What Is Entrepreneurship? An Introduction and Tips for Common Challenges
For many people, becoming their own boss, overseeing their own business and assuming responsibility for their work/life balance is what they ultimately aspire to.
Media portrayals of an entrepreneurial lifestyle suggest a glamorous, financially rewarding and exciting existence, that is readily available to those with a sense of adventure who are bold enough to take a leap of faith into the world of the start-up business.
However, with 90% of entrepreneurial start-ups failing to reach anything approaching fruition, “risk” is the key word here and it’s useful to understand not only what “entrepreneurship” means but what’s involved in adopting the lifestyle.
In this post, we’ll look at how entrepreneurship can be defined, the advantages and disadvantages of the entrepreneurial lifestyle, and commonly associated challenges – and tips for overcoming them.
- What is Entrepreneurship?
- Entrepreneurship: Pros and Cons
- 7 Entrepreneurial Challenges – And Tips for Facing Them
In common with many words and phrases found throughout business terminology dictionaries, the term “entrepreneur” is frequently used as a catch all, generic noun which encompasses many different interpretations of the activity it purports to describe.
The derivation of the term is less problematic; popular thought has it that Professor Howard Stevenson of Harvard Business School first coined the term, describing entrepreneurship as:
“the pursuit of opportunity beyond resources controlled”
Stevenson’s definition is brilliant in its simplicity, conjuring an image of inspiration, creativity and unfulfilled potential frustrated by a lack of assets and consequently, the wherewithal to fully develop the opportunity.
The entrepreneur is commonly perceived as an innovator but the additional personal skills required to initiate, fund, launch and maintain a successful business are many and varied. Truly successful entrepreneurship requires not only the ability to create and innovate but the ability to unify, motivate and lead people while generating maximum benefit for all stakeholders in the business venture.
It’s a question of balancing the pros and cons of running a business which is based on based on an original idea.
The advantages of being an entrepreneur include the opportunity to:
- transform your personal passion into a business venture
- commit to a vision that is wholly yours and carry it through to a conclusion
- determine a level of salary that matches your contribution to the business
- create your own work/life balance
The disadvantages of being an entrepreneur include:
- the absence of a guaranteed, consistent salary particularly during the start-up phase of the business
- unregulated working patterns which often result in longer days, day and night shifts and seven-day weeks
- participation in a potentially volatile working environment which frequently requires the entrepreneur to respond to unexpectedly changing markets and unpredictable consumer demand, instantly
If we refer to Professor Stevenson’s definition of entrepreneurship, “beyond resources controlled” is frequently perceived as the sting in the tail for the entrepreneur who regards entrepreneurship as the willingness to initiate, develop and manage a for profit business proposition but is obliged to seek external support by presenting the concept to potential investors.
To be a successful entrepreneur, it is vital to accept that developing the original concept and growing the business may require external resources in the form of financial investment.
In return for risking their money in your venture, investors will usually require a stake in the business; the extent of their shareholding will be reflected in the value placed on the business and the amount of money the investor is prepared to risk. Post investment, this may result in a loss of control in the business proportionate to the level of investment; some investors may also require Non-Executive Board membership for example, and some entrepreneurs find this level of involvement in their business problematic.
However, what this situation highlights are the many dilemmas that every ambitious entrepreneur will have to face in the life cycle of their business. Unless the entrepreneur is independently wealthy or manages to fund business growth through revenues, loans or grants, they may have to resort to equity release and ultimately, decide between lack of funding or loss of control.
Despite this, there is little doubt that many entrepreneurs are attracted to the lifestyle by the degree of flexibility it offers; overseeing the decision-making process within the workplace can have several personal and professional advantages including:
The sense of control
It could be argued that once the initial idea becomes a business, the entrepreneur seldom has complete control of all aspects of their life. However, there is an equally compelling argument that the degree of control entrepreneurship brings is greater than that experienced by the typical employee. Nevertheless, while the entrepreneur can, in theory, determine their own working hours and holiday entitlement, their responsibility to the company has a major impact and will influence any decisions regarding personal working practice.
The unconventional work patterns
Confucius said, “Choose a job you love and you will never have to work a day in your life” and in theory, this statement should apply to the life of the entrepreneur.
It may sound contradictory but the fact that the entrepreneur tends to be on call 24 hours per day, 7 days per week can be as energising as it is exhausting. Far from being ideal, the rigidly repetitive model of the 9am – 5pm, Monday to Friday, five day working week may be counterproductive; employees can become programmed to experience feelings of fatigue at the end of each day, excessive weariness by Friday and the dreaded “Monday morning blues” at the beginning of the following week.
The nature of entrepreneurship is such that these patterns are no longer applicable because the entrepreneur voluntarily invests all their time and energy into making their business a success.
Excitement and challenge
Just as repetitive working hours can be counterproductive, so can the daily performance of dull and routine tasks. Working without knowledge of the “bigger picture” can lead to boredom, frustration and disengagement. Whereas the typical employee works without knowing how they are contributing directly to company revenues, the entrepreneur, being the company, is driven by the desire to prove the concept behind the idea first and create wealth secondly. This is the challenge that creates excitement and prevents the entrepreneur becoming jaded with the task in hand.
Increased self-confidence and reliance
Another side effect of the challenge of creating a viable business is the generation of a huge amount self-belief; the by-product of the certainty of success every entrepreneur must have and maintain during the process of establishing their business.
The satisfaction of contributing
The assumption that entrepreneurs are driven solely by the desire to create purely personal wealth is a fallacy. In fact, the true entrepreneur creates wealth on a wider scale, provides employment opportunities and contributes to the general economy. Where the business or enterprise involved benefits society at large, the entrepreneur feels rewarded having improved the lives of others; this enhances their sense of self-worth.
The joy of success
In the world of business, success is a relative concept; the term means different things to different people working at different levels across different sectors and industries. Success can involve everything from achieving revenue targets to managing to pay monthly bills and maintain mortgage payments, providing a constructive, creative working environment for staff to supporting one’s family. As Kara Goldin, CEO of Hint Water puts it:
“My definition of success is knowing that what you are doing is helping you and others lead a better, happier, healthier life.”
Although it’s notoriously difficult to generalise, most entrepreneurs start with an idea that becomes a proposition which in turn generates a business plan; essentially a mechanism to enable the delivery of their ultimate vision.
The business plan sets out key performance and financial targets; a series of interim goals that enable the entrepreneur to judge progress en route to the ultimate target be that merger, acquisition, flotation or stakeholder buyout.
The entrepreneur has the luxury of establishing their own goals, setting out their vision of how and when these will be achieved and then working tirelessly to accomplish them; essentially determining their own criteria for success.
In theory, the lifestyle of the entrepreneur is highly attractive; flexible working hours, no ceiling on personal income and sole responsibility for the decision-making process.
In practice, unless every part of your business from initial concept to achievement of your goal goes according to plan, you will meet certain challenges along the way. The first of these being what will undoubtedly be a perennial concern; money.
CHALLENGE 1: CASH, AND CASHFLOW
No matter how innovative your idea, how robust your marketing strategy or which sector you are planning to operate in, you will need to launch your business in the marketplace; this will necessitate the raising of capital.
Unless you are independently wealthy, you will need access to appropriate levels of financial resources to initiate, develop and then maintain growth in your business; this requires capital.
Traditionally, the capital required to finance the embryonic business was provided by banks; loans were offered following an application which centred on a viable business plan. Since the global recession, many banks have become more risk averse. Consequently, venture capitalists and angel investors have become more active of late and several alternative means of raising capital have sprung up- such as crowdfunding – and this forms an integral part of the “disruptive” strategies underpinning many successful contemporary businesses.
Whichever method you choose to finance your business in the short term will have longer term implications; each with its own set of negatives.
For example, loans need to be serviced through interest payments and ultimately, repayment of the capital sum. Venture capitalists and angel investors will expect a stake in the business and this will manifest itself in the form of a shareholding. There may also be caveats written into investment agreements such as the company surrendering a percentage of the eventual sale price of the business, investor representation on the company board and staged performance related targets to be met.
This leads us to the importance of cashflow.
In principle, the concept of cash flow is relatively simple and on the face of it, fool proof. Your andd/or your business delivers a product or service to the customer, an invoice is sent out and payment is made within an agreed timescale; typically, 30 days. During the period between the delivery of the goods/service and the receipt of payment, the business is liable for the cost of manufacture and any ongoing overheads such as rent & rates, staffing and utilities.
Should there be any significant delay or, worst case scenario, a default on payment, then the business could find itself with a cash flow problem. Multiply this situation across several customers and the company could find itself with a serious level of debt, incapable of paying its suppliers and therefore unable to trade.
TIP: Shrewd entrepreneurs and business owners will seek to minimise the effect of an unpaid invoice while improving cash flow by asking for a down payment upon submission of the initial order; usually a sum large enough to cover costs with a small margin built in. Adjustments to the payment schedules for both outgoing and incoming invoices can help too. Decreasing the payment window on your outgoing invoices from 30 to 15 days while simultaneously asking your suppliers to increase theirs to 60 or 90 days means cash is retained within the business over a longer period.
CHALLENGE 2: LIMITED BUDGETS AND BIG IDEAS
No matter how efficiently the business owner manages cash flow, there is seldom, if ever, sufficient money in the marketing budget to exploit the full potential of the company by promoting its products and/or services. Conversely, in the event of any surplus cash becoming available, the entrepreneur may also be tempted to deploy funds to improve existing employees’ salaries and/or work based facilities, update essential equipment or increase staffing levels.
TIP: The key to maximising the impact of a limited budget is to invest in the areas likely to produce the most benefit for the company in the medium to long term and this usually means increased but prudent expenditure on marketing.
It’s often said that the best time to save money is when you have it; cliched but essentially true. When faced with the constrains of a limited budget, look closely at your financial outgoings and identify those which are business critical. Will a new, multi-functioned coffee machine in the staff lounge derive more benefit for the company than a targeted social media campaign?
CHALLENGE 3: MANAGING YOUR TIME
The entrepreneur is frequently viewed as the one-man band of the business world.
Used to performing as a sole operator, driving the business forward and performing all the essential tasks personally, the entrepreneur strives to establish a lean working regime to enable the business to thrive in the early stages of the operation.
TIP: To facilitate this, the successful entrepreneur will initiate, prepare and adhere to strategic, financial and operational plans that minimise inefficiencies while maximising available resources; the most limited of the latter being time. The key to success is focus, single minded concentration on the business goal and the tasks to be undertaken to achieve a favourable outcome.
Much of the information required to prepare a critical path analysis will be contained in the business plan. Typically, the business plan will focus on the next three to five years and will be out of date before the end of the first week. However, you can use this to extrapolate the information needed to prepare a detailed plan of how you will use your time.
What do you want to achieve with your business?
- Write out a list of goals that you want to achieve in the long term; what do you want to accomplish personally, professionally and financially?
- Start to break these goals down into annual targets; what do you want to have accomplished at the close of years one, two and three?
- Taking this format to its logical conclusion, break your annual targets down further and establish quarterly, monthly and then weekly objectives; realistically, what are the targets you expect to reach?
- Break these down into a list of tasks that must be performed daily to ensure weekly, monthly and quarterly targets are met.
- Allocate these tasks to the staff best equipped to fulfil them.
- Monitor and assess progress on a weekly, monthly and quarterly basis as appropriate.
- Be prepared to reconfigure, reallocate and remove tasks, targets and goals as the priorities of the business change; time is inflexible, you needn’t be.
CHALLENGE 4: IDENTIFYING THE MARKET
Identifying the right product or service and launching it in the most appropriate market is key to generating revenue; knowing your niche is critical. While entrepreneurs are skilled in innovative practice, many fail to identify their target market with any degree of accuracy. The solution is delegation and possibly, outsourcing.
However, your initial market research need not involve the services of an established and potentially expensive marketing company. At the outset, all the entrepreneur requires is basic research and this can be conducted by a single researcher with experience of the sector you intend to operate in; manufacturing, engineering or retail for example.
TIP: Prepare a detailed brief that requires your researcher to conduct comprehensive market research which includes a SWOT analysis. The researcher’s report should identify appropriate niches within which to launch your product and the potential market share you can anticipate capturing.
However, ultimately the decision as to how to pitch your product or service sits with the entrepreneur; market research merely enables them to make an informed choice.
CHALLENGE 5: THE NEED FOR DELEGATION
Being smart with cash is one thing; being equally smart with the deployment of human resources is another.
It may seem like a good problem to have but attracting a volume of business which exceeds the company’s ability to fulfil it effectively can be frustrating and ultimately, counter-productive. Turning orders away seldom generates repeat business and ultimately, this will directly affect the potential for growth. The fault will probably lie within the company’s infrastructure; an organisational set-up that has worked well up until this point but can no longer cope with customer demand.
This is frequently a position the entrepreneur finds themselves occupying. Conversely, the long hours of hard work, high level of self-sacrifice and resultant achievements often make the entrepreneur a victim of their own success.
As an entrepreneur you will inevitably have to accept the fact that delegation is the only viable option; despite the knowledge that no one will be able to perform the task in hand to their complete satisfaction – entrepreneurs are typically “control freaks; that is, “people with an obsessive need to exercise control over themselves and others and to take command of any situation”.
Relinquishing control is difficult. Particularly for entrepreneurs who have conceived the concept, initiated the business and created the company to date.
There will come a point in the development of the business when the successful entrepreneur accepts the need to delegate. He or she will take steps to quantify the areas of responsibility most appropriate for delegation, identify the roles and responsibilities required to fulfil these and recruit staff with the appropriate skills sets.
TIP: It is crucial that the entrepreneur prepares comprehensive remits for the posts required and details the responsibilities, operational protocols and business targets for these.
The successful entrepreneur is the one who learns to delegate tasks; to let others assume responsibility for specific areas of the business and its operation. In a working environment where an individual is solely responsible for all aspects of the business, that individual will eventually reach their maximum capacity, development will cease and the business will not grow beyond that point.
CHALLENGE 6: HIRING AND FIRING
The process of hiring employees is difficult. It’s a time consuming, labour intensive and frequently frustrating procedure. Assessing the merits and demerits, outstanding qualities and inherent flaws of the most likely candidates can take as much time as considering and then rejecting those who are less suitable.
The interview process can be equally demanding. Gauging the appropriate level of remuneration to offer the successful candidate is problematic, if not daunting, particularly if the aspirant’s skill set is in high demand and essential to the development of your business.
TIP: Be specific. State clearly what the prospective candidate must have in terms of academic qualifications and/or work experience, what the job remit will entail, the salary and benefits involved and the daily and weekly working schedule. There is absolutely no advantage in sending out a vague job advertisement with the misguided intention of attracting a wide range of applicants.
If you are as candid and direct in your description of the post as you are specific in your requirements, you’ll save yourself the arduous task of having to eliminate unsuitable applicants.
CHALLENGE 7: KEEPING YOUR HEAD UP
Many entrepreneurs begin their business life working in isolation. During the early stages of any venture, the struggle to establish an infrastructure and lack of money to do so combine to create a potentially destabilising environment within which to work. If the entrepreneur has previously worked as an employee, the adjustment from receiving a guaranteed salary as part of a regular work pattern to a less stable situation can be unsettling and the slightest problems can cause anxiety.
When these doubts manifest themselves as a lack of confidence and self-belief, it can have a drastic impact on the business.
TIP: The key to tackling the isolation that can blight the life of the entrepreneur is to establish support mechanisms which enable the sharing of business concerns with sympathetic listeners. Friends and family are usually the first resort but local business collectives and advisory bodies are normally available locally as are internet forum groups operating on a national and international scale.
Always remember that many of those who have chosen the entrepreneurial path have had, and will continue to have, similar problems and the same feelings of self-doubt that you will experience as you develop your business. This is unavoidable. However, most successful entrepreneurs will also share certain personal qualities that enable them to keep going; endurance, flexibility, business acumen and the determination to succeed being chief among them.
Starting your own company will be an informative and rewarding experience no matter what the outcome. However, it will be one that requires you to embrace both the exhilaration of achievement and the abject despair of failure with equal enthusiasm if you are to succeed.
Are you an entrepreneur, or do you aspire to be? Do you have your own ideas of what it is, and the challenges that entrepreneurs face? Let us know in the comments below.