Defining the Entrepreneur

The concepts embodied in Market-Based Management are closely related to questions of entrepreneurship (How do you get more entrepreneurial behavior in a business? How do you identify new employees who will thrive in an entrepreneurial environment?). Entrepreneurship is certainly a hot topic not just in the business world, but in universities as well, as evidenced by the growing numbers of students with degrees in entrepreneurship, as well as the plethora of university centers devoted to the study of entrepreneurs.

This creates a language challenge when we talk to students and others about promoting Principled Entrepreneurship, however, because academics (and therefore their students) by and large define the entrepreneur as someone who owns a business. While there are historical reasons for this, it seems today that the practice persists not because it creates a useful and meaningful distinction between economic actors, but because it's easy. And that's not very scholarly.

Think about it -- if you're charged with studying entrepreneurial behavior, you can work to articulate, perhaps along the lines of a Joseph Schumpeter, the qualities of those who engineer creative destruction in a market economy. Or you can follow a Frank Knight, and try to capture how they grapple with risk and uncertainty. Either way, you've got some real roll-up-your-shirtsleeves work in front of you, first trying to define what entrepreneurship is, and how it differs from everyday business practice, and then searching for people who exhibit these qualities, and then figuring out a way to study them in order to draw meaningful conclusions.

Or you could just count everybody who owns his own dry cleaning or plumbing or mowing business as an entrepreneur, and ignore the Art Fry's of the world.

Who is Art Fry, you ask? He's the guy at 3M who saw potential in a colleague's disappointing glue mixture, pursued his vision, and convinced teammates and upper management to go along, all of which eventually led to the Post-It Note. By conventional academic standards, Fry and his colleagues aren't entrepreneurs. The guy with his own hotdog stand, however, who serves you the same dog and bag of chips that he's been serving customers for the past twenty years, well, to most business scholars, he's the entrepreneur.

Do you see the problem? Starting a small business often takes guts and vision, about this there is no question. But some small businesses embody narrow-minded thinking, zero innovation, and poor customer service. Why are we so excited when we find a good plumber, after all? Because so many others are awful. Some large companies, on the other hand, have numerous employees who identify opportunities to create exceptional value, develop the vision that sells their colleagues on the opportunity, work up the strategy to capture the opportunity, and then see that it's implemented, making their company money while improving the lives of their customers. But for some reason, we persist in calling the owner of a mediocre plumbing business an entrepreneur by definition, and ignoring  real entrepreneurship elsewhere because it happens to come from people who don't own their businesses.

Entrepreneurship is a critical behavior for the advancement of health, wealth, and prosperity, and we can find it in large companies, small businesses, and yes, even non-profits -- if we are willing to define it properly. So I'll propose a definition, for those of us interested in the practical understanding of what entrepreneurs do, and where they can be found. It's probably not 100 percent right, but I'll suggest that it's closer to good than the limited definition that dominates universities.

Entrepreneur: Someone who sees an unmet need, often before customers themselves see it. The entrepreneur discovers a way to profitably meet that need, and organizes the resources and people to deliver the resulting value to customers.

Coming back to the idea of Principled Entrepreneurship, then, we mean by that an entrepreneur who maximizes long-term profitability by creating real value in society while faithfully acting lawfully and with integrity. This behavior can happen in a small business or a big business, and the person demonstrating it can be an employee or an owner. Sound reasonable? Now comes the hard part, which is cultivating an organizational environment that fosters that kind of behavior. Which is where MBM comes in.

Comments

[David McGinnis]

I agree with most everything you wrote...
some would define an entrepreneur as "...commonly seen as a business leader and innovator of new ideas and business processes." Also the definition includes that this is the risk taker, the one who essentially bets his job on his purpose, venture, or idea. Really, aside from MBM, you cannot find employment with a company AND trade risk for reward in a business venture.
I believe this is why the term 'entrepreneur' is so enticing. If someone has a great plan or idea, they want to get credit for it, and are often willing to take a significant risk for the compensation it may bring.
I know I don't have to convince you that the Principles are tied together with the Framework (as in Value Creation and Principled Entrepreneurship tie so well with Incentives...)

[Eric Jandrain]

There are some excellent points made in this article. Entrepreneurs should constantly challenge the market with new ideas and new approaches to solving old problems. Entrepreneurs also deserve just compensation for value creation. I think Koch is one of the first companies to attempt to measure the value an employee creates and spread the reward to those who deserve it. This may be a hard concept for someone who feels entitled to compensation just for showing up to work.

By having entreprenuership within a company, there is less risk to the individual, but a similar or greater potential to create value. If entrepreneurship is applied correctly within a corporation, the company stands to retain individuals that may otherwise seek methods to apply entrepreneurship elsewhere.

Great article!

[Darin Dredge]

The American Heritage Dictionary defines entrepreneur as, "A person who organizes, operates, and assumes the risk for a business venture." Venture is defined as, "An undertaking that is dangerous, daring, or of doubtful outcome." I do not see "business owner" anywhere in these two definitions.

I always thought of being an entrepreneur as an attitude as opposed to a skill set. Indeed entrepreneurs have to possess skills to create value, but without an attitude that challenges the status quo and seeks opportunities the skills are just skills. A good visual representation of this in MBM is the Virtue & Talents Matrix.

In my opinion one of the more difficult aspects of promoting entrepreneurship in the organization is the risk vs. reward relationship. When you own the business you take all of the risks and reap all of the rewards. In an organization, it is more difficult to mirror this risk vs. reward relationship. Perhaps this is one of the reasons why the conventional thinking around entrepreneur defaults to business owner?

[David McGinnis]

Very interesting to read my own comments 3 years later. This link came up from a poll asking if entrepreneurship is more nature or more nurture. (HT: Ann Zerkle) I think that as a manager, the nurture domain is uber-critical to draw out and encourage Principled Entrepreneurship (PE) from your employees.

For the sake of argument, let's claim that most humans have some Nature of PE, but if they don't have enough tenacity to overcome some risk, a manager can reduce the risk (at minimum the social risk) by defining and cultivating a culture that encourages Principled Entrepreneurship. Conversely, a timid individual with excellent customer focus and wonderful ideas may not sense any avenue to behave with initiative and a risk-taking mentality.

So maybe I can phrase it like this:
A strong PE nature works, but is rare.
-but-
A culture that in effect nurtures PE can extract limitless talent from a limited number of employees.

your thoughts?