Entrepreneurship is the process of building a venture by taking risks to create change. You fall into one of the three types of entrepreneurship based on the type and scale of change you want to create.
Here are the three types of entrepreneurship with examples;
1. Small business entrepreneurship
This is the most common type of entrepreneurship and perhaps the oldest. In small business entrepreneurship, the main objective is to change one’s personal life. For example, creating a better source of income to alleviate yourself from poverty or creating a business with flexible work hours so you can spend more time with family. In this case, the entrepreneur is primarily seeking stability in terms of maintained profitability. As such, there is less emphasis on technical innovation but rather on process innovation, which tends to cost less in the set up phase and onward. This is why small businesses are often quicker to reach profitability than the other types.
I recently invested in my mom’s new business – a breakfast restaurant for office workers at a particular location. Because I’m used to the startup world, I expected her restaurant to breakeven in at least 12 months. It turned a profit in less than a month! And then it was clear to me:
- Problem – Office workers in that location did not have access to breakfast.
- Solution – Set up a breakfast restaurant in that location.
- Unique selling proposition – Access to breakfast
In small business entrepreneurship, a further push on expansion is considered an unnecessary risk.
2. Startup entrepreneurship
This is perhaps the most sought after type of entrepreneurship and common in the tech industry. In startup entrepreneurship, the main objective is to solve a large-scale problem by providing innovative products and services for profit. For example, creating a platform that helps office workers spend less time to achieve more in a day. In this case, the entrepreneur focuses on developing an innovative product and/or process with the intention of achieving high growth in terms of rapid profit increases. As such, there is a greater appetite for higher risk-taking, and plateauing can be perceived as a failure. This is why startups are often tech-enabled and grow faster than other types of businesses.
Assuming my mom’s restaurant was a startup:
- Problem – There’s a lack of on-demand breakfast options for office workers in Africa.
- Solution – A platform where office workers can order and pick up breakfast from satellite restaurants.
- Unique selling proposition – Order and pick up breakfast from anywhere, in minutes.
In startup entrepreneurship, expansion is necessary for capturing a bigger market, which eventually translates into rapidly growing profits. Most people who take on this kind of entrepreneurship are driven by the desire to disrupt the norm and leave a mark. The intrinsic motivation in startup entrepreneurship doesn’t have to lean purely on profit-making. There is also creating shared value where the business is built by maximizing returns while creating positive social, economic, or environmental impact. I consider Tesla to be a good example of this case. Focus on expansion means you will be going through the journey of starting from Day 1 over and over again as you enter new markets, introduce new products, et cetera. Therefore, you need to be someone who enjoys solving new problems and comfortable with uncertainty.
3. Social entrepreneurship
We all know non-profit organizations; they collect donations and use them to serve a specific need. In social entrepreneurship, the main objective is to solve a large-scale problem by providing innovative products and services for minimum possible earnings to sustain the business. For example, creating a platform that helps kids in underserved communities learn faster. I believe this to be the most effective alternative to non-profit organizations.
In this case, the entrepreneur focuses on developing an innovative product and/or process with the intention of achieving high social impact in terms of the number of people positively touched. The emphasis on innovation is mainly because this type of entrepreneurship revolved around self-sustenance, so the business has to make just enough profits and keep prices affordable in order to reach more underserved groups. As much as a company like Tesla is focused on sustainability, it is not a social enterprise as its products are not accessible to underserved groups – maybe they will be in the future. Examples of successful social enterprises are TOMS Shoes, Grameen Bank, and Seventh Generation.
Assuming my mom’s restaurant was a social enterprise:
- Problem – There’s a lack of healthy breakfast options for factory workers in Asia.
- Solution – A platform where factory workers can order and pick up healthy breakfast from satellite restaurants.
- Unique selling proposition – Affordable, healthy breakfast from anywhere, in minutes.
Because many social enterprises are closely related to startups than they are too small businesses, it can be far more difficult to successfully build one since their far fewer investors in this area, and it might take more time to find a correct business model. Most social entrepreneurs decide to build successful startups first and then either convert their startups to social enterprises or use their success to create new social enterprises.
In the end, it is up to you to look inside and decide what type of entrepreneur you want to be.