1
Chapter 1
Entrepreneurial Timber
1.1 Introduction
An entrepreneur is someone who establishes, organizes, manages, and
assumes the nancial risk of a new business venture. Entrepreneur comes
from the French term entreprende, “to undertake or to build.”
Entrepreneurship is the process of seizing an opportunity to introduce
new products or services in an effort to transform inventions and innova-
tions into monetary value. When entrepreneurship is used to describe activi-
ties within a rm or large organization, it is referred to as intrapreneurship
and may include corporate venturing.
Entrepreneurs come from all backgrounds and operate within industries
as diverse as construction, wholesale, retail, nancial services, accounting
services, manufacturing, drug development, medical device, transportation,
and food service. Although individuals engaged in any of the above eco-
nomic sectors are entrepreneurs in every respect, this Guide concentrates on
characteristics of persons seeking to start new ventures that require a high
degree of scientic knowledge.
An entrepreneur is typically a highly motivated individual possessing a
clear vision to reach goals unimagined by the general population. He or she
must have a high willingness to take risks (“If it fails, I will x it”), display
exceptional creativity (inventions and innovations), be ercely independent
(from formal supervision), can tolerate an atmosphere of continuous chaos,
and craves controlling his or her own destiny.
2 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
In the U.S., small businesses are an important engine of economic
growth. (The Small Business Administration, or SBA, denes a small busi-
ness concern as one that is independently owned and operated, is organized
for prot, and is not dominant in its eld. Depending on the industry, size
standard eligibility is based on the average number of employees for the
preceding 12 months or on sales volume averaged over a 3-year period).
Small businesses account for 95% of all business establishments, 50 to 60%
of employment, and 60 to 70% of all new jobs.
Since the 1960s, thousands of new businesses have been started in the
U.S., highlighting the promise of individual opportunity to other nations.
The U.S. is a hotbed of entrepreneurial activity because:
◾ Business failure is accepted by society without personal stigma.
◾ Individual success is valued and cherished (“self-made man”).
◾ Change is anticipated and welcomed.
◾ Intellectual property rights are afforded to small businesses.
◾ Equity capital is available at all stages of venture formation.
Entrepreneurship ourishes despite discouraging statistics from the SBA:
for every 100 small businesses started today, 24 will close within the rst
two years, 51 will fail in the rst four years, and 60 will have led for bank-
ruptcy in six years. This is dramatically illustrated in Figure1.1.
100%
81%
65%
54%
46%
40%
36%
32%
29%
27%
25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of Small Firms Surviving
New 12345678910
# of Years in Business
Small Business Survival Rate
Figure 1.1 Small business survival ratio—On average, only 25% of small businesses
survive by the tenth anniversary of their establishment.
Entrepreneurial Timber ◾ 3
1.2 Entrepreneurial Anatomy
Entrepreneurs have achieved celebrity status in many parts of the world.
Who has not heard about Wal-Mart (from a few retail stores to the largest
company in the world), or Hewlett Packard (two engineers in a garage with
technical expertise but no product or plan creating a new industry), or Dell
(from college dorm room to PC market leader), or Microsoft (brilliant young-
sters without academic degrees outsmart giant IBM to dominate the world
PC software market)?
Can we nd common characteristics among these entrepreneurs? Scholarly
research has identied a unique set of characteristics that are shared by all
successful entrepreneurs. These characteristics are shown in Table1.1.
1.3 The Entrepreneurial World
In the U.S., entrepreneurs start nearly 6 million small businesses annually,
with approximately 11% of the adult U.S. population actively seeking to start
a new business. Small businesses employ 51% of the private sector workforce,
produce 51% of the nation’s private GDP, and astonishingly create 24 times
as many innovations than large companies, and, not surprisingly, generate 14
times as many patent applications per employee than large companies.
Table1.1 The Entrepreneurial Mindset
1. Exceptional leadership qualities
2. Tolerance for risk, chaos, ambiguity, and uncertainty
3. High creativity characteristics
4. Overwhelming desire for achievement and peer recognition
5. Ability to identify big market opportunities
6. Willingness to accept and learn from failure
7. Unshakable motivation to excel
8. Fiercely independent
9. Challenged by new opportunities
10. Ability to create an organization supportive of their vision and mission
11. Value achievement over money
4 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
Why do individuals enter the uncertain entrepreneurial world? Many will
answer that “doing your own thing” and “doing what you like” is sufcient
reward. Most agree, “If you do what you like, you will never work another
day for the rest of your life.” Figure1.2 presents the ve most common
reasons why entrepreneurs go into business according to a recent Dun &
Bradstreet survey of entrepreneurs.
Entrepreneurship is not conned to the U.S. Interesting statistics are
offered online through http://gemconsortium.org/docs/download/2409. The
Total Entrepreneurial Activity (TEA) provides a yearly snapshot of world
activity, and is shown in Figure1.3.
5%
25%
27%
36%
41%
0% 5% 10% 15% 20%25% 30%35% 40%45%
Percentage
Have been downsized or laid o
Wanted to fulll lifelong goal
Ti
red of working for someone else
Wanted more control over future
Joined family business
Why Entrepreneurs Went into Business
Figure 1.2 Why entrepreneurs went into business—Most entrepreneurs start their
businesses to join a family business, or to better control their future.
Entrepreneurial Activity Across the Globe
Persons per 100 Adults, 18–64 Years Old Engaged
in Entrepreneurial Activity
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Japan
Russia
Belgium
France
Hong Kong
Croatia
Sweden
Taiwan
Poland
Spain
Netherland
s
Finland
Slovenia
Germany
United
Kingdom
Italy
Singapore
So
uth Africa
Denmark
Hungary
Switzerland
Israel
Australia
Norway
Canada
Ireland
United States
Iceland
China
Mexico
Brazil
New Zealand
Argentina
Korea
Chile
India
ailand
Country
Total Entrepreneurial
Activity (TEA) Index
TEA index
Global TEA
average
Figure 1.3 Entrepreneurial activity across the globe—India, China, Brazil, and
Mexico are beehives of entrepreneurial activity when measured by the TEA index.
Entrepreneurial Timber ◾ 5
Another amazing characteristic of entrepreneurship is its diversity. Any
person, regardless of age, race, gender, color, national origin, or cultural
background, may become a successful entrepreneur. Let us consider age,
for instance. Figure1.4 shows the entrepreneur’s age at new business forma-
tion according to a 2002 survey by the National Federation of Independent
Businesses and Wells Fargo Bank.
1.4 Entrepreneurial FAQ
Many questions have been raised about what makes an entrepreneur tick.
Table1.2 and Table 1.3 present a summary of the traditional, most frequently
asked questions by aspiring entrepreneurs.
1
1.5 Success Characteristics
While it is very difcult to accurately pinpoint why some ventures fail and
others thrive, certain personal characteristics of the founders seem predic-
tive of success. Table 1.3 lists success characteristics of entrepreneurs. These
eight characteristics are shown in Figure 1.5.
1.6 Failure Characteristics
There is rare unanimity among entrepreneurial scholars that the primary rea-
son for failure is management incompetence.
2
Of course, “management incom-
petence” covers a lot of ground and can be a catchall phrase. Table1.4 lists
some of the most common mistakes made by “incompetent” management.
9.8%
16.8%
16.7%
15.9%
15.2%
9.3%
8.5%
3.9%
2.2%
1.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Under
25
25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65+
Age
Owner Age at Business Formation
Figure 1.4 Owner age at business formation—The majority of entrepreneurs start
their business between 25 and 44 years of age.
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