The four types of entrepreneurship

Entrepreneurship is a multidisciplinary assembly in which the individual needs to be knowledgeable in many areas. Below is an overview of the four types of entrepreneurship. But first, let’s start by defining what it means to be an entrepreneur.

What does ‘entrepreneur’ mean?

An entrepreneur is a person who starts and develops a business to the best of their abilities. Sometimes the entrepreneur uses personal finances and assets to start their venture.

Other times, they finance their business via a bank loan, loans from investors, family or friends, crowdfunding, and so on. But being an entrepreneur is not just about getting some initial seed money and starting a business. It is also about many other things, such as product development, staffing, marketing, and sales.

Israel Kirzner, Frank Knight, and Joseph Schumpeter were some of the pioneer economists who spoke and wrote about the inclusion of entrepreneurs. According to Schumpeter, the entrepreneurs were responsible for innovating new things, not only companies in the pursuit of profit. Kirzner described entrepreneurship as a process that opens the pathway of discovery, whereas Kirzner pushed the thesis that entrepreneurs always carry the risk of uncertainty.

Before discussing the four types of entrepreneurship, here are the basic categories.

Entrepreneurship 101

Economists worldwide recognize four categories as essential resources for production. Those categories are as follows:

• Natural/land resources
• Capital
• Labor
• Entrepreneurship

An entrepreneur often combines all of the given categories to provide certain services or manufacture some goods. The entrepreneur starts their journey in entrepreneurship by creating a business plan first, followed by hiring labor, acquiring resources, obtaining financing, and providing management and leadership for the business.

Entrepreneurship is often accompanied by many obstacles that stand in the way of the entrepreneur. Some of the most common challenges and obstacles are:

• Getting seed money (financing)
• Hiring the right talent
• Dealing with bureaucracy
• Acquiring raw materials

The list of potential obstacles and challenges in entrepreneurship doesn’t stop with acquiring raw materials. The ones mentioned above are just the most common; hundreds more are specific to the various businesses.

The four types of entrepreneurship

Economists worldwide recognize four types of entrepreneurship, each with its specific traits and characteristics. They are:

1. Small business entrepreneurship

The vast majority of the entrepreneurs in the world fall in the small business category. In the US alone, there are more than 33.2 million small businesses (2023). They employ almost half of all non-government workers and account for approximately 99.7% of all companies.

Some of the businesses categorized as small businesses are travel agents, grocery stores, carpenters, travel agents, electricians, and plumbers. Many hire local folks, while other small businesses manage to stay in business with the help of family.

For most of these small businesses, the definition of success is not to disrupt an industry or earn $100 million. For the most part, the folks who run small businesses care about earning enough money to take care of themselves, their families, and pay their workers.

Most of these ventures get their financing through small business loans or personal loans from friends or family. The simple truth is that they can’t attract venture capital and can’t raise significant amounts of money. But at the same time, small businesses rarely need a large bankroll to sustain themselves.

2. Startups (Scalable startup entrepreneurship)

Scalable businesses or startups are in many ways different then enterprises labeled as small businesses. This type of enterprise tends to be very scalable for starters and can significantly grow beyond what a small enterprise can ever do.

They are based on a vision of their founder or co-founders aimed at disrupting some industry and/or changing the world somehow. In terms of talent acquisition, startups are at the top of the pyramid. Well, at least that’s the case with well-funded startups that only hire the best resources in their industry. For that, they spare no expense and often offer equity to their top employees.

Startups promise amazing returns that are attractive to venture capitalists. Usually, venture investors invest certain amounts of money in the startup, and in return, they get equity (a percent of the company) based on their valuation.

Another thing that distinguishes startups from other companies is that it can take years before they can be profitable. However, very often, that’s part of their business plan and their effort to grab a greater market share.

Venture capitalists are aware of that and are not afraid to pour millions of dollars into the startup as long as they can see some value in it. Sadly, less than 10% of venture capital firms have women decision-makers, but hopefully, that number will increase soon.

3. Large company: Another of the four types of entrepreneurship

Most large companies flourish through sustainable innovation and offering to the market variations of their core products. Sometimes, they undertake bigger changes and pivot to other types of products or services.

This change could occur because of the introduction of new technologies, changes in customer taste, new legislation, new competition, and other factors. Very often, they pivot their business model as a result of emerging startups aimed at disrupting their industry.

Their biggest disadvantage is that their inner bureaucracy offer suppresses disruptive innovation within their ranks. Then comes their company culture and how they are structured. All these things can make it difficult for innovations to rise.

Some of the biggest and wealthiest companies are aware of that and apply proper changes to favor innovation to rise within their ranks. At the same time, many large companies like the idea of acquiring startups and innovative companies so that they can have access to their technology.

4. Social entrepreneurship

Social entrepreneurs look beyond profit as their primary goal is to make the world a better place to live. They aim to bring to market products and/or services to solve some social problems and needs.

These businesses can be for-profit, non-profit, or hybrid. Social entrepreneurs usually are funded with the help of socially responsible investing (SRI).

There has been a lot of interest in SRI in the last few years, resulting in a growing number of companies of this kind. Some of the areas that socially responsible investors favor include clean energy, social justice, and environmental sustainability.

Takeaway on types of entrepreneurship

This has been an introduction to entrepreneurship, its categories, and its many types. Entrepreneurship is not about having some funds and starting a business. It’s about solving problems and rising together.

Looking for more info on startups? Get 11 tips every female entrepreneur needs to know here.

About today’s writer

This post is from AbstractOps. If you’re an early-stage CEO, we handle and automate your HR, finance, and legal ops — so that you don’t have to. We help you Be Scrappy, Not Sloppy.

We understand that ops can be painful. If you have any questions or need assistance with your ops, drop us a note at hello@abstractops.com. We’ll do our best to help.

 

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