Is my venture good enough to convince potential stakeholders?
• What technical infrastructure do I need?
• Once the business is established, will I have sufficient funds to get resources and take it to the next level? Will other big firms copy my model and kill my operation?

What Does It Mean to Be an Entrepreneur?

An entrepreneur is an individual who starts their own business based on an idea they have or a product they have created while assuming most of the risks and reaping most of the rewards of the business.

What Is the Best Definition of Entrepreneurship?

Entrepreneurship is the process of setting up a business, taking it from an idea to realization.

What Are the Four Types of Entrepreneurs?

Four types of entrepreneurs include builders, opportunists, innovators, and specialists.

What Are the Seven Characteristics of Entrepreneurs?

Seven primary characteristics among entrepreneurs include versatility, resilience, flexibility, money-savviness, business smarts, focus, and having strong communication skills.

An entrepreneur is an individual who takes an idea or product and creates a business, a process known as entrepreneurship. Creating a business requires a lot of work and dedication, which not everyone is cut out for. Entrepreneurs are often young , highly motivated risk-takers who have a vision and often sacrifice a lot to achieve that vision.

Entrepreneurs enter the market because they love what they do, believe their product will have a positive impact, and hope to make profits from their efforts. The steps entrepreneurs take fuel the economy; they create businesses that employ people and make products and services that consumers buy today.

Van Praag, C. Mirjam. "Some Classic Views on Entrepreneurship."  De Economist, Vol. 147, No. 3. 1999. Pp. 311-335.

Forbes. " The 4 Types of Entrepreneurs - - Which Are You? "

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