In the New York Times excerpt of Nick Bilton’s upcoming book about Twitter, there’s a line where he mentions how it’s an oddity that startup founders refer to themselves as “entrepreneurs,” since many of them “have no understanding of how to run a business or turn a profit.”
I thought this was an interesting point and started wondering if Bilton was applying an unreasonable definition of the word. What qualifications must be met before someone can accurately be defined as an entrepreneur? Are tech founders really just kidding themselves?
Google defines “entrepreneur” as a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.
Consider the first part of that definition, “a person who organizes and operates a business.” I would argue that, properly defined, a business should be at least occasionally profitable. At a bare minimum, it should have a viable path to profitability. Most tech startups never make a penny of actual profit and in many cases have no idea how they’ll even bring in top line revenue.
Since the organizations that most Silicon Valley founders launch cannot honestly be considered legitimate businesses designed to generate profits within a reasonable time frame, those founders therefore do not fit the definition of entrepreneur as someone who organizes or operates a business.
The second part of the definition states that entrepreneurs “(take) on greater than normal financial risks.” I suppose startup founders are taking on more risk than someone who stays in a cushy corporate gig but they are hardly engaging in a level of risk that anyone would consider extraordinary.
Let’s compare the risks incurred by a run of the mill brick and mortar entrepreneur to those of a Silicon Valley startup founder. Subway is the most popular franchise in the country so we’ll use that as our baseline. The median capital requirement needed to open a Subway franchise is $188,475 which almost always comes from personal savings or a loan guaranteed by the entrepreneur such as a second mortgage on their home.
Assuming the Silicon Valley startup founder isn’t a complete moron, he can join an accelerator and immediately receive somewhere around $50,000. So in terms of financial risk, the average Subway franchisee is in the hole for $238,475 more than the average Internet startup founder. I think it’s pretty clear who’s taking on the exceptional risk. In fact, given that the Silicon Valley startup founders are actually receiving money, it’s hard to say they’re taking any risk at all.
You’re probably thinking, “But the Silicon Valley founders had to quit their jobs and $50,000 doesn’t go very far.” Sure, but the Subway franchisee had to quit his job too, and he has to stand behind a counter and make sandwiches all day. Both people have to sacrifice their time and forego their normal employment income. Quitting one’s job hardly qualifies as an extraordinary risk. Furthermore, if the tech founders get funded, an impossibility for the Subway franchisee, then all of their risk is removed.
When compared to average brick and mortar entrepreneurs, we see that Silicon Valley founders fail to meet the definition of an entrepreneur as someone who takes on greater than normal risk.
When we apply the proper definition of entrepreneur to what tech founders really do, it’s clear that there are very few actual entrepreneurs in Silicon Valley. In light of this, Internet startup founders might want to consider referring to themselves by more accurate descriptions such as “experimenter in online user engagement,” “creator of unsustainable organizations” or perhaps most fitting, “spender of venture capital money.” Because if all they’ve ever done is lose money, then they’re certainly not running a business.
And if they haven’t put some serious skin in the game, then they haven’t incurred exceptional risk, both of which are necessary to fit the true definition of an entrepreneur.
[Image Credit: WikiMedia]