Economics for One

You might be an Entrepreneur!

I recently met a man who tried to impress me with his entrepreneurial credentials.

“I’ve always been an entrepreneur!” he proclaimed.  “When I graduated from school I immediately joined a little startup, named Yahoo!”  He looked quite pleased with himself.

He was in his early 30’s.  I thought about it a moment.  “So, how may employees were there?”

“Just 350 back then.”  He answered smugly.

Pause.  “And when did they go public?  Wasn’t it around then?”

“Well, yes.  Just before I joined.”  Now he looked uncomfortable.  Or annoyed.  Either way, he seemed to realize I was calling his bluff; I quickly changed the subject.

I was amazed.  Here was a guy claiming he was an entrepreneur, because 10 years earlier he had joined a public company with 350 employees.  He was as naive as the woman who thought she understood parenthood because she’d once owned a cat!

Plenty of people like to think of themselves as entrepreneurial.  They like to think they are creative, resourceful, and able to get things done.  And they may be; but that’s not an entrepreneur.

So what distinguishes an entrepreneur from other employees?

An entrepreneur creates businesses out of nothing.  They develop a business the same way a real estate developer might develop a shopping center, or a residential community.  Lots of people might help in the construction – but that doesn’t make them the developer.

Here are some simple tests to help determine entrepreneurs.

  1. Did you work for the company before it was incorporated?
  2. Did you work for the company before it had a bank account?
  3. Did you write a personal check to open the company’s bank account?
  4. Have you guaranteed the company’s payments with your personal assets?
  5. Do you know what a Resident Agent does, and have you ever hired one?
  6. Do you know where the Articles are?  Did you help edit them?
  7. Have you worked for a company before it had an office?
  8. Have you faced personal bankruptcy if the company fails – or does not succeed quickly enough?
  9. Does your career directly depend upon the success of the company?
  10. Have you found yourself dreading payday, rather than looking forward to it?
  11. Do you have stock options?  (A trick question: no entrepreneur has stock options; they have stock.)

Very few entrepreneurs would ever answer “No” to more than one of these questions.  And it gives them a maturity and understanding of where and how economic value is created that few other people ever really understand.  It comes from within.

And they learn to understand the greatest challenges of entrepreneurship.  Those challenges are personal and emotional – not related to any particular challenge of a business.

A true entrepreneur has experiences that employees just don’t get.  And it changes them.  They come to realize that the success traits of an entrepreneur are not about education, or the type of charisma that would make you the envy of your MBA class.  In fact, many successful entrepreneurs barely know what an MBA is, let alone have one.

They realize that a successful entrepreneur has a vision in mind for a business, and are willing to bet that they can make it happen.  An entrepreneur takes huge risks compared to anyone else, but often doesn’t perceive those risks as being risky.  They bet their time, effort, and reputation on their own success.  But most of all, they believe in themselves.  They are betting on their own vision and their own ability to make it happen.

By contrast, most venture capitalists have little understanding of risk – and are not even betting their own money.  And investors, employees and others are typically placing their bets on other people’s success and vision, rather than their own.

Ironically, it is people like the man above who are quickest to judge entrepreneurs.  They think they know what makes a “good” entrepreneur, when in fact they don’t really know what an entrepreneur is.  And that leads to fatal mistakes.  (One of the most common is thinking the entrepreneur can be easily replaced.  Despite overwhelming evidence that entrepreneurs drive the success of their businesses, they are often convinced – or forced – to leave, to make way for other management with no true entrepreneurial experience.  A more successful strategy is to surround and support the entrepreneur with complementary skills.)

Entrepreneurs drive the economy.  They create the jobs for employees; they produce the returns that investors rely upon.  It is their vision, creativity, and ultimately their production that pays effectively all of a nation’s taxes.

But they are often derided by others – and particularly those with little or no entrepreneurial experience.  While getting started, they are constantly being told they are not big enough, established enough, or mature enough.  They are constantly being compared with other companies – either past companies that failed, proving this new venture is doomed as well, or large companies that succeeded, proving this new venture cannot succeed because someone else already has a lock on the market.

The challenges a true entrepreneur faces are often emotional in nature – the need to overcome the negativity of others.  So they must have the courage of their convictions, a strong belief in themselves, and also the ability to identify when they must change course, and to do so without hesitation.

A young entrepreneur’s best cheerleaders are usually older entrepreneurs, who understand the challenges of starting a new business.  They understand that most of what one learns in business school can be bought.  They understand that an entrepreneur’s biggest challenges are not marketing strategies, or hiring, or getting financing.  Rather they are staying positive, focused, and upbeat.  And they understand the rewards for starting a new venture are both financial and emotional in nature.  Yes, the business must be financially successful.  But a true entrepreneur also understands the statement, “I would have traded a bit of financial success to see the product hit the market sooner.”

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