Entrepreneurship is a topic that fascinates the brightest and wealthiest people. There is something magical about how a talented entrepreneur can change the world. But who are entrepreneurs? What makes them special? What is the definition of an entrepreneur? In this article, we will look at the five major elements of an entrepreneur.
The presented elements will serve as a checklist to determine whether you qualify as an entrepreneur. Remember that even if you pass the first hurdle and are considered an entrepreneur, you will still need to play your cards right to be in the elite group of “successful entrepreneurs.”
So who is an entrepreneur? Let’s start with how I originally defined entrepreneur in my book The Necessity of Financemany years ago: “An entrepreneur is an individual who starts and manages his or her own business.” This definition captures an entrepreneur’s general essence, but time has allowed me to fine-tune the term. My slightly updated definition is the following: An entrepreneur is an individual who starts, manages, and owns a business or a nonprofit organization. Let’s break this down into five major parts, which will serve as a basic checklist for determining if you are an entrepreneur.
An entrepreneur is an individual
The first element of my definition of an entrepreneur requires that you are an individual. That is, you must be a living person. This is the easiest qualification to meet—anyone alive today (over seven billion people) is already one-fifth of the way to becoming an entrepreneur. The essence of an entrepreneur is personal. Groups cannot be considered entrepreneurs, only the individual members. Even though you may commonly hear the term “entrepreneurial business” or “entrepreneurial group,” it is the individuals within each group who are actually being referenced. An entrepreneur is not a football team, a chess club, or a giant corporation; it is simply a person.
Ok, you passed the first test. Let’s keep going to see if you still qualify!
An entrepreneur must start their own enterprise
The second element of my definition of an entrepreneur requires you to start your own business or nonprofit organization. The spiritual essence of an entrepreneur demands a creative presence; you must create a new product or service to sell to the world, whether it is a unique invention or your version of something else that already exists. Even if you started a business with generic products/services—for example, a seafood restaurant—it is your take on it that makes it unique. The combination of the many parts of your business (your location, your business culture, your menu, your customer service, etc.) is what gives your unique thumbprint. By starting a business, an entrepreneur participates in one of the hardest parts of creating a successful brand: building the foundation. That is, the product/service selection processes combined with the implementation of the startup plan are the crucial first steps to wealth building. If you start a company without really figuring out what you will sell and how you will sell it, it could be a recipe for a financial disaster.
An entrepreneur must manage their own enterprise
To be an entrepreneur, you must not only start your own business or nonprofit organization, but you must also manage it. There are many public companies where the owners pay managers to do the hard work for them. In this case, neither the owners (the stockholders) nor their executive managers (for example, the CEO and CFO) are entrepreneurs. One of the major things that make entrepreneurs special is their extraordinary ability to perform so many different tasks in a short period of time. This skillset can only be mastered from the experience of managing an enterprise simultaneously while being under the intense pressure found only as an owner. Thus, when the roles of a manager and an owner are separated, the evolutionary effects on the individual are completely different.
It is important to understand that your job as a manager is to do whatever tasks are required to meet your goals (ethically, of course). A typical entrepreneur could do any, if not all, of the following diverse tasks in a 24-hour period: Answer calls, sweep the floor, take out the trash, teach a new employee, learn new computer software, weekly payroll, close the deal for a major account, attend executive-level meetings with new suppliers, make a company speech, and clean the floors again before closing the store for the night. Entrepreneurs must also do all of their required tasks while ensuring that bills are paid and profits are maximized.
As you can see, becoming an entrepreneur for a manager is analogous to the major transformation that a caterpillar makes while becoming a butterfly. Through this extraneous multitasking process paired with the seemingly infinite pressure of extreme financial consequences, a manager can transform into a hardened leader. With so much to do in a short amount of time, this is definitely no job for the average employee.
An entrepreneur must own their own enterprise
Many definitions of the word “entrepreneur” often find a way to sneak the word “risk” into it. Although entrepreneurship certainly comes with high risk, it is redundant to define if you include some variation of the word “ownership.” If you own your business or nonprofit organization, you already have assumed the highest risk levels. Ultimately, if the entity fails in any capacity, the owners will pay the highest price. This can usually result in huge monetary losses, starting with the organization’s initial investment.
An owner can also be personally responsible for unpaid debts from the enterprise. Further, lawsuits caused by negligence from an employee can also open up an owner’s personal wealth to attack. On the flip side, an owner of a business can also take all of the credit and the rewards if the company is successful.
In short, all roads of a business lead back to its owner, for better or worse. If you want to become an entrepreneur, you must be prepared to deal with all of the risks that inevitably comes with ownership. As Principle 94 from The Most Important Lessons in Economics and Finance book states: “The more risk you take, the more you can lose or make.”
The enterprise must be a business or a nonprofit organization
The enterprise that you start, manage, and own must be a business or a nonprofit organization in order for you to be classified as an entrepreneur. Generally speaking, entrepreneurs are commonly associated with businesses, which is why I only added it to my original definition quoted previously. My updated definition of an entrepreneur includes nonprofit organizations because they also follow the same mechanics as a business; however, the key difference is where the wealth is funneled. Profits from a business are eventually directed back to its owners while profits from a nonprofit organization are directed to some other cause instead (for example, to help children with cancer).
You don’t have to read Entrepreneur magazine to be an entrepreneur (although you probably should); however, you must meet all five of the criteria mentioned in this article. The previous five major elements of the definition of an entrepreneur can serve as a checklist for determining membership into one of the most important groups in our economic system. Without entrepreneurs, new products and services would never be invented and brought to the market for all consumers to purchase (assuming they have the money to buy it).
If you just found out that you are an entrepreneur based on the qualifications listed previously, please accept my congratulations. You should certainly feel special as it is an honor to be a part of this exceptional club. However, statistics show that most entrepreneurs fail, usually within the first few years. Consequently, qualifying as an entrepreneur alone is just the first of many long, painful steps to reach the elite category of “successful entrepreneurs.”
Some examples of people in the 20th and 21st century who have earned the right to be considered “successful entrepreneurs” include the following (in alphabetical order by first name): Barbara Corcoran, Bill Gates, Charles Merrill, Charles Schwab, Curtis “50 Cents” Jackson, Dave Ramsey, Daymond John, Elon Musk, Gary Vaynerchuk, Henry Ford, Jack Canfield, Jeff Bezos, Kevin O’Leary, Lori Greiner, Mark Cuban, Oprah Winfrey, Robert Herjavec, Robert Kiyosaki, Sam Walton, Steve Jobs, Steve Harrison, Tony Robbins, Walt Disney, and Warren Buffett.
If you want to be among the tiny percentage of elite entrepreneurs that broke through all barriers and fully maximized the potential of an enterprise, then you have to be prepared to commit to the study of finance, which is the science that teaches about business and entrepreneurship (as well as many other wealth-related subjects). The integration of financial knowledge with raw entrepreneurial experience might be the winning combination you need.