One Definition Does Not Fit All: The Four Types of Entrepreneurship
Meet Maria Meyers, director of the UMKC Innovation Center and founder of KCSourceLink and U.S.SourceLink. With affiliates from Seattle to San Juan, and several spots in between, SourceLink helps communities map their entrepreneurial resource, make them visible to those who need them and create a vibrant ecosystem.
Below, Meyers breaks down the myth that all entrepreneurs are alike--and can all be served by the same resources. This post was originally appeared on U.S.SourceLink's blog and updated to reflect 2014 numbers.
“An entrepreneur is an entrepreneur.”
People want to believe that anyone who starts businesses—any kind of business—are the same. That they have the same challenges, the same needs, the same motivation, the same desires, the same end game—that they want to and deliver the same economic impact.
And that’s simply not true.
Not all entrepreneurs want to create billion dollar businesses. Not all entrepreneurs want to scale to massive growth within the next three years. Not all entrepreneurs want to live their business, working a brutal schedule to leave a lasting legacy.
Entrepreneurs and the companies they lead are different—and that’s exactly what makes working in this field, in matching entrepreneurs with the right resource at the right time, both exhilarating and challenging.
Which is a good thing, because our economy is based on many different kinds of businesses and each play a different role in defining an economy.
The Classic Split: Entrepreneurs vs. Independent Business Owners
Entrepreneurs and small business owners come in all shapes and sizes. To many keepers of the definitions and classifiers of categories, there is a difference between an “entrepreneur” and an “independent business owner.”
The entrepreneur may be described as the person who works toward a three to seven year exit, which is usually an acquisition by a larger organization, but may be an IPO.
An independent business owner, on the other hand, builds a successful career in his or her area of interest and expertise and plans to work in the company over a long period of time. The exit plan may involve selling the company to a key employee or passing it on to a family member.
Sound like splitting hairs? Even “entrepreneur” and “independent business owner” may be too broad of categories.
A Different (and More Helpful) Model: Four Types of Entrepreneurs
Entrepreneurs and independent business owners—they aren’t all the same, and the companies they lead aren’t either. So perhaps a more helpful classification would be to define entrepreneurs by the type of company they lead and their goals for growth.
Innovation-led enterprises are businesses in which research and development brings forth an innovative product or process. The innovation typically involves intellectual property that contributes to a strong competitive advantage in the marketplace and serves as a foundation for a high rate of growth.
Often formed around life sciences or technology innovations, these enterprises can require significant funding and specialized facilities. Owners are willing to give away equity to investors to secure the financial resources they need to grow. These businesses may cluster around research institutes and universities as technology is transferred from research labs into the marketplace.
Second-stage enterprises have survived the startup phase and have owners who are focused on growing and expanding. The second-stage firms generally have between 10 to 99 employees and/or $750,000 to $50 million in revenue.
For these companies, business plans have morphed into strategic marketing plans. Finding a location is replaced by funding an expansion. Defining a market niche transforms into finding new markets, launching a new product line, exporting or selling to the government. And finding a team to launch the business becomes a search to find the experts who can take the business to the next level.
Main Street companies make up a large segment of our economy, serve communities’ growing populations and define our cultural character. You’ll recognize these entrepreneurs among your local dry cleaner, grocery store owner, coffee shop owner, restaurateur, or graphic design boutique.
Main Street entrepreneurs aren’t driven by rapid growth. The founders create them to build a successful career in their area of passion and expertise and plan to work in the company for a long time. Their exit plan may involve selling the company to a key employee or passing it on to a family member.
By definition, microenterprises are businesses that require less than $35,000 in capitalization to start.
In today’s economic environment, dislocated workers and retirees are starting these companies to replace income lost through downsizing or the recession.
In the microenterprise space, there is a segment of support organizations that help those in poverty build wealth through microenterprise programs. Referrals may come from social services agencies and this group may need additional technical assistance due to lack of basic math skills, etc.
Here’s how Kansas City’s entrepreneurs and small businesses fall into the four types of entrepreneurship: Main Street, Microenterprise, Second Stage and Innovation-Led.
Why Can’t We All Just Be “Entrepreneurs”?
There they are: the four types of entrepreneurs and the kind of companies they lead. So why do we feel the need to reclassify entrepreneurship? Who does this help?
In a word, the entrepreneur.
Different groups deliver different economic impact. And they rely on different resources. Knowing who our entrepreneurs are helps us map the entrepreneurial ecosystem and determine whether we’re meeting the needs of all the players.
Knowing the types of entrepreneurship helps us—economic developers, policymakers, investors, even fellow entrepreneurs— understand what the entrepreneurs who lead these companies need, where they want their businesses to grow and how to give them the resources they need to get there.
Data from U.S. Census Bureau County Business Patterns 2013, Kauffman Foundation/ACS Survey 2014; MERIC