Types of Businesses, Who is an Entrepreneur and Principles of Entrepreneurship
Types of Businesses, Who is an Entrepreneur and Principles of Entrepreneurship
This is a story series, which we will discuss on entrepreneurship, ideas, Design Thinking, lean and business canvas, value proposition, competition, Types and Forms of businesses, and MVP. In this first post of the story series we will discuss about major types of business, what is entrepreneurship, who is an entrepreneur?, Principles of entrepreneurship.
Types of Business
A business entity is an organization that uses economic resources or inputs to provide goods or services to customers in exchange for money or other goods and services. Your venture might take the form of a physical product with a physical store called a “brick and mortar business”. Instead of a tangible product, your venture might be an empowerment network.
Business organizations come in different types and different forms of ownership.
3 Types of Business
There are three major types of businesses:
1. Service Business
A service type of business provides intangible products (products with no physical form). Service type firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: salons, repair shops, schools, banks, accounting firms, consulting, and law firms.
2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail price. They are known as “buy and sell” businesses. They make profit by selling the products at prices higher than their purchase costs. A merchandising business sells a product without changing its form. Examples are: grocery stores, convenience stores, distributors, and other resellers.
3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the intention of using them as materials in making a new product. Thus, there is a transformation of the products purchased. Manufacturing Business also known as Product Business which has intention to produce, develop products for needs. A manufacturing business combines raw materials, labor, and factory overhead in its production process. The manufactured goods will then be sold to customers.
· Hybrid Business
Hybrid businesses are companies that may be classified in more than one type of business. A restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold bottle of wine (merchandising), and fills customer orders (service).
Nonetheless, these companies may be classified according to their major business interest. In that case, restaurants are more of the service type — they provide dining services.
What makes someone an entrepreneur?
Everywhere for everyone doing anything seems to be called as “entrepreneur”. Entrepreneurs can be in all types of industries and can have widely different backgrounds. Some build personal brands, while others work on a product or service they believe in. Anyone can be an entrepreneur, given an idea and the right tools to develop it into a functional business.
“Entrepreneurship” is that it is the process of starting a venture of a business or an organization for profit or for social needs. An “entrepreneur” is someone who sees a need and takes on the financial risk to start a business to fill that need.
The person or the entity, which actually takes the financial risk to develop, produce, and sell the product or services. Therefore, an entrepreneur is an individual or entity who creates a new venture, bearing most of the risks and enjoying most of the rewards. An entrepreneur develops a business model, acquires the necessary physical and human capital to start a new venture, and operationalizes it and is responsible for its success or failure.
There has been a shift in the global job market that has opened the door for entrepreneurship to become more mainstream. A gig economy is a free market system in which temporary positions are common and organizations contract with independent workers for short-term engagements. This shift has made it financially easier for entrepreneurs to find people to get their businesses going, without committing long-term to paying employees. This allowed early-stage entrepreneurs to find flexible work to support themselves as they develop their product or service. This does not mean everyone in the gig economy is an entrepreneur; it has just given more people the opportunity.
A study in the Social Science Research Network journal found that entrepreneurs start companies because they mostly believe that:
· They are inherently more valuable than how they appear on paper.
· They are wasted working for someone else
· Their resumes don’t show “the real them”
· Large companies can’t appreciate their full potential.
· And They are capable of turning their internal value into real life money.
Basically, entrepreneurs believe in themselves.
Entrepreneurship does create a culture of opportunity that might work for some non-traditional workers. Of course, every entrepreneur with a massive success has also had hundreds of failures. Process of starting a venture is an educational experience in itself. Lean Startup methodology is the globally recognized guidebook for entrepreneurs created by Steve Blank and Eric Ries.
The “build-measure-learn” feedback loop is at the heart of the Lean Startup method
Build — The first step involves defining the problem that needs solving and developing a simple product prototype, otherwise known as a “minimum viable product” (MVP). A Minimum Viable Product (MVP) is the simplest experimental release that can start the build-measure-learn cycle for lean development
Measure — The results of the first step will then be measured. Here, a company measures the interest generated by the MVP and determines whether or not there is a strong product-market fit (the degree to which a hypothetical product satisfies a hypothetical market demand).
“Product-market fit” means that the product is well suited to its target market. In other words, there are a lot of real users interested in pay actual money for the product.
Learn — Analyze the results of the previous step and do one of two things: continue to develop the MVP into a full-fledged product, or pivot if the product iteration does not cohere with market demands
Lean Startup methodology says stumbling is perfectly fine if we learn as we go. But to identify and learn from failures, every entrepreneur has to ask themselves: what does success look like to me? How to redefine failure and pick up the pieces if it’s truly unavoidable. Whatever success is, it’s entirely up to you. It’s not that successful entrepreneurs never faced failure; it’s that they didn’t quit. In other words, if you think that you have a great idea and are executing it well with the right team, you need to persist and keep going even when the conventional wisdom says that you are getting it wrong. So the bottom line is anyone can be an entrepreneur with a little grit, determination, and luck.
Based on the research conducted over a period of three years, Bill Murphy came out with five principles of entrepreneurship, which was published by Harvard Business School.
1. It is not about making money fast and it is not the goal
It is important to test the ideas before launching a new venture. It requires commitment and try out new business models, and new forms and paradigms of transacting business. Shape your ideas into viable value propositions & business models. Test and validates ideas and generate first evidence. Pitch your ideas and insights to senior leaders and investors.
One way of testing the ideas is to run a focus group. Which is a small group of people in your target market who meet for a guided discussion about your business idea. A focus group can:
· Go beyond numbers to reveal how real prospects react to your idea
· Show you whether there is a market for your idea and how much customers will pay for it
· Reveal potential competitors you may not have thought of
· Help fine-tune your product or service to better position it for success
It is better to come up with a game changing idea instead of pursuing leads that are dead ends. Which means that entrepreneurs must be ready to be in the game for the long haul.
2. Find the right opportunity
The key challenge is to focus on finding customer problems first, and only then, on searching for solutions that customers greatly need or want, rather than solutions that are nice to have. The approach is to establish the need for a product or service; understanding a customer’s underlying problem, rather than presenting them with a solution built from vision-based assumptions. Design thinking emphasizes user desirability and identifies potential blind spots within understanding, or assumptions.
The right solution often comes from your personal or / and professional experience as well as from your feelings, your sense of intuition and observation. That is the only way of understanding whether there is a compelling need. Entrepreneurs must ensure that they have the necessary foundation in place to capitalize on the opportunity when rise and must have an idea and a business model that would create opportunities in case they are finding it difficult to get the venture going. Entrepreneurs can Create, Uncontested Market Space and Make Competition Irrelevant “Blue Oceans”, companies are better off searching for ways to gain “uncontested market space” over competing with similar companies.
3. Build successful teams
Building great teams, — your most important asset — is fundamental when starting a business. It starts by picking the right founder and combining the best skills.
Designing your team long before starting your activity is essential. It is the only way to reach profitability with the right people at the right place, altogether focused on the business model goals.
Make sure that your team has passion and love with its work as far as strong passion is probably the first quality, which is required for getting motivation, determination, constancy and courage, not to mention hard working and finally success.
Entrepreneurs must ensure that the team is passionate, committed, and most importantly, shares the vision and mission of the founders. In other words, unless there is a buy-in from the team with the founder’s ideas, the venture would flounder.
4. Make sure that execution is critical. Say no to NATO Principle
No action, Talk Only or All talk and no execution would lead the new venture nowhere and hence, it is important for entrepreneurs to ensure that they walk the talk and deliver on their promises. Indeed, it is not enough to have a game changing idea and a great team in place unless the entrepreneur knows the art of execution. As happened during the Dotcom boom, many startups with great ideas and equally great teams promised the moon for anyone willing to listen. However, the fact that they failed in their businesses was mainly due to the gap between ideas and execution. Therefore, the entrepreneur has to be a leader who walks the talk and understands the meaning of execution.
Entrepreneurship is difficult even when the idea is great, the team is good and conditions are ideal. Executing well involves a combination of two factors: First, balance your entrepreneur’s confidence in your business goals with your ability to make your team build the project gradually. Second, keep on learning to motivate and lead people.
Further, leadership means that entrepreneurs must not be afraid of failure and must instead, turn adversity into triumph and transform failure into a stepping-stone for success. Leadership is undoubtedly a huge issue in entrepreneurship. Two main qualities are required.
The most successful entrepreneurs can work alone and be a team player, whatever the size of the team is. They can make a critical individual contribution to their venture and make that transition to leading their team.
The most successful entrepreneurs have the capacity for trusting their intuition and theirs instincts, even when they hurt conventional rules or habits. In that way, experiencing adversity develops self-confidence and a sort of visceral sense for the right way to do things. Indeed, great entrepreneurs are those who are willing to trust their instincts and intuition and back themselves up when the venture is yet to fructify or even making losses.
5. Be aware of your impact
Successful entrepreneurship does not seem to be all about the money. Many successful entrepreneurs don’t change their standards of living. As they are used to take risks, they do not have that common fear of the future people usually share, especially in crisis times. Of course, money is important, but in terms of ruling the business. And two things seem to be much more important: Sharing with others the capacity for seizing the type of opportunities they enjoyed, Doing work that has real impact on people’s lives.
Ask any successful entrepreneur and they would say that while money is indeed important and profits are indeed essential, it is always not about the money or that making profits is the only thing that matters. Instead, great entrepreneurship is all about heeding the inner voice, creating jobs and opportunities for others, be conscious of societal prosperity due to the venture instead of having a me, myself only attitude, and most importantly, translate their vision into success.
For instance, there are many of us who have heard or come across individuals who gave up cushy jobs to find their passions and to follow and chase their dreams. Therefore, successful entrepreneurship is all about making a difference to the world and becoming a social messiah who would transform societies with his or her ventures.
Finally, entrepreneurship must be seen as a starting point to transform oneself and in the process become a change agent. For this to happen, the entrepreneur must be both be able to fulfill environmental, social, and economic expectations from the larger system and at the same time, must drive themselves in the pursuit of their dreams. Indeed, the balance between inner aspirations and external expectations is the most important determinant for success.
Indeed, technology, innovative products and team, driven by pure business sense and an understanding of economics that serves well and powers entrepreneurs.
Next time, we’ll talk about that fundamental piece at the core of any entrepreneur: their ideas — where ideas come from, who to take them to, and how to turn them into feasible businesses.