Entrepreneurship Defined
We’re witnessing the emergence of the entrepreneur. Everywhere you turn, people are talking about becoming entrepreneurs, working in a more entrepreneurial fashion, being entrepreneurial inside corporations, and so on. Entrepreneur seems to be a big buzz word in the new millennium (even bigger than the "coaching" phenomenon!).
So what is an entrepreneur? Everyone has their own definition. At Kaizen Consulting, we decided that any definition that we came up with had to be practical and be able to be used day to day. It would also need to pass our "6 year old" test. That is, if you have to be seven to understand it, it’s probably too complicated.
Definition:
An entrepreneur is someone who:
- assumes a risk for a reward,
- to buy and sell…
- enough stuff…
- each day…
- at a profit.
Assuming a Risk for a Reward
Without risk, there is no entrepreneurship. However, you want to make sure that the reward is equal to the risk involved. Many times I see people taking inordinate risks for potential projects that have little chance of succeeding. Even worse, if they do succeed, they generate such a small profit that it’s undecided at best to call this risk / reward arrangement a good deal. This happens quite frequently on large tendered projects, where pricing is very competitive. Business owners will justify their participation (ego aside) as a way to gain either volume or reputation.
That reminds me of the Saturday Night Live skit where they were selling a business opportunity that was going to generate millions of dollars. The business was "Making Change". You give them one dollar, and they give you 4 quarters. When asked how were they going to make any money, the sellers responded, "We’ll make it up on volume!"
Carefully consider the risk / reward ratio of the projects you undertake.
Buying and Selling
Everyone knows you need to sell at a profit, but do you think about buying at a profit? This is quite often overlooked, especially when entrepreneurs are new, or are very focused on sales.
Even in service businesses, buying at a profit makes a difference. Your phone system, the type of car you drive, where and how you rent your facilities, all impact your profitability.
One client shared with us, "When I started as an entrepreneur I had a very specific goal… that was to make a lot of money. I did that. Within 4 years, I was generating well into six figures of income. After a while I changed my goal. My new goal is to keep some of the money I make." That was a different goal, requiring different strategies… and it generated different results!
If you are not clear on your gross margin for each customer or project, go ahead and drilldown to get to the "heart" of your business profitability.
Enough "Stuff", Every Day
How much “stuff” is enough? It’s different for different businesses. However, one thing is clear. Every day you don’t do commerce, your risk increases. Does that mean you need to do business every day? Not necessarily…
An architect client we helped, needed to design 3 custom homes per year to be profitable. Clearly he doesn’t need a transaction each day. The risk to him of not doing commerce each and every day is very small. But if he has not sold one contract in 362 days, his cumulative risk will be posing major threats to his business.
A gas station attendant, on the other hand, needs to pump gas and fix flats every day, or he is not in business long. A hot dog vendor has to sell dogs every day or he is not around long. While it is situational, the "enough stuff" risk is there.
What do you have to do each day / week / and month in order to be buying and selling "enough stuff"?
At a Profit
There are two types of profit. The commonly understood one is tangible profit. This includes money, asset growth, goods in kind, and referrals. The other kind of profit is intangible. This includes increased satisfaction, growth in reputation, recognition in the community, support of others, etc. Both levels of profit are valid and needed in a thriving business. If you are generating neither, then you are not an (effective) entrepreneur.
Remember, tangible financial profit to a business is like eating is to life. There is much more to life than eating . . . unless you are starving! Then eating is a very high priority. Similarly, financial profit is “the” priority until this is handled.
Summary
If you monitor your business activities against the various elements of this definition of an entrepreneur, you are more likely to make more effective decisions and truly have a business that supports your goals and commitments in life.
Please let us know how this definition applies to you. And have a great holiday season!
Filed under Business Consulting, Entrepreneur by Michael Walsh.
Entrepreneurship Defined…
So what is an entrepreneur? Everyone has their own definition. This is a useful one……