When Sue Drakeford became the first African-American to represent Nebraska at the Miss USA Pageant in 2001, she saw a great business opportunity. She would start a production company that would host its own pageants and teach others like her gain the confidence and skills to compete in the real world. The company would provide an alternative to the "cold-blooded cutthroat world of modeling and beauty pageants" that she endured. So Sue completed her MBA and started her venture—all while working full-time at a regional bank. Her company, Drakeford Productions, is now two years old and employs seven. It doesn't produce anything (except beauty queens) and isn't really innovating under the traditional definition of business innovation espoused at business schools.
Is Drakeford an entrepreneur? Management guru Peter Drucker wouldn't have called her one. He wrote: "Not every new small business is entrepreneurial or represents entrepreneurship," and more bluntly said: "Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship." But Drakeford strongly disagrees. She says: "Yes, I am an entrepreneur. I own my own small business. But more importantly, I constantly think of new ways to make more money".
For the research report Anatomy of an Entrepreneur, my team and I surveyed 549 successful company founders in high-growth industries to try to better understand the background and motivation of American entrepreneurs. The group we surveyed were clearly the hard-core entrepreneurs who fit within Drucker's definition. But I was surprised at the debates that ensued online about what constitutes an "entrepreneur." Many argued that independent business owners were different animals than entrepreneurs. Others, like immigration attorney Murali Bashyam, argued they were one and the same. Both, he wrote, "…create something that didn't exist before." In a follow-up e-mail, Bashyam asked if I had passed judgment. He warned: "If you decide that I'm not an entrepreneur, I might decide that the daily stress of growing and running a business, financial risks involved, and all the other headaches that come with creating something out of nothing is just not worth it. Maybe I'll close up and go work for someone, where I can earn a steady and high salary and go home at 5 p.m."
Taking RisksWith the stakes being so high, I set out on a quest to find the truth.
I asked Chad Moutray, chief economist and director of economic research at the Small Business Administration's Office of Advocacy for his views. Moutray wrote in an e-mail: "There clearly is a distinction between your run-of-the-mill small business owner and your typical entrepreneur. Both of them, of course, work hard, putting their time, energy, and money into the success of their business. All small business owners are entrepreneurial in some ways, thinking of new ways or processes to do things. But, when we think of entrepreneurs, we normally think of those individuals that bring innovative businesses to fruition, risking everything to start a new venture."
Moutray is absolutely right: not every small business owner is as ambitious or creative as Drakeford. But is Bashyam not an entrepreneur?
For this answer, I went to the high priests of entrepreneurship at the Kauffman Foundation. And they referred me to one of their sacred texts, a book written for policymakers and academics titled Good Capitalism, Bad Capitalism (good vs. evil?). In it, I found the answer I was looking for. They said that all who take the risk are entrepreneurs, but there are two types of entrepreneurs: "Replicative entrepreneurs," who constitute the vast majority of small businesses (such as restaurants and dry cleaners), and "innovative entrepreneurs," the rare few who bring new products/services to market or who pioneer new production methods—such as Wal-Mart (WMT), eBay (EBAY), and Dell(DELL).
Pioneering New MethodsUnder the Kauffman definition, Sue would qualify as an "innovative entrepreneur", because she is developing new services and pioneering new methods. In contrast, Bashyam would be a "replicative entrepreneur" because he is delivering a standardized service in a field that charges primarily by the hour for its time. Bashyam, who is working incredibly hard, could well end up running a huge law firm and be worth many millions—but that doesn't make him particularly innovative in his business model.
Should more "replicative entrepreneurs" seek to become "innovative entrepreneurs? I certainly believe that is the key to boosting economic growth and creating jobs. And just how does a "replicative" entrepreneur become "innovative"? I turned to Steve King of the blog Small Business Labs. Here's his advice:
Stay close to your customers, and constantly look for new ways to add value. Focus on the problems your customers have, not the problems your products solve.
Network with and learn from others in your industry, but also network with people from other industries. Well known practices in one industry are often innovative in a new industry.
Experiment often. Try new methods, approaches, business models, and technologies. But keep the experiments small and iterative. Fail quickly and move on when a new idea doesn't work.
Most important, be open to new ideas. Embrace and encourage innovation.
The bottom line is that anyone can be an entrepreneur. But not anyone can be an "innovative entrepreneur." To become an "innovative entrepreneur" you need to stop trying to be the best at a replicative model and to make your own model. I can't promise that any amount of work will turn Bashyam into a beauty queen, but he may be able to discover some new business opportunities which turns his firm into the Amazon.com (AMZN) of the legal business.