Anyone interested in starting and running their own business should consider which entrepreneurial model they prefer: small business, scalable startup, large company, or social entrepreneurship.
Small Business
Small businesses represent the overwhelming majority of U.S. entrepreneurial ventures. A small business could be any company, restaurant, or retail store that’s launched by a founder, without any intention of growing the business into a chain, franchise, or conglomerate. For example, opening a single grocery store falls under the small business model; creating a nationwide chain of grocery stores doesn’t. Small business entrepreneurs usually invest their own money to get their companies off the ground, and they only make money if the business succeeds.
Scalable Startup
Scalable startups are less common than small businesses, though they tend to attract a lot of media attention. These businesses begin on a very small scale, often as just the seeds of an idea. This germ is then nurtured and scaled, typically through the involvement of outside investors, until it becomes something much larger. Many Silicon Valley tech companies fall under this model; they begin in an attic, garage, or home office before eventually scaling into large corporate headquarters.
Large Company
Sometimes, entrepreneurs work within the context of a larger, established company. Imagine that you work at a large auto manufacturing company. Through careful market research, you realize there is a high demand for motorcycles, and that your company has many of the technologies and processes in place to branch into motorcycle production. You go to your boss and ask for the funding to launch a brand-new motorcycle division, and you are approved. This is an example of what the large company entrepreneurship model might look like in practice.
Social Entrepreneurship
The final model to consider is social entrepreneurship, which seeks innovative solutions to community-based problems. According to Investopedia, social entrepreneurs “are willing to take on the risk and effort to create positive changes in society through their initiatives.” In other words, a social entrepreneur launches an organization that’s fundamentally about enacting positive social change, not merely generating profits. The social change in question may pertain to environmental conservation, racial justice, or philanthropic activity in an underserved community.
Small Business Entrepreneurship
According to the Small Business Administration (SBA), more than 99% of all U.S. businesses fall into the small business category.
Defining Characteristics of Small Business Entrepreneurship
What distinguishes small business entrepreneurs from other kinds of entrepreneurs? There are a few distinct characteristics:
- Small business entrepreneurs focus initially on a single product, market, or locality. While in their startup phase, the entrepreneurs probably don’t have plans to expand the company.
- The initial goal of small business entrepreneurs is to make a profit, although even in its early stages, the business may be motivated by the entrepreneur’s desire to effect social change.
- Most small businesses are either self-funded or funded through small business loans. Outside investors and venture capitalists are very rarely involved.
- These are among the greatest challenges small business entrepreneurs face:
- Ensuring a steady cash flow without relying on third-party investments
- Finding time for family and friends
- Staying abreast of technology and market changes that affect the business
- Devising a marketing strategy to attract the company’s target audience
- Maintaining a solid reputation for their brand
- Keeping an eye on the competition
What Industries Do Small Business Entrepreneurs Work In?
While small business entrepreneurs work across a range of different fields, many of them operate in the context of “mom and pop” brick-and-mortar shops: hairdressers, bakers, restaurateurs, and retail store owners.
Additionally, small business entrepreneurship can encompass consultants and creative professionals, such as copywriters, marketers, or graphic designers who go into business for themselves. Service trades, such as electricians and plumbers, also fall under this category.
Scalable Startup Entrepreneurship
The scalable startup entrepreneurship model at first resembles a small business but differs in its intentions for long-term evolution.
Key Characteristics of Scalable Startup Entrepreneurship
There are a few traits that distinguish the scalable startup model from the small business model, as well as from other types of entrepreneurship.
- Like small business entrepreneurs, scalable startup entrepreneurs start their companies on a modest scale. But unlike small business entrepreneurs, scalable startup entrepreneurs have a vision for growth from the outset.
- Scalable startup entrepreneurs look not just to make profits but also to generate revenues they can invest back into the business, fueling growth.
- The most common way to fund a scalable startup is through the pursuit of venture capital.
- Scalable startup entrepreneurs face several unique challenges, as Startup Nation describes:
- Attracting investors and raising venture capital
- Recruiting talented managers and employees without impinging on cash flow or incurring debt
- Ensuring the business plan is flexible enough to accommodate shifting markets and new technologies
- Planning and implementing an infrastructure for the business that is inexpensive to launch yet capable of growing without disrupting the core business
- Realizing aggressive growth targets to meet investor expectations and attract future funding
Large Company Entrepreneurship
Fewer than 1% of all U.S. businesses qualify as large businesses, but due to their scope and influence, these companies are often well-known to the public.
Defining Large Company Entrepreneurship
The primary thing that distinguishes this model is that rather than building a new business entity from scratch, it is the creation of a new business entity within an existing company.
- Large company entrepreneurs address the needs and opportunities of an existing business through innovation. This may include a new product line or division.
- Large company entrepreneurs look to branch into new customer markets, broadening the reach of an established business.
- Large company entrepreneurship may entail the acquisition of new companies and resources, or investment into research and development.
- The key to success for large company entrepreneurs is sustaining growth in the long term, so the major challenge to their success is to anticipate and avoid obstacles to growth:
- Ensuring that the firm’s new and innovative products are first to market
- Protecting and growing the market share of existing products while promoting the new offerings
- Building a cohesive corporate culture that is easy for newly acquired organizations to adopt
- Overcoming the inertia that can prevent large firms from acting on and responding to changing markets and innovative technologies faster than the competition
- Failing to scale sustainably (growing too much, too soon)
Social Entrepreneurship
Social entrepreneurship has emerged as businesspeople consider the effect their company has on the world, beyond mere profits and losses.
What Is Social Entrepreneurship?
The primary factor that distinguishes social entrepreneurs from the other types of entrepreneurs is their mission. These entrepreneurs are focused on solving a problem in their community or furthering some kind of social change. Their objective goes beyond the bottom line.
Some additional factors to consider:
- Most examples of social entrepreneurship take a nonprofit structure. Money that’s generated is put toward advancing the company’s mission and maintaining necessary overhead but not necessarily toward corporate growth or expansion.
- Social entrepreneurship often involves alternative forms of fundraising, which may include grants, sponsorships, or small-donor fundraising within the community.
- The World Economic Forum identifies social entrepreneurship as a powerful way to apply market-driven approaches to address social problems. However, despite their success at finding innovative and practical solutions, social entrepreneurs face serious challenges:
- Innovation requires experimentation, but funding for social entrepreneur projects focuses on results, so there’s little incentive to pay for unproven approaches.
- All enterprises require a steady flow of capital, but social entrepreneur projects tend to provide investors with lower returns than other opportunities.
- Relations between social entrepreneurs and investors can become strained by conflicting goals and a lack of financial transparency.
Reference: https://onlinebusiness.northeastern.edu/
