Last night I was helping my son with some English homework that involved a kind of definition map that he was supposed to use with his vocabulary. The definition map requires that you give examples, non-examples, and describe the properties of the word besides the actual definition. We found verbs were a lot harder to conceptualize than nouns. This activity caused me to reflect on the word ‘entrepreneurial’. I recently reviewed a book that advertised entrepreneurial quizzes. It turned out to be nothing more than a career interest tests with the word ‘entrepreneurial’ slapped in front of each section.
This is not an uncommon problem since being an entrepreneur or entrepreneurial is en vogue. Established businesses are entrepreneurial, leaders are entrepreneurial, and apparently even accountants can be entrepreneurial. It definitely fits into the current business buzzword vernacular. What does entrepreneurial finance mean anyway? Does it refer to finance done by an entrepreneur, a financier doing entrepreneurial things or something else? What is so different about entrepreneurs that it has created this additional adjective?
Often entrepreneurial is used in place of the word innovative, inventive, or creative. However, these are different things. Creative is the use of imagination to create something unique. Inventive is the creation of a new thing. Innovative is using new and old things in new ways usually to solve a problem. However, entrepreneurial is more than that. It solves a problem while making money. This situates the definition in the business world but still requires further clarification.
Google’s top result is a nice big definition but I don’t understand how “taking financial risks in the hope of profit” is different than what any other business person does? This definition is illustrative of the view that start-ups are just smaller and newer versions of large companies. I won’t bemoan what Mr. Blank has so eloquently described in Why the Lean Start-Up Changes Everything. The point is start-ups are about learning what works before scaling and optimizing. That learning function is a key; learning in uncertainty when there is no one right answer or way of doing things. We’ll cover more in just a second.
My definition of entrepreneurship or entrepreneurial is functional allowing people to be entrepreneurial one minute and normal the next whether you are inside a corporation or part of a start-up. So what is the function of an entrepreneur? What do they do? Well, from an economic standpoint they reduce uncertainty and make a profit by doing so. Now when I say uncertainty I am using economist Frank Knight’s version of the unknown unknowns that don’t have probabilities attached to them. Any time someone seeks to reduce uncertainty in executing a business model they are entrepreneurial. The uncertainty may lie within the different business model components such as the technology, market, or even the execution (e.g. franchisees or copy cat firms).
To be entrepreneurial is to reduce uncertainty in the execution of a business model in ways that are profitable. This happens through vision, action, and learning. Most uses of the term are used incorrectly in the context of risk rather than uncertainty which is what regular business is about and what comes after the entrepreneur has done their job.