Current Issues in Entrepreneurship

Abstract

Modern entrepreneurs face the same issues as any business owner: developing and marketing products, earning and sustaining profits, and managing employees and projects. However, the nature of entrepreneurship often puts a spin on these needs. In general, entrepreneurs' concerns fall into three areas: ways to reduce unnecessary risks, both in the short-term and in the long-term; managing the changing requirements of their organizations as their venture grows and matures; and considering cultural trends that offer new opportunities for entrepreneurial innovation.

Keywords: E-Commerce; Globalization; Government; Management; Social Entrepreneurship; Venture Capital

Overview

The term entrepreneur is difficult to define precisely. Although dictionary definitions often refer to entrepreneurship as organizing and operating a business, the original French term carries a sense of adventure and risk for the undertaking. Various English definitions include innovation, risk-taking, and undertaking a new venture. In reality, the degree of risk taken in the new venture tends to set apart the entrepreneur from other businesspersons. By this definition, entrepreneurs may work within established organizations (sometimes called intrapreneurs) or be independent, starting a new venture on their own or as part of a team.

No matter their industry or situation, there are certain business objectives that each entrepreneur must meet. Ideas and business plans must be developed, employees and projects must be managed, clients or customers must be attracted, start-up capital must be obtained, and continuing income must be generated. However, entrepreneurs also face challenges that are not typically a part of everyday life in established organizations. The risky nature of their ventures means that marketing is often more difficult than with a proven product. Established businesses can point to a proven track record of success. However, sometimes, the entrepreneur can only try to sell an idea, promising to work out the details in the future. A corollary of this problem is that the entrepreneur also tends to be more concerned with finding capital for running their business or developing a new product than the management of an organization with an established product would be. If the entrepreneur does not work for an established organization, financial backing for the new venture must often be found and won.

The nature of the entrepreneurial organization brings a unique set of management problems separate from those experienced in more established organizations or those involved with less risky ventures. Entrepreneurialism tends to be defined by innovation, and innovation requires creative personalities. Such persons tend to require a different management style than those doing more routine jobs. The abilities necessary to be a successful innovator—thinking outside the box and doing things one's way—make managing creative individuals in an entrepreneurial organization more difficult. On the other hand, just as nature tends to move toward a steady state, so do organizations move toward financial security by taking high risks in the short term to become established and successful and take less risk in the long term. This means that as entrepreneurial organizations grow and become more successful, the paradigm of independent thinking and maverick tactics must change to promote the organization's long-term sustainability. Since rebellion against established products and procedures is one of the defining factors of entrepreneurialism, entrepreneurs often find this transition difficult or impossible.

Additionally, as social concerns and culture change, so do some of the hot topics in entrepreneurship. The Internet and easy access to high-tech communications have, in many ways, made the world a village, and the marketplace is no longer limited to the local community. Businesses can market to the world. However, one must be technologically savvy to maximize the potential of the high-tech tools available for marketing and communication. Such global marketing opportunities also require an increased sensitivity to multicultural concerns to attract and maintain a client base.

It is not only the rapid march of technology that impacts entrepreneurs' lives. Social concerns of the greater culture also affect the purpose and organization of many entrepreneurial firms. For example, social entrepreneurship and being "green" are important considerations for success. Additionally, researchers and entrepreneurs continually struggle, as does the rest of the business community, with questions about the different styles and success rates experienced by women and minorities.

Applications

Many issues entrepreneurs face are the same as those faced by conventional businesses. However, because entrepreneurial organizations tend to be small businesses, the impact of these issues often has the potential to be more serious. A larger, more diverse, or established organization typically has other internal resources to draw from when problems arise. However, a struggling entrepreneurial organization may not be able to recover as quickly, or at all.

Minimizing Risk Taking

Taking risks is at the heart of the entrepreneurial experience. However, taking unnecessary risks or risks without sufficient potential for rewards is foolish. Entrepreneurs seek to turn their talents, creativity, and insights into a successful and sustainable business. To do this, of course, the entrepreneur needs money. Some entrepreneurs have sufficient funds to start their new enterprise without outside help, but many need the help of others. Therefore, one of the continuing challenges for many entrepreneurs is funding.

Once an entrepreneur has developed an idea and researched a target market, marketing, prototyping, manufacturing, and distribution funding must be obtained. Suppose the entrepreneur is working alone and offering a service to a market that is already familiar with their work. In that case, the new venture could be funded out of personal savings or loans. However, when the commodity offered is a complex idea or product, it is often necessary to find investors. One funding source is marketing one's new ideas directly to the potential marketplace. Traditionally, this meant networking contacts and trying to sell to those familiar with one's work on the new idea. With the advent of the Internet, however, the potential marketplace, as well as the source of income and venture capital, has broadened to include the entire globe on a virtual platform. Foreign direct investments—investment of foreign assets into US organizations—have grown faster than exports in industrialized nations.

Another funding source, particularly for large ventures requiring a great deal of initial capital, is to work with a venture capitalist. Venture capitalists work with entrepreneurs to help them succeed in the marketplace. Along with working capital, the venture capitalist advises the entrepreneur on making the product or service more marketable and helps them foster relationships within the industry through networking and collaboration with other businesses. Venture capitalists may also provide training and management, help finding employees, or other skills or resources lacking in the entrepreneurial team to help make the venture successful. In addition to a return on their investment, venture capitalists are typically given equity in the company.

A continuing issue for entrepreneurs is finding and attracting the right venture capitalist. Although a venture capitalist can help a new company succeed, this success does come at a price. Entrepreneurs seeking funding need to develop their idea to the point where it is sellable and research the target market. Similarly, they must research potential venture capitalists to learn more about them and their suitability for the current venture. Questions that should be considered include the venture capitalist's funding specialties, what companies they have helped previously and what percentage of these companies have gone public, the composition and experience of the management team, and what other companies the venture capitalist is currently funding.

With the advent of the Internet and the globalization of many businesses, venture capitalists have also become globalized. Networks or strategic alliances made up of venture capital companies in the US and elsewhere have become a trend. Such networks can draw on and distribute funds throughout the world. The depth and diversity of such pools often make it easier for entrepreneurs to find the necessary capital to launch their new product or service.

Whether or not one works with a venture capitalist, one still needs to market one's idea and attract customers or clients. Marketing is a key to success in business, particularly with an innovative product with which the target market is unfamiliar. However, entrepreneurs who start their own companies tend to do so because they have a creative idea or product rather than because they like to market. Fortunately, the continuing technology explosion and the Internet have made developing a website relatively easy. However, marketing tactics can never be passive, particularly for an entrepreneur trying to build a reputation for innovation and excellence. Although the Internet allows entrepreneurs to reach a larger target audience than was previously possible, this opportunity will only come to fruition if the marketing is correctly targeted. This is important even if the product or service is only to be advertised and sold locally, and more so if it is intended to have an international appeal. It is important that specific advertising, whether electronic or traditional, be targeted toward each culture or subset of the market it is intended to reach. Business owners and researchers have discussed the best way to leverage the Internet and its ability to reach countless potential customers in actual business.

As in all marketing efforts, a company's website must present a professional face to potential customers. However, this alone is often not sufficient. A website will not generate new business unless the prospective customers see it. One suggestion to increase the effectiveness of a website is to avoid making a hard sell and instead use the website to collect information about what potential customers want to see in the product or service. This can help the entrepreneur target the marketing and tweak the product to better meet the customers' needs. However, entrepreneurs are finding that even if a product is only sold electronically, it is vital never to underestimate the worth of traditional advertising.

A related informational opportunity is offered through e-commerce. The ability to work with potential customers and clients directly over the Internet without the expense of renting physical space for an office or storefront is particularly attractive for start-up operations. E-commerce allows entrepreneurs to sell directly to customers and reach a larger potential market. Through the Internet, goods and services can be quickly sold online to both individual consumers and corporate customers. Many entrepreneurs work out of their homes and save the time and effort associated with commuting to a traditional workplace, instead spending more time focusing on their passion. Entrepreneurs continue to search for new and better ways to leverage the potential of the Internet into a greater market or market share for their products or services.

E-commerce, however, is not an unmixed blessing. Although e-commerce and the Internet allow entrepreneurs cheaper, faster ways of selling their products, they also provide new opportunities for criminals. Cybercrime affects not only those buying or selling products but those providing services as well, particularly when the services require collecting and storing sensitive information. Data security continues to be an issue as cybercriminals find innovative ways to outwit the security measures instituted by Internet users.

Most entrepreneurial organizations are small businesses and, as such, have different constraints than larger organizations, where temporary problems or setbacks in one department or product line can be compensated for in the short term by another. For such small businesses, government-mandated requirements that make sense in larger organizations can cripple a small firm. In addition, entrepreneurs often forgo such "luxuries" as retirement savings and health insurance as they work to make their ventures viable, perhaps because they are risk takers. However, entrepreneurs need such security just as much as individuals working in established firms. Therefore, issues of affordable health care, tax breaks, and relaxing governmental rules applying to larger businesses continue to be an issue. Such topics concern the US government, which seeks to promote and nurture small businesses in the United States. Both the United States Senate's Committee on Small Business & Entrepreneurship and the United States House of Representatives' Committee on Small Business are working to encourage entrepreneurship by looking at such issues as health care, equitable taxes, and ways to promote the start and success of new small businesses.

Managing Growth and Change

The very nature of the entrepreneurial organization makes it unpredictable and difficult to manage. Standard operations in a production facility can often be controlled with standard practices that aim to minimize risk and maximize profit. However, in an entrepreneurial organization, the goal is to maximize profits while taking great risks. These two paradigms for success require different personality types. Therefore, the conventional wisdom of running and managing an organization does not necessarily apply to the entrepreneurial enterprise. An issue for entrepreneurs is managing growth and change while not losing one's entrepreneurial edge.

One way that entrepreneurial organizations tend to meet the challenges of innovation and profitability is through teamwork. Most entrepreneurial organizations are founded not by individuals but by teams of two or more entrepreneurs, each bringing unique and valuable insights and skills. For this reason, venture capitalists prefer to work with new ventures run by teams rather than by individuals. Statistics also show that new ventures started by teams tend to be more successful than those started by individuals.

However, although teams may be good for starting a business, they are not necessarily good for maintaining one. As companies grow and mature, they tend to become more hierarchical for management and administration purposes. Although teamwork may still be encouraged for the synergy it fosters, running an organization by democracy is a difficult, if not impossible, task. Therefore, one of the issues a successful entrepreneurial organization faces is transitioning from being an innovative start-up company comprising a small team whose members all have an equal say to a more traditional organization with conventional management structures. Sometimes, entrepreneurs follow a pattern of bringing a new idea to fruition and then leaving to start another company rather than staying in the now-traditional organization. Still, others find that the dream they once had for a successful organization is not what they expected, so they bring others to run it and eventually let themselves be bought out by other organizations. For some entrepreneurs, this is part of the fun. For others, however, it is a constant struggle to find a happy medium where they can continue to innovate while growing a successful company.

Cultural Considerations

Before the technological advances of the information age, also called the digital age, an entrepreneur primarily marketed products or services to the local community. Even living in a town too small to warrant a stop light, one can virtually market to the entire world. Evidence of this can be found in the fact that exports have grown faster than production in many industrialized nations. Entrepreneurs can now look for funding across the globe. Advanced technology also means that entrepreneurs can no longer do everything themselves but can outsource less innovative tasks to other organizations. Previously, this meant that a contract company provided janitorial services. In the twenty-first century, a customer calling with questions can be helped by an employee in a contract organization halfway across the world.

One modern phenomenon in the entrepreneurial world is the concept of social entrepreneurialism. This phenomenon is the application of entrepreneurial principles in an organization that aims to bring about social change or solve a social problem. The term "social entrepreneurship" can cover such diverse concepts as using socially conscious vendors to provide goods, such as vendors who pay a living wage to coffee-bean pickers, designing eco-friendly hybrid vehicles, or simply supporting social-service institutions that try to solve old problems in a new way. Although such concepts are not new in the twenty-first century, when the organizations doing them are run as entrepreneurial ventures, they fall into the social entrepreneurship category. However, venture capital for social change tends to be less forthcoming unless the ventures also make money. One of the issues in this evolving field is where to find funding. Municipal support is one source of help for such ventures, and entrepreneurs continue to look for others. Crowdfunding platforms such as Kickstarter (for creative projects) and SeedUps (for technology start-ups) provide an online platform through which entrepreneurs can solicit support from numerous investors worldwide.

Finally, researchers, government, and entrepreneurs continue to be interested in the issue of what distinguishes a new venture that succeeds from one that fails. In particular, research into gender differences and the effects of culture and race are of interest. Researchers continue to look for models that will explain the behavior of entrepreneurial organizations and predict success or failure for this vital sector of American business.

Terms and Concepts

E-Commerce: The process of buying and selling goods or services, including information products and information-retrieval services, electronically rather than through conventional means, typically via the Internet.

Crowdfunding: Soliciting funds for a new venture from a diverse population segment, specifically via the Internet.

Entrepreneur: A person who starts a new business or takes risks to turn innovative ideas into profit-making ventures.

Globalization: The process of businesses or technologies spreading worldwide, creating an interconnected global marketplace that operates outside constraints of time zones or national boundaries.

Green: A movement that supports protecting the environment by using products and processes that do not harm the environment.

Intrapreneur: A person who applies the principles of entrepreneurship within an established, conventional organization.

Management Style: How a manager supervises their employees. Different management styles (e.g., coercive, permissive, persuasive) are appropriate depending on the workers' abilities and needs and the manager's personality.

Outsourcing: The process of obtaining a good or a service from an outside supplier in place of an internal source. The outside supplier typically performs work that the internal organization could do on a contract basis.

Social Entrepreneurship: The application of entrepreneurial principles in an organization to bring about social change or solve a social problem.

Team Building: The process of turning a group of individuals who work together into a cohesive unit where the efforts of the team members act synergistically to yield results that could not have been done by the individuals alone.

Venture Capital: Funds made available to entrepreneurial firms with great growth potential to expand or grow the business. Venture capitalists typically invest in a firm in exchange for equity in the company and with the expectation of a quick and high rate of return on their investment.

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