Are all small business owners entrepreneurs?
It’s a more contentious question than you might think. Some use the terms small business and entrepreneur interchangeably — I am in this camp. Others, including management guru Peter Drucker, argue that “entrepreneur” is a word reserved only for businesses that innovate. BlackBerry’s founders are entrepreneurs while the couple that runs the local corner store is not.
Why does this little definitional spat even matter? Language is important and the word entrepreneur carries a lot of respect in our society.
Economists William Baumol, Robert Litan and Carl Schramm make a useful distinction between two types of businesses in their book Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity. They refer to “innovative” businesses as those that develop a new product or service (BlackBerry) or new process to deliver existing goods and services at lower cost, and “replicative” businesses as those who produce or sell existing goods and services (the corner store). Like many economists, they focus on the innovative businesses and define them as entrepreneurs. By their own admission, they give short shrift to the importance of the “replicative” business.
Clearly there are differences between different businesses, but they have much entrepreneurial DNA that is shared. Small business owners all take financial and reputational risks that most of us are unprepared to take. They create employment and improve society’s well-being. They turn raw materials and people’s time into products and services that customers value enough that sales will cover the cost of the materials, meet payroll, and cover other costs like taxes. The effort and creativity to do so is admirable and shared by replicative and innovative businesses alike.
And most businesses are innovative to some degree as owners are constantly pushing for how to be better. Defining what innovative looks like is its own definitional conundrum.
Since “innovative” entrepreneurs rightly get a lot of attention, let’s focus for a moment on the enormous contribution of the “replicative” entrepreneur who also deserves to be celebrated.
One of the great contributions of the replicative entrepreneur is stability. Bakeries, greengrocers, machine shops, and hair salons may not on the cutting edge of innovation, but they do employ a substantial portion of the labour force. They act as a terrific shock absorber in recessions as many have loyal customers and roots in the community. They are also more reluctant to shed jobs than many of their more innovative counterparts, something that many employees are very grateful for with a recession in recent memory.
People who take the risk of running their own business deserve the admiration that is conferred by the entrepreneur label regardless of where they are on the spectrum of innovation. Of course, there is a difference between the basement business that goes on to invent a mobile device to send email (Blackberry) and the bakery with mom’s secret recipe for cinnamon buns. But people and the economies in which they participate need both innovation and stability to thrive. Respecting the contributions of both makes sense.
Laura Jones is Executive Vice President of the Canadian Federation of Independent Business. She can be reached at email@example.com. Follow her on Twitter @CFIBideas.