The Four Types of Entrepreneurship

Not all entrepreneurship is the same. Steve Blank clearly describes four different types:

1. Small Business Entrepreneurship
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 hire local employees or family. Most are barely profitable. Their definition of success is to feed the family and make a profit, not to take over an industry or build a $100 million business. As they can’t provide the scale to attract venture capital, they fund their businesses via friends/family or small business loans.

2. Scalable Startup Entrepreneurship
Unlike small businesses, scalable startups are what Silicon Valley entrepreneurs and their venture investors do. These entrepreneurs start a company knowing from day one that their vision could change the world. 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 in innovation clusters (Silicon Valley, Shanghai, New York, Bangalore, Israel, etc.) make up a small percentage of entrepreneurs and startups but because of the outsize returns, attract almost all the risk capital (and press.)

3. Large Company Entrepreneurship
Large companies have finite life cycles. Most grow through sustaining innovation, offering new products that are variants around their core products. Changes in customer tastes, new technologies, legislation, new competitors, etc. can create pressure for more disruptive innovation – requiring large companies to create entirely new products sold into new customers in new markets. Existing companies do this by either acquiring innovative companies or attempting to build a disruptive product inside. Ironically, large company size and culture make disruptive innovation extremely difficult to execute.

4. Social Entrepreneurship
Social entrepreneurs are innovators who focus on creating products and services that solve social needs and problems. But unlike scalable startups their goal is to make the world a better place, not to take market share or to create to wealth for the founders. They may be nonprofit, for-profit, or hybrid.

The happiest entrepreneurs I've met are the small business ones, not the scale / conquer-the-world ones.

The Best Books on Start-Ups for General Reader

Tyler C., a loyal reader of many years, asks in an email:

What is the best book on start-ups?  Not a how-to book, but a fun book for the general reader.

Another way of putting the question: What is a good book that conveys the fun spirit of start-ups that’s not an explicit how-to?

I replied:

1. Founders at Work by Jessica Livingston is a collection of transcripts with start-up founders from companies like Flickr and PayPal and Google. No editorializing, no analysis, no conclusion. Just long Q&As with founders that give a surprisingly good glimpse of what it’s like to build world-changing technology companies. The lack of narrative spine may make it hard for non-insiders to get into it, though. And there’s no sugarcoating the long, hard slog.

2. Startup by Jerry Kaplan was the classic book of this genre for a long time. It tells his story of developing a pen-based computer. Written in 1994, it’s a bit dated (pre-internet), but still good. I remember reading this several years ago and feeling inspired by the journey.

3. The MouseDriver Chronicles is very fun. Two young Penn grads start a company that develops a computer mouse in the shape of a golf club / driver. Company ends up failing but super entertaining.

4. eBoys by Randall Strouss is a fun book about venture capitalists. It follows Benchmark Capital as they invest in Webvan and eBay during the dot-com boom. Gives a sense of the era.

I think the best how-to book on entrepreneurship, by the way, is Richard White’s The Entrepreneur’s Manual. Amazingly, it’s out of print. Amazon has used copies.

Opportunities in Old, Stodgy Industries

My friend Josh Newman is shifting his film production company to be a venture capital firm that will focus on growth opportunities in unsexy industries:


I think he's right about the gap in attention and money to that quadrant.

There are many opportunities in stodgy industries that go unexploited because it's not mobile / real time / social / insert-buzzword-of-the-day-here. I always enjoy Marty Nemko's blog, and he often champions unsexy business ideas. In his entrepreneurial ideas tag, you can read about his business ideas for organic perfume, food carts, velcro shirts, and more. His entrepreneurship tag has even more.

One more random thought on generating business ideas: look at segments where most of the businesses feel scammy — and then do the exact same business but in a buttoned-up way. Google "mystery shopping" to see what I mean by "feels scammy." Anytime dozens of weird AdWords pop up, you know there's real money being made, but often by scammy entrepreneurs.


Alex Mann awhile back had good tips for how to get into the entrepreneurial swing of things even if you're in college.

Tim O’Reilly: A Splendid Life

Tim O'Reilly:

  • Runs a $100 million dollar book publishing and conference business
  • Runs a venture capital fund that invests in tech entrepreneurs
  • Owns a pair of white Icelandic horses that he enjoys taking care of
  • Bakes scones and serves them with a strawberry jam that he makes himself
  • Happily married for 35 years
  • Lives on a 14-acre apple orchard in beautiful Sebastopol, CA

More from the profile of him:

O'Reilly says he has tried to use his company to demonstrate that being an entrepreneur can represent a means of exploring the world, one that is just as profound as religious inquiry or Greek philosophy or New Age introspection. "Business doesn't have to be separated from the rest of life," he says.

Andreessen: Smart = Curiosity + Drive

In a video interview with Fortune magazine (embed below), Marc Andreessen says that in the context of early stage entrepreneurship, smart = curiosity + drive. He says an entrepreneur should be curious their whole life (presumably about the world in general) and then when starting the company be curious about the company, industry, etc.

This is kind of surprising to me. I take ‘curious their whole life’ to mean they’re curious about many different things. I take ‘curious about the company’ to mean curious about the company in a monogamous, all-consuming, obsessive way.

What’s the likelihood that someone who’s generally curious can turn off that radar for 5-10 years and focus the curiosity on one thing? Do “curious” and “obsessive” go together in one human package with any frequency?

Or if not, is Marc saying that an entrepreneur can be intensely curious about the company at the same as being curious (at a noted level) about the world in general? If this is the case, is the entrepreneur requirement of crazy focus a myth?


Here is my old post asking whether you’d rather hang out with business people or academics if you wanted to maximize interestingness. The comments section is outstanding. As of now, my ideal life is working with entrepreneurs (broadly defined) all day, but having breakfast, lunch, and dinner with journalists and academics. With entrepreneurs you get driven people who want to change the world. With public intellectuals you get big thinkers who are relentlessly curious.

Of my icons list of nine people, three are entrepreneurs, two are academics, two are political thinkers, one writer, one comedian. This analysis of Where’s Waldo makes me want to add Werner Herzog to the list.

Effectual Reasoning: What Makes Entrepreneurs Entrepreneurial

Saras Sarasvathy at the University of Washington has written one of the clearest, most original academic papers on entrepreneurship I've read. It is a stellar breakdown of the characteristics of the entrepreneurial mind. I highly recommend it for anyone in the ecosystem.

Her phrase to describe the entrepreneurial reasoning process is "effectual." Effectual is the inverse of "causal."

Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal…alternative to achieve the given goal….

Effectual reasoning, however, does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with.

Effectual thinkers are like explorers setting out on voyages into uncharted waters….

All entrepreneurs begin with three categories of means

  1. Who they are – their traits, tastes,and abilities;
  2. What they know – their education, training, expertise, and experience
  3. Whom they know – their social and professional networks.

Sean Murphy, a wise man in Silicon Valley whose post elaborates on the paper, summarizes another part that lays out key differences between effectual reasoning and traditional start-up management models:

  • Risk taking
    • Traditional: expected return, work the plan to deliver results to your investors (“Ready Aim Fire” can become “Aim–not big enough–Aim–not big-enough–Aim…”).
    • Effectual: affordable loss, make many small mistakes as early and cheaply as possible to speed learning (“Ready Fire Steer“)

  • Focus:
    • Traditional: competition
    • Effectual: strategic partnership (especially with early customers)

  • Value Creation
    • Traditional: rely on pre-existing knowledge to aim for a known market you can dominate and exploit
    • Effectual: leverage contingencies; create opportunities as you map a new market

Read the whole thing.

8 Steps to Starting a Start-Up

As good as a list as I've seen from VentureHacks:

  1. Move to Silicon Valley. [BC: Not mandatory]
  2. Pick a great co-founder with complementary skills.
  3. Select people with intelligence, energy and integrity.
  4. Pick a big market.
  5. Develop the minimum viable product to test your hypothesis about what the market needs. Preferably it’s a product that you’re passionate about since you’ll need to stick with it to an irrational point (the Internet especially is efficiently arbitraged).
  6. Iterate like crazy until you find product/market fit. If you don’t find it, do not raise money, do not pass go. Start over.
  7. If you have found product/market fit, raise money from high-quality people that you trust. Keep control.
  8. Scale. Hang on.

The links within the list are good as well.


  • Interview with Australian teen who had a party when his parents were out of town and refuses to apologize on TV.
  • Clint Eastwood lists three reasons why he will never win an Oscar.
  • Chris Yeh comment on my post on interestingness: "Things are interesting when they are both novel yet strangely familiar. It's like when you meet a new person, yet it seems like you've known them forever."
  • Interesting photo project of strangers touching each other.
  • Mexico's conflicting interests when it comes to the drug trade. Another masterful analysis from Stratfor.

All Entrepreneurship is Social

There is a tremendous amount of fuzzy thinking around terms like "social entrepreneurship," "social business," and "socially responsible business." When people ask me what I think about social entrepreneurship, I first say I'm not sure what social entrepreneurship means. I'm not sure what makes it deserving of its own term. Then I say I think for-profit entrepreneurship does huge amounts of social good so I'm going to stay focused on that.

Carl Schramm recently wrote an excellent short piece in the Stanford Social Innovation Review called All Entrepreneurship is Social. Nut graf:

…regular entrepreneurs create thousands of jobs, improve the quality of goods and services available to consumers, and ultimately raise standards of living. Indeed, the intertwined histories of business and health in the United States suggests that all entrepreneurship is social entrepreneurship.

He goes to succinctly expand upon this point. He notes:

Entrepreneurs typically generate a surplus benefit above and beyond the profits they reap, finds the…economist William Nordhaus. Nordhaus has calculated that entrepreneurs capture only about 2 percent of this surplus, with the remainder passed on to society in the form of jobs, wages, and value.

As Nobel Peace Prize winner Muhammad Yunus, founder of Grameen Bank, said: "Income is the best medicine.”

Culture Matters to Entrepreneurship

Culture Matters

All through childhood and adolescence you are a sponge absorbing cultural stimuli. From local billboard advertisements, to school curriculum stylized to your country; from conversations with your parents about the ways of the world to the thousands of local customs that dictate proper behavior in restaurants, queues, airports, homes, and driving on the road.

Culture matters. That’s the title of a compelling set of essays on whether some cultures are better at creating freedom, prosperity, and justice. It is politically incorrect to chalk up massive societal failures in places like Africa to culture — besides, the situation is always more complex than a single factor — but it seems safe to assert that the culture you come up in affects how you think.

In Robin Hanson’s post in praise of international travel, he writes:

our beliefs are severely distorted by our culture and training… We all know that we would have been inclined toward different beliefs had we been raised in different cultures or disciplines. We see consistent differences between folks trained in West vs. East, science vs. humanities, economics vs. sociology, and in different schools of thought of most any discipline.

By the time you’re 18 years-old, I believe a certain vision about how the world works glows in your head. You carry many assumptions. It’s possible to change these assumptions in adulthood — easier now thanks to the knows-no-physical-boundaries internet — but it is still hard, and most people would rather not expend the energy to develop a set of values about the world that are independent from their milieu defaults.

Governments Trying to Promote Entrepreneurship

Now pivot to this: virtually every county’s government is trying to promote entrepreneurship, create a mini-Silicon Valley, “become an IT island,” become a hub for innovation, etc. It makes sense: the data are clear that entrepreneurship is the engine of economic growth.

How should a government do it? As Amar Bhide says in From Poverty to Prosperity, the most important thing is for the basic government functions to work: property rights, provision of roads, water, electricity, etc.

The most common next step is for government to make starting a business as easy as possible, minimize tax and regulatory burdens on business, offer tax incentives, etc. These are all good things and are well within a government’s purview.

Chile has done both these things. By taking care of basic government functions, no small task, it has become a better place to be an entrepreneur than most other developing countries. You need only look at its dysfunctional, corrupt neighbor of Argentina to understand that when a government can’t take care of its own basic functions, nothing else matters. And by offering various tax breaks and incentives and helping VCs get new early-stage funds off the ground, Chile’s government carrots have made many entrepreneurs I know take a careful look.

Chile is 100x better place than Argentina to be an entrepreneur. But it’s still far away from rivaling the U.S. as an environment for entrepreneurs. Because here’s what it lacks more than anything: entrepreneurial culture. And no government program or law can change this overnight.

Lack of Entrepreneurial Culture

Here’s a seemingly trivial example but I think it’s telling: In Chile as in many parts of Europe and Latin America (and maybe elsewhere), kids usually live with their parents until into their late 20’s or until they are married. Think about the attitude that probably accompanies this custom: greater dependence and deference to the central authority figure you’ve had in your life. More significantly, in Chile as in almost everywhere except young America, they have a long history, and with history comes psychological burdens. Being conquered and then re-conquering. Living through a military dictator. This stuff seems to affect everything from a person’s propensity to trust strangers to their willingness to challenge the status quo. It’s harder to invent the future if you’re still debating and processing the past.

In Northern Cyprus government officials told me about the various incentives they were going to roll out to attract entrepreneurs and how they were going to have conferences to encourage young people to think about a career in IT. And I’m sitting there sipping my tea thinking, “How the fuck are you going to get people to want to be entrepreneurs when half your citizens work for the government and get off work at 3 o’clock in the afternoon and the other half feel like they deserve more handouts from Turkey?” It’s not an incentive problem; it’s a mindset problem.

I get emails from Koreans who have read the Korean translation of my book and they tell me that they want to start a company but if they do their family will think they are a failure.

This is the story in so many parts of the world. (China, as always, is complicated — they certainly today have a culture of hustling. Beyond that I can’t say.)

Why I’m Bullish on the U.S.

The single best reason to be long on the future of the U.S. is it has a culture of entrepreneurship. It was born this way. Contra Umair Haque — who thinks “it was the American way of life that ate America. And America’s real bankruptcy is a bankruptcy of the soul” — in fact it’s the American way of life and the American soul that are one of the redeeming and enduring attributes of the country’s DNA in this time of uncertainty. The free wheeling spirit, the self-reliance, the fearlessness, the celebration of youth, the permanent fresh start: these things remain, independent of the meltdown of our governance system.

Can You Change Culture?

Culture is really hard to change. It takes generations of time. There are a million levers you could possibly push and it takes way longer than a politician’s term to see any effects. People have pride in their habits.

So what do you do? I think you try everything, and you also try this: import people from countries who have the cultural attitudes you’re looking to cultivate in your country. Use them as implants. I know the Japanese do this with American consultants: they ship in “crazy Americans” to sit in on business meetings and blow up the enormously inefficient customs that still dominate Japanese business. For example, get right to the point instead of flattering the seniority of all the senior people in the room. Integrate the implants with the youth and hope that the power of example will cause more people to think different.

The Paradox of Attitudinal Self-Help Books

Marketing author Seth Godin, who I respect a lot, recently published a new book. I want to point out a theme in his blog interviews (which he did instead of a media tour; I haven't read the book itself yet). With Gretchen Rubin there's this exchange:

Q: If you had to sum up in one sentence what you want a reader to understand from reading Linchpin [Seth's new book], what would it be?

Seth: The world wants you to be a faceless, replaceable cog in the vast machinery of production — but if you choose, and you work at it, you can become the sort of person we really need, an indispensable linchpin, a person who matters. The marketplace needs and embraces artists, creatives, initiators, challengers and movers. You have that skill, the challenge is unearthing it.

I.e.: Everyone is an artist, you just need to look within yourself and choose to be one.

With Chris Guillebeau there's this:

Q: According to Linchpin, how do I become an artist? (What if I don’t know what I’m really good at?)

Seth: You do art when you make change that matters, and do it via a connection with an individual. A great waitress or conductor or politician can make art. So can David, who cleans the tables at Dean and Deluca. Art isn’t the job, it’s the attitude you bring to the job and work you do when you’re there.

It's the attitude you bring to the job. The next question:

Q: Are we all really geniuses? If so, what do we do to stop choosing stability over genius?

Seth: Well, if a genius is someone who solves a problem in a new and original way, then sure, you’re a genius. And the first step to making that choice is to know it’s available.

You can't disagree: the first step to solving a problem is knowing you can solve the problem. Again, attitude.

But to actually solve a problem in a new and original way requires much more than just thinking you can do it. For example, to change the world, you need to become really fucking good at something. Yet, unlike Cal Newport's thorough analysis of deliberate practice, the best-selling self-help books don't analyze the research of becoming exceptionally good at something. They stick to attitude. Which is necessary but hardly sufficient.

Here's the paradox: the folks who really need an attitude improvement are probably not aware of alternative mindsets. They do not know they have a "problem," so they are not reading books and blogs about a solution to a problem they don't know they have. The folks who are reading books about how to "crush it" and become a linchpin, by the very fact that they're sought them out, are displaying initiative and spirit. What they need is not another attitudinal pep talk — they need help on step two and three and four.

So who is buying these books? Thesis: Already-motivated people who think just a tiny bit more motivation and inspiration will make the difference. But I'm not so sure it will.