What type of an Entrepreneur are you?
By Rishi Anand
When asked on a regular basis what it is that I do, I always state foremost that I am an “Entrepreneur and an Investor” which always inevitably leads to the question: ‘yes, but what is that you do?’ – as though being an entrepreneur isn’t enough, or a valid enough qualification.
Many entrepreneurs forget that they are NOT defined by their business or businesses. Yes an entrepreneur owns and operates a business and assumes significant accountability for the inherent risks and the outcome of the enterprise – but if that venture should start making losses or worse still, fails altogether – the business is a failure – not the entrepreneur.
Tracing back to its roots to 1950 our understanding of entrepreneurship owes a lot to the work of Joseph Schumpeter (economist) who defined an entrepreneur as a person who is willing and able to convert a new idea or invention into a successful innovation. Further in 1959, Cole further defined four distinctive types of entrepreneur:
1) The innovator
2) The calculating inventor,
3) The over-optimistic promoter,
4) And finally, the organisation builder.
These entrepreneur types are not related to the personality of the entrepreneur but more to the type of opportunity the entrepreneur will inevitably be attracted to and the problems that they will face (or so Cole thought).
Nowadays, Cole’s categories, though very applicable, are broken down in varying ways, but the main types of categories that are agreed upon are:
1) The Lifestyle Entrepreneur: This is someone who has decided to build a business to make a living and to satisfy his or her own personal motivations. This entrepreneur would like to create a successful company – but building a FTSE 100 company would definitely NOT be a necessity nor a main driving force. Instead this entrepreneur would be more likely to be 'income statement affluent' over any of the other types of Entrepreneurs listed – and the choice of businesses he or she would choose to be involved with would genrally be non-scalable, but usually cash generative businesses.
2) The Empire builder: This particular entrepreneur would be classed as 'balance sheet affluent'. This entrepreneur buys – but does not easily sell, usually stubbornly choosing to go ‘long’ on all of his investments and business decisions. This Entrepreneur would not really consider selling or exiting from his company, unless it was absolutely essential or involved members of the board physically dragging him/her out of their presidential chair.
3) The Serial Entrepreneur: It is fair to state that this Entrepreneur's main motivation would be the exit – and usually this entrepreneur type is usually unfavoured amongst Angel Investors due to the fact that he or she may have started a number of business ventures (and moved on!) therefore he/she may have mixed priorities. Some Angel Syndicates I have spoken to actually do prefer to invest in the serial Entrepreneur, because it is usually this entrepreneurial type that is focused on the exit or sale, and the cash payout is their main motivation.
Understanding what type of an entrepreneur you are is also crucial in valuing the amount of equity you are willing to exchange for investment. As an example, a Serial Entrepreneur will be more open to offers from an angel investor in return for investment to say an empire builder or a lifestyle entrepreneur as he/she will realise that this is not the only business that he/she will be involved in. The article: Valuing your Equity correctly is worth a read if you have a business idea or investment proposal and are seriously looking to raise angel investment on Venture Giant or otherwise.
Another reason why it is important to understand what your motivations are as an entrepreneur is so that you can understand what type of investment funding you should be targetting and what would work best for you, i.e., funding from a high net worth individual or funding from a business angel or even Venture Capital funding.
More often than not, it’s best for an entrepreneur to start up on their own or with the help of an Angel Investor (or Angel syndicate if the investment requirement is too large to be funded by one angel investor). After running and evolving the business, the next best course of action is to turn to Venture Capitalists when you believe you are ready to take your company to the next level. This article explores the difference between Angel Investors and Venture Capitalists
A study published in late 2004 by the Canadian Federation of Independent Business points out that entrepreneurs are commonly believed to have special traits that make them successful. For instance, entrepreneurs are commonly seen as being especially skilled at spotting new business opportunities, or they are regarded as brash or aggressive and ready to take greater risks than their peers. However, the study adds, despite a lot of academic study "no one has been able to identify a truly unique set of entrepreneurial personalities."
A similar view is proposed by the Centre for Bioscience, part of the Higher Education Academy at Leeds University. "Increasingly, it is recognised that at least some (and probably the majority) of the skills associated with entrepreneurship, and how to apply them successfully, can be learnt," it says.
Dr Pauric McGowan, Director of the Northern Ireland Centre for Entrepreneurship, believes that entrepreneurs are both born and made with some people born with entrepreneurial traits and behaviours. Success depends on developing these traits but also learning skills, such as management skills. He also believes that everyone has the potential to become an entrepreneur and that entrepreneurial traits and skills are useful in well-established businesses, where they can be used to improve, for example, the running of the business.
My personal belief is that entrepreneurialism is not reserved to certain types of individuals only. Instead I truly believe that anyone is capable of being an entrepreneur as long as they are placed into the circumstances that would nurture the needs for them to create an environment for themselves in which they can prosper (or not) but at their own terms.
A common theme amongst entrepreneurs seems to be that they ‘had no choice in the matter’ and that it was through necessity that they had to think and work outside of the box to succeed. An example I refer to commonly is my own Father who came to London from Northern India in the 1960’s and started his career as a factory worker. Fortunately for him, he was asked to leave his position, and with no income and no real assets to fall back on, he was forced through necessity (perhaps even survival) to pursue more lucrative business opportunities that eventually lead him to create a highly successful business. If he had lived within his comfort zone by remaining in his job and had not taken the necessary risks, it may be safe to say that he would still be working as an employee.
Whatever your personal belief is in this matter, and whether you believe entrepreneurs’ are born through nurture or nature, the fact remains that living outside of one’s comfort zone, and having the stomach to do this on a regular basis is key to an entrepreneur’s success especially in the start-up stages of his/her company. What I also find personally curious is that Coles 1950s distinctive entrepreneur profile types can still be applied to each of the three widely accepted entrepreneurial types above. It’s surprising because even now, almost 60 years on, whilst many elements of our market place and economy have changed, the basic entrepreneurial philosophy has not, and probably never will, for as long as we operate within a ‘free capitalist’ society.
By Rishi Anand
Health Warning: Living outside of your comfort zone on a day to day basis can be extremely taxing on the mind body and soul. It is not for everyone, and Permjot Valia, a successful business angel discusses the importance of take a break from work, and why taking a break can be so productive sometimes!
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