Key takeaways
Often, the terms small business and entrepreneurship are used by individuals interchangeably when referring to a business that is seeking to accomplish specified goals with very few resources. Though this is true, this is probably not the only similarity between the two.
At the start, most entrepreneurial ventures are small businesses; however, all small businesses are not entrepreneurs.
Entrepreneurship essentially involves coming up with an idea, formulating a business around it, and managing it while also assuming its risk. An entrepreneurial venture typically starts as a small business and then grows. In contrast, a small business is a business that a person or a small group of individuals own or manage. The owner has a direct impact on the decision-making process.
Entrepreneurship By Definition
Entrepreneurship refers to the process in which a business opportunity is identified by an individual who uses this idea to formulate a business. It represents the ability and readiness of an individual to develop and look after a business and manage its risks so as to achieve profits in the long run. A person who shows a willingness to take up such risks is called an entrepreneur.
Entrepreneurship is challenging because it is not guaranteed that the business will achieve success. Nonetheless, the majority of the entrepreneurs are risk-takers and are very enthusiastic about their ventures. Entrepreneurs comprehend that the returns will also be higher when the risk is higher. There are a few qualities that are common to successful entrepreneurs: they are able to develop a competitive advantage, bring together a team that is highly competent and skilled, exhibit high technological expertise, are hardworking and loyal, have a high-risk taking ability and accomplish effective money management.
An entrepreneurial venture starts operating as a small business. However, it is likely to exhibit rapid growth because the entrepreneurs are on the constant lookout for opportunities to take higher risks and hence, advance their business. They are not worried about making high profits; rather, their objective is to use creative methods to carry out their business and sell innovative products or services.
Small Business By Definition
A small business is owned and managed by a single person or a small group of people. The capital is contributed by these few individuals, who are involved to a large extent in the decision-making process. There are a limited number of employees in a small business. Hence it is quite easy and convenient to manage. The scope of operation of this kind of business is quite small, and they have a small share in the market.
The key objective of a small business is to generate profits. However, as the owners are not keen on evaluating and taking up new business opportunities, they have limited profit-making ability. The most popular kinds of small businesses are sole proprietors and partnerships.
oRisk Tolerance
One of the main differences between entrepreneurship and small business ownership is the amount of risk that is involved. Small business owners are usually seeking personal income and do not want to take many risks with their money. Small business owners prefer safe investments that will almost guarantee a return, and they tend to follow an established business model. For example, a small business owner may choose to invest in a franchise business that has a proven track record and is not much of a gamble.
Entrepreneurs are essentially innovators who are up against unknown and unforeseen risks. They are trailblazers who want to offer customers something they have never seen before. Entrepreneurs are passionate about their vision, which is usually focused on the next “big thing.” The most successful entrepreneurs are not afraid of taking financial risks, are very resourceful, and are always looking to improve their knowledge.
oCareer Objectives
Small business owners are just trying to make a living and pay the bills, but entrepreneurs set their sights much higher. While they do not all share the same goals, most entrepreneurs are striving toward financial freedom or social change. Entrepreneurs are looking to create inventions that revolutionize the way things are done. They are often technically minded, which allows them to derive simple concepts from complex systems. Entrepreneurs are looking for growth, whether that means growing their profits, diversifying their staff, or expanding their company.
A small business may be passed down from generation to generation and often takes on a sentimental meaning to both the owner and the community. Small business owners are driven to make improvements but are not interested in making any major changes. Small business owners get smaller returns on their investments by playing it safe, but their profits are more reliable and consistent.
oBusiness Strategy
Entrepreneurs may have a higher risk tolerance, but there is always risk involved when starting a business. To help mitigate this risk, it is important for both small business owners and entrepreneurs to choose the best business strategy. Entrepreneurs typically offer new and compelling products or services which they hope will become highly valued. They aim to stand out and differentiate themselves from the competition. The most successful entrepreneurs study the competition and become familiar with rival products and services. They are also flexible, keeping up with the latest technology and using customer feedback to respond to new trends and make improvements.
Small business owners have a much simpler strategy. They are mainly focused on ways to promote the business, gain loyal customers, and generate more sales. For example, small business owners may gain a competitive edge by simply offering the lowest price on a product or service that is in high demand. Like entrepreneurs, small business owners can learn a lot by listening to feedback from their customers. They should also be taking advantage of the latest technology to make their business strategy more effective.
oInvestment and Profitability
Entrepreneurs seek out multiple investors to obtain the capital that is needed to launch their startup company. They may also take on equity partners, get help from venture capitalists, or raise money through a crowdfunding campaign. Small businesses are commonly backed by a line of credit, such as a business or home equity loan. In addition, small business owners are likely to invest their personal savings or get financial assistance from family and friends.
An entrepreneurial venture usually revolves around a new product or service. Even though entrepreneurship has a relatively high failure rate, those that survive can become extremely lucrative. Entrepreneurs often delve into uncharted territory where they can tap into the potential for high returns and rapid growth. On the other hand, small businesses deal with products or services that are already well-established, which means there is not usually an opportunity for a massive amount of financial gain. Small business owners strive for consistent profits rather than high returns. For entrepreneurs, the possibility of maximizing profits is worth the gamble.
oEconomic Impact
A small business affects its surrounding community in many positive ways. Small businesses help to stimulate the economy by creating new jobs and supporting other local businesses.
Entrepreneurship also drives economic development, but on a much larger scale. They open up new industries and strengthen existing markets. As they advance technologies and create a demand for their products, entrepreneurs also increase the employment rate, improve regional and national productivity, and generate wealth.
In Conclusion
From an economic perspective, both these businesses are very important. They help in eliminating significant levels of unemployment which is a critical issue all over the world. Small businesses and entrepreneurial ventures have also helped in the use of local resources and in bringing about technological development. Hence, both kinds of businesses are vital for economic growth and prosperity.
