What defines an entrepreneur? Most governments don't know. That's why Israel is the only country that has engineered a successful entrepreneurship cluster from the ground up
I'm getting ready to go overseas to teach, and I've spent the last week reviewing several countries' ambitious attempts to kick-start entrepreneurship. After poring through stacks of reports, white papers and position papers, I've come to a couple of conclusions.
1) They sure killed a ton of trees
2) With one noticeable exception, governmental entrepreneurship policies and initiatives appear to be less than optimal, with capital deployed inefficiently (read "They would have done better throwing the money in the street.") Why? Because they haven't defined the basics:
What's a startup? Who's an entrepreneur? How do the ecosystems differ for each one? What's the role of public versus private funding?
SIX TYPES OF STARTUPS
There are six distinct organizational paths for entrepreneurs: lifestyle business, small business, scalable startup, buyable startup, large company, and social entrepreneur. All of the individuals who start these organizations are "entrepreneurs" yet not understanding their differences screws up public policy because the ecosystem in supporting each type is radically different.
For policy makers, the first order of business is to methodically think through which of these entrepreneurial paths they want to help and grow.
Lifestyle Startups: Work to Live their Passion
On the California coast where I live, we see lifestyle entrepreneurs like surfers and divers who own small surf or dive shop or teach surfing and diving lessons to pay the bills so they can surf and dive some more. A lifestyle entrepreneur is living the life they love, works for no one but themselves, while pursuing their personal passion. In Silicon Valley the equivalent is the journeyman coder or web designer who loves the technology, and takes coding and U/I jobs because it's a passion.
Small Business Startups: Work to Feed the Family
Today, the overwhelming number of entrepreneurs and startups in the United States are still small businesses. There are 5.7 million small businesses in the U.S. They make up 99.7% of all companies and employ 50% of all non-governmental workers.
Small businesses are grocery stores, hairdressers, consultants, travel agents, Internet commerce storefronts, carpenters, plumbers, electricians, etc. They are anyone who runs his/her own business.
They work as hard as any Silicon Valley entrepreneur. They hire local employees or family. Most are barely profitable. Small business entrepreneurship is not designed for scale, the owners want to own their own business and "feed the family." The only capital available to them is their own savings, bank and small business loans and what they can borrow from relatives. Small business entrepreneurs don't become billionaires and (not coincidentally) don't make many appearances on magazine covers. But in sheer numbers, they are infinitely more representative of "entrepreneurship" than entrepreneurs in other categories--and their enterprises create local jobs.
Scalable Startups: Born to Be Big
Scalable startups are what Silicon Valley entrepreneurs and their venture investors aspire to build. Google, Skype, Facebook, Twitter are just the latest examples. From day one, the founders believe that their vision can change the world. Unlike small business entrepreneurs, their interest is not in earning a living but rather in creating equity in a company that eventually will become publicly traded or acquired, generating a multi-million-dollar payoff.
Scalable startups require risk capital to fund their search for a business model, and they attract investment from equally crazy financial investors - venture capitalists. They hire the best and the brightest. Their job is to search for a repeatable and scalable business model. When they find it, their focus on scale requires even more venture capital to fuel rapid expansion.
Scalable startups tend to group together in innovation clusters (Silicon Valley, Shanghai, New York, Boston, Israel, etc.) They make up a small percentage of the six types of startups, but because of the outsize returns, attract all the risk capital (and press.)
Just in the last few years we've come to see that we had been building scalable startups inefficiently. Investors (and educators) treated startups as smaller versions of large companies. We now understand that's just not true. While large companies execute known business models, startups are temporary organizations designed to search for a scalable and repeatable business model.