At the 2014 World Conference on Entrepreneurship in Dublin last week, we heard a common question: “Do we need a new definition of entrepreneurship?”
The word “entrepreneur” has had different definitions since its inception. In 1734, it first appeared in the book Essay on the Nature of Trade in General by the Irish-French economist, Richard Cantillon. He used the term to define a “risk-taker,” or a person who buys a product at a known price and sells it at an unknown price.
Over the years, that narrow definition has been expanded and modified, evolving to include other aspects such as planner and innovator. Other hallmark characteristics entrepreneurs exhibit are resourcefulness, leadership and creativity. They take risks in an attempt to make a profit and commercialize their innovation.
Today the term has been extended and diluted to cover just about anyone who is in business and therein lays the confusion. “Entrepreneurship” has become an umbrella phrase covering any type of business from franchisee to merchant, from shop owner to restaurateur, from broker to independent agent, from professional service providers to multilevel marketers, and from start-ups to giant corporations. Certainly they all take risks. They all seize upon opportunities. They all commercialize.
So where do we make the distinction that sets certain types of businesses apart under a new and more refined definition of entrepreneurship? We think there are certain characteristics that can help put the definition of entrepreneur back on track.
We think the term “entrepreneur” should be reserved for brand builders. These folks endeavor to add value to a new branded product or service through marketing, sales and distribution. They work toward developing a positive reputation and brand image that results in a loyal clientele. They have the potential to monetize that brand equity through such capital events as mergers, public offerings, or acquisitions.
They differ from those whose interest is self-employment, creating an income, or pursuing a profession. They are more about creating brand value which requires constant reinvestment in growth at the expense of immediate profits. They have a tolerance not only for risk, but for deferred gratification because the real payback is the monetization of their brand equity.
The “brand builder” definition of entrepreneur introduces an over-riding strategic approach to business. They look ahead at the end game. They must start with an exit strategy that says, “Who’s going to buy this business and why?” Their planning must include the question, “How can I organize my business from day one to provide everything the acquirer wants to see when the big day comes?” They must quantify their goals and metrics to answer the questions, “How big do I have to be and how fast do have to grow, to become an acquisition target?” And, “How long will all that take?” The real risk of this type of entrepreneurship is not the launch, or even getting past the first few years of critical cash flow management. It is the risk that the financial, personnel, and distribution strategies they choose to grow their business will be the right ones.
Many business owners do not fall into this definition. They may be in a family business that they inherited and intend to pass onto another family member. Or they may be a franchisee and provided with a formula for running the business. A true entrepreneur will create a business where none existed before. This is where the original definition of risk taker is spot on. And this is why the new definition of entrepreneur should include the term brand builder.
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders