One Definition Does Not Fit All: The Four Types of Entrepreneurship
Entrepreneurs are not all the same, whether they live in Silicon Valley, Boston or the boot hill of Missouri. Not every entrepreneur wants to create a billion dollar business. But some do. And not all entrepreneurs want to scale to massive growth within the next three years. But some do. And they don’t all want to live their business, working a brutal schedule of nights and weekends to build a legendary business. But, you know, some do.
Here’s the reality: entrepreneurs and the businesses they lead are different—and that’s exactly what makes working in entrepreneurship, in matching entrepreneurs with the right resource at the right time, both exhilarating and challenging.
Which is a good thing, because Missouri’s economy is based on many different kinds of businesses—high tech and agtech, health care and retail, advance manufacturing and professional services—and each play a different role in defining our state’s 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.
Four Types of Entrepreneurs
Having worked in the field of entrepreneurship for 15 years, we know that entrepreneurial support organizations tend to cluster around the kind of entrepreneur they have. These break down into four types of entrepreneurs.
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 Entrepreneurs
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 Entrepreneurs
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.
Let’s bring it home. Here in Missouri, 72 percent of our entrepreneurs are Microenterprise, 26 percent Main Street, 1 percent Second Stage and .6 percent innovation-led. And at any given moment, there are nearly 300,000 Missourians thinking of starting a business (source: Kauffman Index).
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.
Where do you fit in?
Remember you have MOSourceLink on your side ready to connect you with the resources you need to succeed. Give us a call at 866-870-6500 or send us a message and we'll guide you along your next steps to starting or growing your business.