The trouble with entrepreneurship

by Mark Zweig ([email protected]) 927 views 

Everyone is interested in entrepreneurship these days it seems. It has become part of our pop culture with TV shows such as “Shark Tank” and “The Profit” reaching millions of people, and magazines such as Inc. and Fast Company chronicling success stories of those who have built amazing businesses.

In Northwest Arkansas, we are building an “entrepreneurship ecosystem” with a variety of resources for budding entrepreneurs. One is the Small Business Technology Development Center on the University of Arkansas campus. Entrepreneurship education is starting earlier than ever. Even at The New School, where my two youngest daughters attend, second graders make a pitch to a bank for a loan. Then they open a Christmas store selling items they make or buy to pay back the loan. Their profits benefit those in need.

That said, there are many misconceptions about entrepreneurship. Here are some of them.

People go into business to make a lot of money. Most people who start successful entrepreneurial enterprises do so for many other reasons. They want to meet an unmet need. They want to have more freedom over who they work with. They want to create good jobs. They want to glorify their egos. They want to do something they enjoy daily. Many motivators usually take priority over making money.

Anyone who owns a business is an entrepreneur. Not so. The difference in an entrepreneurial venture vs. something that is just a small business is the entrepreneurial business builds value. The owner can extract from the value upon exit, whereas the small business exists just so the owner can make a living from it.

For example, a hot dog stand on Dickson Street may allow its owner/operator to make an excellent living. But it’s not a chain of a hundred of them that can be built and sold.

When that is your intention (to create a significant enterprise), everything you do daily may be different. You will take less money out, and you’ll devote resources to building other leaders and managers. You’ll spend more on marketing. You’ll have better accounting. You’ll do everything differently.

You have to come up with a new business or product idea. This false notion is a huge impediment for budding entrepreneurs and keeps many people away. The fact is more money is made providing goods or services that people already know they need in mature industries (i.e., pizza, furniture, window washing, etc.) by outspending competitors in marketing and through slight differentiations than with new inventions in new industries.

As soon as you have a plan, the next thing you need to do is raise outside capital. This one is perhaps the most significant false notion there is. Someone develops a business idea and immediately tries to sell it to potential investors. They will quickly take control, change the business model and insist on selling the business someday if it is successful. That will bring them a sizable return on their very risky investment.

If the point of going into business is to follow a passion or have some control over what you do, why sell out from the get-go? The buyer effectively becomes your boss and then eventually sells your baby. Makes no sense.

Bootstrapping — validating your business model through getting sales — and begging and borrowing to maintain ownership is often quite possible and a better alternative in the long run.

There’s more — much more — but I’m out of space. We’ll come back to this topic in a future column.

Editor’s note: Mark Zweig is the founder of two Fayetteville-based Inc. 500/5000 companies. He is also an executive in-residence teaching entrepreneurship in the Sam M. Walton College of Business at the University of Arkansas. He can be reached at mzwei[email protected]. The opinions expressed are those of the author.