Enterprise is starting and steering a project from a potential solution to a commercial problem and into a profitable, successful, sustainable business.
An entrepreneur starts an enterprise. The entrepreneur is a person who makes a measured judgment whether to start a business project by weighing the potential risks vs. rewards.
Characteristics of an entrepreneur
Pioneer
Entrepreneurs are opportunistic by nature. They are inclined to convert unrealised opportunities into rewarding commercial enterprises.
This is done by capital allocation, i.e., providing the necessary resources and infrastructure to equip the enterprise project for success.
However, pursuing an opportunity comes at the cost of investing elsewhere; this is known as ‘opportunity cost‘.
That is to say, capital invested in an enterprise might otherwise have been invested in other businesses or even in investment vehicles, such as government bonds.
This is the cost of pursuing that opportunity, or opportunity cost.
Multidisciplinary
Entrepreneurs and their projects come in all degrees of preparedness. Some entrepreneurs have a wealth of resources (e.g., land, labour, capital etc.), and others have scarce resources.
That said, in the early stages of starting an enterprise, the entrepreneur has the disadvantage of having to assemble the pieces from scratch. And often without the ideal or optimal expertise or experience at their disposal.
This leaves the entrepreneur needing to perform multiple roles within the enterprise, by default.
Now, in the long run, with resources becoming increasingly available to the enterprise as it grows, the entrepreneur would typically re-evaluate how they might better delegate roles.
Funding
Bootstrapped
Bootstrapping is when an entrepreneur self-funds their own enterprise. They use savings, assets or other personal funds as capital to start the enterprise.
Entrepreneurs may continue to stick to this policy of self-funding (plus reinvesting retained profits from the enterprise) as the enterprise grows.
Externally funded
If an entrepreneur has goals for their enterprise that cannot be achieved by self-funding alone, they might pursue external funding or borrow money.
Borrowing money comes at the cost of debt. And the servicing of this debt is charged as interest, as with loans, or dividends as with shares.
Bootstrapping vs borrowing
Bootstrapping
Pros:
- no cost of servicing debt
- entrepreneur retains full ownership
Cons:
- constrained by personal resources
Borrowing
Pros:
- accelerated progress or growth
Cons:
- cost of servicing debt
- loss of ownership with issuing shares