Entrepreneur vs Business Person
Difference between an entrepreneur and a businessperson is the first realizes they are setting to the task of creating assets and improving asset values while the second sets themselves the task of building a company around a product or service. This is not a distinction I understood with our first telecommunications startup my team and I raised funding for. It wasn’t until well into my second foray into a startup company, WireFli, that I began to understand the important distinction between creating assets and building a company. To be honest, in the first year of operation, the distinction was learned painfully, mostly through our value proposition as a company failing to gain traction with much needed external investors. Before proceeding, it should be stated however, in the context of startups, creating an asset and improving that asset’s valuation through growth and expansion, by necessity also means building a sustainable business. So what is the distinction and why does it matter?
“A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.” Source: http://bit.ly/1DvkEit
“An entity formed to engage in a business.” Source: http://bit.ly/1IIkGzk
For an investor, and those entrepreneurs they invest in, these definitions, which could be argued are only a semantic argument, are quite important, in particular, “…that will provide future benefit.” It is the nature of this benefit to the investor which is the distinction. For the business person future benefit is realized in the form of income, personal asset base expansion and perhaps a financial exit. For the investor the future benefit comes solely in the form of a financial Return, exit, an exit which realizes a reasonable, though far greater than reasonable is preferred, ROI, which ROI is now available for reinvestment and further growth.
There can be nothing more important for an entrepreneur to understand than they must build their business in such a fashion as to realize a steady increase in asset valuation leading to an eventual exit, liquidity event for shareholders. Even more important to understand is that this is not often a single event, but in truth is a sequence of investment rounds leading from improved asset valuations realized through an improved and expanded business. And it must be understood each subsequent round of funding will require its own asset identification and valuation methodologies which may be substantially different from the previous round, though some portion of the valuation from previous rounds always moves forward.
Realizing the distinction between building an asset for investors versus a good company for the benefit of management, and internal and external stakeholders was not enough to get us funded. This despite that our presentations began to better represent the needs of the investor, the absolute requirement for an ROI within a given period of time. There were further considerations which had to be identified, quantified and articulated, such as the Risk Factors related to the venture, deep market analysis leading to assumptions with supporting information from independent external sources, assumptions which included identification of Uncertainty related to known unknowns. We also had to conduct research on our potential investors, into their existing portfolios, realizing while our survival depended on their investment in us, for the investor survival depended on realizing a real return across their entire portfolio.
It was this shift to focusing on the needs of the investor, which led us to understand the distinction between being good business leaders versus being investable entrepreneurs. Where we looked at all the many moving pieces within the company, finding and creating increasing value along multiple lines, the investor looked at our company as a whole, a single line, a single value. This lead us to understand as a potential asset for the investor’s portfolio of assets, we needed to position ourselves such that our independent company not only realize a return but where possible, strengthened and increased the likelihood of a return for other assets within and across the investor’s portfolio. Understanding this led us to approach potential investors more selectively. Instead of talking to whomever we were fortunate enough to talk with, we pursued only those who invested in the ecosystems in which WireFli operated.
The investors we approached became those with at least one other company within their portfolio which would benefit from our product and service or from a vendor — client relationship and not only that specific fund but those with which it syndicated its investments was taken into consideration. This knowledge, the distinction between business person and entrepreneur, now drives our decisions as investors. And every company in our portfolio is related in some form or fashion to the other companies within the portfolio or the business segments these companies pursue. And while good business leaders are most certainly a requirement, we invest in entrepreneurs, those who conceptualize and develop their company as a financial asset rather than simply as a revenue generating business.