It is real funny but it looks like everyone without a job today calls himself an entrepreneur, and–judging by the way the word is thrown around–you might think every one of those self employed people is.
The term is applied to politicians and college presidents, cabdrivers and bookies. People like Donald Trump and Richard Branson are held up as models of entrepreneurship. Meanwhile, newspapers routinely refer to lone wolfs trying to sell something at a profit as entrepreneurs.
Well let me tell you something folks. Entrepreneur is not a meaningless word, and we shouldn’t let it become one. It’s the only word we have to describe a person who performs a particular function that’s critical to our economic well-being. I’m talking about the conversion of ideas into viable businesses by means of ingenuity, hard work, resilience, imagination, luck, and all the other ingredients that go into a successful start-up. That process is not the only way to create wealth in a capitalist economy, and the people who do it aren’t members of some sort of business elite. But they do something that’s important and different from what other businesspeople do, and they deserve to have a name.
So what is the definition of an entrepreneur? I have a very simple one. In my book, entrepreneurs are people who, starting with nothing more than an idea for a new venture, have the ability to take it to the point at which the business can sustain itself on its own internally generated cash flow.
I’m not talking about people who happen to be in the right place at the right time. Luck is a factor in every start-up, but I don’t count people who start one company and then can’t do it again to save their souls. And I don’t include people who become what I call “lifestyle entrepreneurs” because they are not able to find a decent job to pay their bills. These are called entrepreneurs by accident.
I also rule out people who build on existing businesses.
Ray Kroc for example, who built McDonald’s from a successful hamburger stand into one of the greatest companies in the world, a great businessman and one of the best managers ever, is though in my definition no entrepreneur. He was without doubt a pioneer and a figure bigger than life, but the people who got the company up and running were the McDonald brothers.
By the same token, I would exclude people who inherit a business, no matter what they do with it afterward. Ned Johnson of Fidelity Investments, for example, has revolutionized the financial-services industry, but his father, who started the business, was the entrepreneur. Same goes for Donald Trump.
Nor do you qualify if you do nothing more than acquire existing businesses, like most of the people doing so-called industry roll-ups. They go around the country, buying up local businesses–say, ambulance services or delivery companies–which they then bundle together to create a new national entity. To be sure, they call themselves entrepreneurs. A couple of them have even been designated “Entrepreneurs of the Year,” which is a joke. By and large, they’re just smart accountants.
The point is that entrepreneurs, real entrepreneurs, are people who create companies from scratch. They start with nothing except what they themselves bring to the party–a concept, a few contacts, maybe some capital, plus all of those intangible qualities that are important to success in any new venture. And that’s about it. There are no salespeople, no offices, no telephones or computers, no accounting system, no operations, no customers or suppliers. The entrepreneurs’ job is to put everything together, wearing 10 different hats, juggling 20 different balls, relying on their own knowledge and instincts and creativity to get them to positive cash flow.
And the best entrepreneurs are masters of the process, which is not to say that they’re necessarily the greatest businesspeople in the world. Very few of them are industry pioneers. Many of them have a hard time managing the companies they create. They may even fail in a new business venturenow and then. But they know how to bounce back from failure, and they keep on trying until they succeed. What they’re good at is starting businesses. They can do it again and again.
So who are the real entrepreneurs? Ross Perot is certainly one of them. So is Steven Jobs. I would also include Microsoft founder Bill Gates and Federal Express founder Fred Smith too.
But most real entrepreneurs are people you’ve never heard of. There are thousands and thousands of them–men and women of every race and nationality, in every industry and every corner of the globe. They’re starting businesses every day, and the world is a better place because of it.
For their sake, let’s reserve the title of entrepreneur for a particular group of people–the ones who’ve earned it and provide them with access to the capital they need to build their dreams and reshape the world.
After all, and as the late Peter Drucker used to say: “Entrepreneurship rests on a theory of economy and society. The theory sees change as normal and indeed as healthy. And it sees the major task in society – and especially in the economy – as doing something different rather than doing better what is already being done. That is basically what Say, two hundred years ago, meant when he coined the term entrepreneur. It was intended as a manifesto and as a declaration of dissent: the entrepreneur upsets and disorganizes. As Joseph Schumpeter formulated it, his task is “creative destruction.”