On a personal level, entrepreneurship can make an incredible economic impact. Being successful in starting your own business can be a road to financial freedom. In fact, according to the U.S. Federal Reserve, equity in unincorporated businesses—typically the smallest of independent businesses—makes up the second largest share of total household wealth in America, second only to home equity.
Entrepreneurs change the world
Entrepreneurs make enormous contributions to societies around the globe. Fast-growing entrepreneurial ventures transform entire economies. Even smaller enterprises make tremendous contributions to the health and stability of their communities.
Entrepreneurial companies produce far more than just money. They also provide:
■ New ideas and innovation. Although some large corporations have research and development departments, overwhelmingly, new products and services are created and introduced by new small companies. This is certainly true in technology, but it’s also true in the entire spectrum of products and services. Many Fortune 500 companies—from computers to cars, cola to cartoons—were started by entrepreneurs with little more than a new and better idea.
Out with the old, in with the new
The average lifespan of the 500 largest companies—commonly referred to as the “Fortune 500”—is merely 30 years. Only 61 of the 1955 Fortune 500 companies still existed in 2014. By 1983, one-third of companies listed in 1970, only 13 years earlier, had disappeared. So new companies are continually replacing the old.
en·tre·pre·neur·ship key terms
Business
An entity organized for the purpose of buying and selling a product, service, knowledge, or other thing of value; a company set up with the intention of making a profit; an activity established to provide income and financial well-being for the business owner.
Disruption
This occurs when entrepreneurs create new companies that challenge and transform older, established industries. These cutting-edge start-ups apply fresh thinking, develop new business models, and typically use technology to change the way business is done.
Entrepreneur
An individual who, through their own initiative and hard work, launches a new undertaking—typically a business—that involves risk and uncertainty. Ordinarily, entrepreneurs seize on opportunities, innovate, experiment, and pioneer to bring to market a new, better, less expensive, or somehow improved product or service, or to open up new markets. Many entrepreneurs also aim to advance social goals in their ventures.
Entrepreneurial thinking
Applying the characteristics of entrepreneurs—such as innovation, creativity, risk-taking, the willingness to accept failure, and fast response time—to other endeavors, such as corporate enterprises, education, and social programs.
Minimal Viable Product
A product that has been created quickly in order to get it to market as soon as possible. Over time, and based on the experience of actual customers, the product is improved on and refined.
Risk
In entrepreneurial terms, risk involves uncertainty, with the possibility of encountering unexpected setbacks, suffering losses, and even failing. New ventures present various types of risk, such as market risk in that target customers may not be ready for the product or service; or technology risks in that the necessary technology may not be able to be developed in an acceptable time frame; or execution risks, in that the planned activities may not be able to be carried out.
Start-up
A term often used for a young business; most often applied when the business has the intent or potential to grow to substantial size.
Venture
An entrepreneurial undertaking, usually referring to a new business.
Vision
The ability for an entrepreneur to conceive a company, product, or service that doesn’t yet exist, typically in response to a specific need in the market and often in somewhat great detail. A visionary is one who can see possibilities where others do not.
■ New jobs. Total new-job creation in the United States is a result of new businesses. In fact, America relies on new businesses to offset the job losses from bigger and older corporations. The Small Business Administration (SBA) estimates that small businesses create 64 percent of all new jobs in the country. Worldwide, substantial job creation is largely a result of new business formation, especially in emerging economies.
■ New industries. Entrepreneurs not only create new businesses, but when they’re incredibly successful, they may even end up creating entire new industries. In recent years, for example, the success of a few social media companies—like Facebook—has fostered the generation of a whole ecosystem based around those companies. This leads to an immense explosion of jobs in related businesses.
■ Middle class income. In many areas—including rural areas, developing countries, and older regions in the United States—there are no large corporations to provide decent jobs. There, the only path to a middle class lifestyle (or better) is through the creation of one’s own business.
■ Flexibility. Smaller companies can open, close, move, and change focus much more quickly than big corporations. Typically, smaller companies are the first to respond to changing market needs and conditions, and often provide a testing ground for big corporations to learn how they themselves will need to adapt. The smaller companies offer the job opportunities and new products our society needs until big firms figure out how to catch up.
■ Old values. Big companies get distracted by things such as keeping Wall Street happy, arranging mergers and acquisitions, and rewarding executives with huge bonuses. Newer companies, by contrast, concentrate on the basics: cash flow, profits, providing high-quality products and services, and serving and retaining their customers. Perhaps even more important, owners of newer or smaller businesses know their employees are people, not “human resources,” and need to be treated as such.
REAL-WORLD RECAP
How entrepreneurs change the world
■ New ideas and innovation
■ New jobs
■ New industries
■ Middle class income
■ Flexibility
■ Old values
Entrepreneurs, in short, make a huge difference. They innovate, pioneering new industries and producing new products. They provide vital services. They support their communities. They create wealth, for the entrepreneurs, the investors, and society. Most important, they create jobs. And when you create jobs—good jobs, with fair pay and good working conditions, where people can take pride in their work and be treated with respect—you change their world, your world, and the world in general.
Growth of entrepreneurship
Humans have been engaged in entrepreneurial endeavors for thousands of years. It’s nothing new for someone to see something that people want to buy and then figure out a way to sell it. It may be part of human nature to be able to identify an opportunity and wish to seize on it, and, through hard work, be motivated to make money