A small business, independently owned and operated, significantly impacts the economy by introducing new products, creating jobs, and spurring entrepreneurship. They contribute to local economies, stimulate growth, and promote competition, providing consumers with choice.
Key Takeaways
Why is entrepreneurship important?
What does it mean to be an entrepreneur?
What are the forms of entrepreneurship?
Why do successful entrepreneurs plan (business plan?)
Why learn about entrepreneurship?
Why Is Entrepreneurship Important?
Entrepreneurship is vital to the economy, innovation, wealth creation, community empowerment, and social transformation. Furthermore, entrepreneurship helps people become more financially independent and often contributes to the development of their local communities. As a result, entrepreneurship is essential for societies to remain competitive in the global economy.
Economic Growth And Job Creation
Entrepreneurship fosters economic growth by introducing all types of entrepreneurs and new products, services, and business models, which drive productivity and innovation. It creates employment opportunities and reduces unemployment rates. (Audretsch & Keilbach, 2007, 5(2), 3-10. Many small businesses are the direct result of entrepreneurial activities.
Data from 99 countries shows the following job creation:
The self-employed (1 person) represent 32.8 percent of total employment.
Micro-enterprises (2-9 persons) represent 23.1 percent of total employment.
Small enterprises (10-49 persons) represent 14.3 percent of total employment.
That represents over 70% of jobs in many countries in small businesses with fewer than 50 employees (International Labour Organization, 2022).
In addition, small businesses significantly impact a nation’s Gross Domestic Product (GDP). According to the U.S. Small Business Administration, small businesses account for 44% of the economic activity in the United States (U.S. Small Business Administration, 2020). Their contribution to the national GDP showcases their pivotal role in driving economic growth and creating job opportunities.
Hence, entrepreneurial activities that create small businesses provide economic productivity gains and significantly add jobs.
Innovation And Technological Advancement
Entrepreneurs are often the driving force behind technological advancements and disruptive innovations. They identify market gaps and develop innovative solutions that improve efficiency, quality, and the overall standard of living. (Schumpeter, 1934)
Often entrepreneurs start their own businesses as they see customers not being served and are determined that they can find an innovative solution through product, process, or a completely new paradigm shift. This drives innovation as large companies are often slow and unaware of providing value to these customers.
Wealth Creation And Poverty Alleviation
Entrepreneurship creates opportunities for wealth creation, both for individuals’ own businesses and societies. It enables economic mobility and reduces income inequality, ultimately alleviating poverty. (Acs & Szerb, 2007, 28(2-3), 109-122.)
As shown above, small business owners contribute much to the local economy through jobs and productivity increases. It is often out of necessity in poorer areas where there are limited job opportunities where entrepreneurs can thrive.
Regional Development And Community Empowerment
Entrepreneurship can stimulate regional development by revitalizing local economies, attracting investments, and promoting entrepreneurship ecosystems. It empowers individuals and communities, encouraging self-reliance and fostering social and economic development. (Stimson, 2002)
With increases in commerce and wages, this directly impacts regional development and has a sustainable effect on these communities.
Cultural And Social Transformation
Entrepreneurship challenges traditional norms, encourages creativity, and promotes a culture of innovation. It inspires individuals to think beyond conventional boundaries, fosters diversity and drives social change. (Lévesque & Minniti, 2006, 28(2-3), 289-321.)
Overall, entrepreneurship is vital in driving economic, social, and personal development, making it an important aspect of any thriving society.
The Powers of an Entrepreneur
For individuals, starting their own business gives them the opportunity to make their own decisions, develop a unique product or service, and build meaningful relationships with their target customers. Being empowered, these individuals tend towards higher productivity.
From a personal perspective, entrepreneurship fosters personal growth as people gain knowledge about themselves, their skills, and the community around them. By embracing their own enterprise through entrepreneurship, individuals find increased satisfaction in life and work towards achieving goals on their own terms.
What does it mean to be an entrepreneur?
Definition: An entrepreneur creates a whole new business venture through risk and uncertainty in the hopes of achieving a sustainable venture by organizing resources to capture an opportunity. (Scarborough N., Cornwall J. 2016)
That’s a very dense sentence, so let’s unpack that!
The first half states that entrepreneurship is creating something new, and being new is unknown and unproven. Hence, an entrepreneur needs to deal with uncertainty and risk.
When I started a winery, many people asked if I had done this before and how I knew it would work.
No, and I did not.
It was my first winery, but I got the experience by researching winemaking, making wine, and talking to wine masters. Did I know in advance whether the whole business plan would work?
I bet lots of time, effort, and money to create my winery, but it was still a risk.
The second half of the definition is about creating a sustainable venture (successful business) using resources to capitalize on an opportunity. This part of the definition boils down to two key success factors:
Finding the ideal customer to buy something
Organizing resources to make that sale happen
Sales are important, but entrepreneurs are more than just a salesperson. Entrepreneurs envision a pipeline of delivering value to existing customers and a target audience with a clear goal.
A great example is Elon Musk of SpaceX, who innovates the pipeline and technology of building and launching rockets more economically than before.
Elon is not a rocket scientist but knows how to facilitate resources to build and launch rockets.
Did he sell payloads to space? No, he had to prove he had a product first, and they initially exploded (the rockets, not sales).
What are the forms of entrepreneurship?
Entrepreneurship is a powerful way to impact the world and create a career. It’s the driving force behind some of the most innovative companies and business ideas. While there are many different forms of entrepreneurship, the four most common are startup, side hustle, intrapreneurship, and franchise.
Startup: A startup is a newly established business venture that often relies on innovation and originality to succeed. They usually require large investments of capital and resources but offer potentially high returns when successful.
Side Hustle: Unlike other forms of entrepreneurship, side hustles don’t require large amounts of investment or resources. They’re usually smaller businesses that supplement an existing career or provide additional income streams with limited risk.
Intrapreneurship: Intrapreneurship involves making changes within an existing company by taking ownership and initiative for developing new products or services. It relies on creativity and innovation to find solutions within the confines of an existing organization.
Franchise: Franchises involve buying into an already established business model with proven success. It’s a great way for entrepreneurs who lack sufficient capital or resources to get started, as it provides access to a system that has already been tested and refined by another business owner.
Why your own business venture
Who doesn’t want to change their life?!
Be your own boss as a small business owner to be free to make your very own business decisions, set your hours, and pursue your passions. Create your unique venture and feel like you control your destiny, giving you a greater sense of purpose and autonomy in your work that has the potential to impact others.
However, getting started can seem daunting. Initially, startups are overwhelming as many aspects of a small business require attention. From finding your ideal customers to delivering them a great product or service, entrepreneurs must consider all aspects of their business venture.
For those who persevere, the potential rewards can be life-changing, bringing personal growth and achievement unmatched by anything else!
Further, entrepreneurship can bring financial rewards not typically available when working for someone else. But being an entrepreneur is not a guaranteed path to wealth.
Wealth is a simple equation:
( Earning – Spending ) x Investments x Time -> Wealth Goal
Depending on your goals, this could happen in a 9 to 5 job but requires discipline. If this seems difficult, do not become an entrepreneur, as it requires more discipline and is prone to failure. This is discussed in more detail in the article “Creating Wealth Vs. Becoming An Entrepreneur: What’s The Difference?”
The Entrepreneurial Mindset: Key Traits for Success
In the bustling world of entrepreneurship, there’s a secret ingredient that often goes unnoticed, yet it’s the very foundation of every successful venture. It’s not just about having a groundbreaking idea or a detailed business plan. It’s about the mindset with which you approach every challenge, every failure, and every success.
Imagine two individuals, Alex and Jamie. Both have similar business ideas, access to the same resources, and operate in the same market. Alex, however, views challenges as insurmountable barriers, fears failure, and hesitates to adapt to changes. On the other hand, Jamie sees challenges as opportunities to learn, embraces failure as a stepping stone to success, and is always eager to adapt and evolve. Over time, who is more likely to succeed? The answer is clear. Jamie’s mindset equips her to navigate the unpredictable waters of entrepreneurship with resilience and adaptability.
The Mindset Spectrum
At its core, mindset refers to our beliefs about ourselves and our abilities. Dr. Carol Dweck, a renowned psychologist from Stanford University, has extensively researched this concept and identified two primary mindsets: fixed and growth. Those with a fixed mindset believe that their abilities are static and unchangeable. They avoid challenges, fearing that failure will expose their inadequacies. In contrast, individuals with a growth mindset believe that abilities can be developed through dedication and hard work. They embrace challenges, learn from criticism, and view failure as a valuable learning opportunity (Dweck, 2006).
Adopting a growth mindset is not just beneficial but essential for aspiring entrepreneurs. The entrepreneurial journey is riddled with uncertainties, setbacks, and failures. But it’s the perspective on these challenges that determines the trajectory of the venture. Viewing setbacks as learning opportunities, being open to feedback, and having the resilience to bounce back from failures are all hallmarks of a growth mindset. And these are the very qualities that can set an entrepreneur apart in the competitive business landscape.
Why Does Mindset Matter?
The significance of mindset in entrepreneurship cannot be overstated. It influences how one sets goals, approaches challenges, responds to setbacks, and ultimately defines success. A growth mindset fosters a love for learning and resilience that is crucial for great accomplishment. It encourages entrepreneurs to step out of their comfort zones, take calculated risks, and view failures as mere detours on the path to success.
Moreover, a growth mindset can be cultivated. Through conscious effort, self-awareness, and continuous learning, entrepreneurs can shift from a fixed to a growth mindset, enhancing their personal growth and the potential success of their ventures.
Why successful entrepreneurs plan (business plan?)
Entrepreneurship is about “just get going”!?
Well, yes, and no.
Through countless conversations with small business owners, I have found that planning is essential, even when they do not admit to it initially. My favourite example was an individual that owned a successful dog grooming business during a dinner social. When I asked how much planning they did before starting the business, they responded, “No planning, just started immediately!”
Knowing this was not likely the case, I had the rest of the evening to get more details because, if true, I wanted to know the secret. Unfortunately, it was the case as it was a distant memory after starting at the age of 40 and running it for 10+ years.
Later, I discovered that they had a passion for dogs since age 5 and knew they would work with dogs when they grew up!
Passion is not the same as being entrepreneurial, but then I learned they worked as a dog groomer for about 20 years and dreamt of owning their small grooming business. The business became a reality when they married a successful entrepreneur.
So the secret is to have a passion for a niche, work there for 20 years, and marry an entrepreneur with money to invest. Viola, no planning!
Unfortunately, the truth about entrepreneurship is that embarking on a new small business owner’s journey involves substantial risks. According to data from the U.S. Bureau of Labor Statistics, the approximate failure rate for new businesses:
First two years: 20%
After five years: 45%
After 10 Years: 65%
Only 25% make it to 15 years or more!
(U.S. Bureau of Labor Statistics, 2016)
Understanding these statistics underscores the importance of preparation and resilience in the entrepreneurial journey.
A study by CB Insights identified the top reasons behind these failures.
(CB Insights, 2018)
These responses highlight the importance of planning as the above is mostly due to the failure to plan for marketing, finance, and human resources. Planning helps reduce (not eliminate) the risk of starting a new business venture and avoid failure.
Take the analogy of planning an expensive trip to an unknown country with no reservations, itinerary, currency, or idea of what you want to do. While that could be exciting, there’s a high chance you will not optimize your precision vacation time and could get into trouble. Now imagine spending a lot more money and working hard for years without a plan for a startup. Most likely, you will end up in the failed statistic category!
Planning is essential for entrepreneurs because it helps them set clear startup goals and objectives. This allows them to prioritize tasks, allocate resources effectively, and make informed decisions.
Planning is crucial for entrepreneurs as it helps them set goals, allocate resources, manage time, mitigate risks, make informed decisions, and stay adaptable. It provides a roadmap for entrepreneurial success and increases the likelihood of achieving business objectives.
Do you need a business plan?
Short answer: NO.
A business plan can be a barrier to just getting started for a side business to a new entrepreneur because it requires time, effort, and resources to create. This can prevent an entrepreneur from taking action or getting started right away. Additionally, entrepreneurs may feel intimidated by the process of creating a business plan and may procrastinate or avoid the task altogether.
Moreover, if the business plan is overly complex or too detailed, it can be difficult for new entrepreneurs to grasp all the necessary concepts and components required to put together an effective document. Finally, focusing too much on crafting a business plan can cause entrepreneurs to become overwhelmed with the details and scope of their project instead of actually taking action in getting it up and running.
This does not mean creating a business plan is not a valuable planning tool as it has many functions:
Provide a roadmap for growing a business
Find investors for growth (rarely for unproven startups)
Develop metrics to gauge business success
Communicate business strategy and operations to employees, partners, and investors
However, with a proven market and product/service, no one will invest in your venture (except yourself, family, and friends), but limit your investment as you should first prove your idea before investing too much, as most startups fail. Limit your risk by creating a side business, and don’t quit your job yet.
Test the business idea, get feedback and recraft the venture till you find the right mix that you are comfortable with and has the potential for growth or is enough as a side hustle to supplement your income or even gain expertise for a career change. If you are struggling to find a business idea, this is an excellent book to help you discover idea(s).
However, if you are struggling at this stage for what to do, then definitely think of this as a side hustle, as committing time and money to create a significant venture can be overwhelming and cause lots of pain if it fails where the likelihood is high.
Pick an idea and think of it as an experiment, and if it starts working, then you may want to consider growth and attracting investors, etc. If you are indeed successful, then check out the next book in this series, “Entrepreneur’s Coffee Chat: The IDEAS Framework,” on planning for the next stage of your entrepreneurial journey.
What makes a good small business idea?
Not all small business ideas are the same. Some may demand more resources and investment, while others can be executed without much financial burden. As an aspiring business owner, you’ll want to choose your business wisely as there will be some investment of money and, of course, your time.
Choosing the right business idea for a startup is one of the most important decisions an entrepreneur can make. Before starting a business, it’s essential to take into account your own interests and likes. After all, if you don’t enjoy what you’re doing, it will be difficult to stay motivated and successful.
Selecting a business venture that aligns with your interests and entrepreneurial skills/et is key to long-term success. Not only will it be more enjoyable, but it will also help fuel your enthusiasm and ambition over time. Therefore, it’s important for entrepreneurs to match their likes and interests when selecting a business idea for their startup.
Is Passion important in starting a business?
Passion is a powerful driving force that can help fuel a business, but it’s important to remember that relying on passion alone may not be the best choice for creating a successful business. Passionate entrepreneurs can lack the objectivity and self-awareness needed to realistically assess whether their ideas have potential or if they are chasing fruitless dreams. Without objective criteria to evaluate their ideas, passionate entrepreneurs risk failing to make sound decisions based on evidence, research and analysis.
While having enthusiasm is great, it doesn’t necessarily translate into effective planning and execution. Running a business requires knowledge of accounting, marketing, finance, operations and other areas – all of which require skills that aren’t necessarily related to passion or enthusiasm. Not having these skills can lead to mismanagement of resources and missed opportunities to grow and expand.
Finally, passionate entrepreneurs may be so emotionally invested in their businesses that they are unable to step back and objectively evaluate their strategies when things start going wrong. Being too entrenched in tackling problems as they arise can lead them down paths that won’t result in success. A better approach would be to seek advice from outside experts or mentors who can provide impartial insight on current issues and potential solutions.
Ultimately, passion can be a good motivator for starting any new venture, and it should be combined with objectivity, resourcefulness and good judgment before one embarks on an entrepreneurial journey. Passion will help you stay motivated during tough times, but it won’t guarantee success without proper planning and execution. However, it is not essential for a business to succeed, but more of an influence on you to keep going on the venture.
Coming up with great business ideas
Drawing from my experience of teaching entrepreneurship to thousands of students over several decades, I have observed that one common challenge many face is generating innovative ideas. The belief for many is that you need a great idea or you will not succeed, and this creates a mental block for many. This is why I created this site, to help aspiring entrepreneurs start a business with fewer resources (time and money) and start on their path to being an entrepreneur.
In addition, Prometheus Cafe will offer an eBook, “101 Low-Cost Startup Ideas,” as an invaluable tool for the dreamer looking to get their own business started with minimal steps and cost. It offers a comprehensive list of diverse ideas ranging from online services to physical products to creative ventures. This allows readers to select a business idea that resonates with them and aligns with their skillset and interest.
Moreover, the book provides advice on how to get started. It outlines essential steps such as market research, budgeting, registering a business name, creating a website or social media presence, devising a marketing plan, and more. These tips provide useful guidance for getting things up and running in the most efficient way possible.
Overall, this book is an excellent resource for anyone considering launching their own business. Not only does it provide great low-cost startup ideas and sound advice for getting going, but it also helps readers understand the risks involved in setting up any venture. With its practical guidance and vast array of ideas, “101 Low-Cost Startup Ideas” can be an invaluable asset at any stage of the entrepreneurial journey.
Why Learn About Entrepreneurs?
When people learn that I teach entrepreneurship, I often get the question of why someone would learn about entrepreneurship at a university. To which I respond:
Knowledge & Expertise
Networking Opportunities & Skills
Access to Resources
Entrepreneurial Mindset Development
Validation & Credibility
Learning from other successful entrepreneurs is a great way to improve your chances of success. As an entrepreneur, you will face many challenges, and having resources created by credible authors is invaluable. You can learn from many entrepreneurs, their successes and failures, gaining insight into how to overcome the obstacles you’ll face in your startup.
Reading books and articles about entrepreneurship and attending seminars, conferences, and networking events can be a great way to learn from other successful and aspiring entrepreneurs. It can also be helpful to join communities of like-minded individuals, both online and offline, who can offer support and guidance throughout your journey.
About Prometheus Cafe
Prometheus Cafe is a great place to stop by and have a sip through the growing library of articles as I strive to share my decades of experience being an entrepreneur and decades teaching entrepreneurship. By late 2023, there will be the book series “Entrepreneur’s Coffee Chat,” with each ebook available for a good introductory price to subscribers of this site.
101 Low-Cost Startup Ideas
Navigating the IDEAS Framework (business development)
Building a Digital Presence (essential in today’s technical environment)
By 2024, Prometheus Cafe will create online certification courses, create a virtual community, and offer coaching sessions. In addition, offer a 4th eBook in the above series titled “Path to Financial Freedom”
If this interests you, subscribe to this site by providing your email.
References
Acs, Z.J., & Szerb, L. (2007). Entrepreneurship, Economic Growth and Public Policy.” Small Business Economics. Small Business Economics.
Audretsch, D.B., & Keilbach, M.C. (2007). The Entrepreneurial Society: A Reform Strategy for the European Union. CESifo DICE Report.
CB Insights. (2018). The Top 20 Reasons Startups Fail. CB Information Services, Inc.
Dweck, C. S. (2006). Mindset: The new psychology of success. Random House Incorporated.
International Labour Organization. (2022) Guide to Recommendation 189: Job creation in small and medium sized enterprises Recommendation. ILO
Lévesque, M., & Minniti, M. (2006). The Effect of Entrepreneurial Activity on National Economic Growth. Small Business Economics.
Scarborough N., Cornwall J. (2016). Essentials of Entrepreneurship and Small Business Management. Pearson
Schumpeter, J.A. (1934). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Harvard University Press.
Stimson, R.J. (2002). Regional Economic Development: Analysis and Planning Strategy. Springer Science & Business Media.
U.S. Bureau of Labor Statistics. (2016). Business Employment Dynamics. US Government. https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm
U.S. Small Business Administration. (2020). Small Business GDP: Updated 2002-2020. https://www.sba.gov/advocacy/small-business-gdp-updated-2002-2020
