What Is Entrepreneurship? 5 Types Explained

Key Takeaways


When you hear the term “entrepreneur,” you might think of a visionary guru like Steve Jobs or any billionaire investor featured on Shark Tank.

But “entrepreneur” is a deceptively broad term. Mark Zuckerberg is an entrepreneur, but so is the owner of the Mom-and-Pop coffee shop just around the corner. An entrepreneur is anybody with the willpower to bring a business to life.

Furthermore, there are several different types of entrepreneurship. Your personality, skillset, and resources may persuade you to choose one type of entrepreneurship over another.


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types of entrepreneurship

What is Entrepreneurship?

Generally speaking, entrepreneurship is when you work to open a new business. But there’s a romantic connotation, too: entrepreneurs are usually thought of as visionary risk-takers and innovators—forward-thinking individuals who can identify a product or service that people need and bring it to fruition.

But it doesn’t matter whether you’re trying to innovate a never-before-seen product or if you’re simply opening a neighborhood business: you’re an entrepreneur, either way.

Entrepreneurs are essential to the economy, and society at large. They create new jobs, expand the marketplace, and provide tax revenue for the government.

Entrepreneurs also generate new cultural norms. Think about the influence that brands like Apple, Facebook, and Amazon have had on global culture. And the influence is not restricted to the tech industry. Many influential fashion labels, music labels, and artistic-driven companies were founded by entrepreneurs.
How Entrepreneurship Works

Entrepreneurship is the process you take to “ideate” a potential business, open it to the public, and turn a profit. This process may involve all aspects of business ownership, from financing, to marketing, to accounting.

Entrepreneurs will have to:

  • Create a Business Plan: The business plan details your overall business strategy: your financing, your marketing strategy, your target demographic, etc. The business plan is a crucial way to gain financing, and it can also help you weed out business ideas that just aren’t economically feasible.

  • Overcome Bureaucratic Restrictions: You might face local rules and regulations that affect where and how you operate.

  • Obtain Financing: Getting startup money is one of the most difficult aspects of entrepreneurship. Investors may turn to crowdfunding, or obtain money from a financial institution or investors. Some investors may even contribute their own money to the startup.

Entrepreneurs assume more risk than anybody else associated with their company. They’re usually held liable for the money that’s lent to them, so they’re under a great amount of pressure to generate returns.

That’s why most entrepreneurs tend to be self-confident, hard-working, and not too afraid of failure. Regardless of the type of entrepreneurship you choose, you must have plenty of self-assuredness and drive to help you overcome all the obstacles you’ll face.

What are the 5 Types of Entrepreneurship?

There are five types of entrepreneurship:

  1. Buyer Entrepreneurship

  2. Hustler Entrepreneurship

  3. Imitator Entrepreneurship

  4. Innovative Entrepreneurship

  5. Research Entrepreneurship

Some types of entrepreneurship may require a very outgoing personality, while others may require a more cerebral approach. Some may require a heavy financial obligation or time commitment, while others don’t. They’re all a little different.

Let’s dive into each type of entrepreneurship so you can find the one that’s right for you.

types of entrepreneurship

1. Buyer Entrepreneurship

Buyer entrepreneurship is when you find a promising business and purchase it. It’s just like the name implies!

You might be wondering, “why would anyone want to sell a company that looks very promising?”

There are several different reasons. The company may have a great product, but they don’t have the resources or ingenuity to take the company to the next level (as was famously the case with McDonald’s, if you’re familiar with the Ray Croc story).

It’s also possible that the business owner is in financial distress and needs immediate cash, so he/she is willing to sell the company.

You don’t have to buy a whole business, either. A buyer entrepreneur can also purchase a patent, a product, brand, or manufacturing technology.

Advantages:

  • Less Risk: When you purchase an existing business, there’s less risk because you don’t have to worry about securing financing or earning a cash flow (unless you’re buying a business that hasn’t yet managed to be profitable). In most cases, though, you’ll buy a company that has already proven itself to some degree.

  • Don’t Have to Innovate: You don’t have to be an “idea person” to be an entrepreneur. Sometimes you only need to recognize greatness in a product or brand—and that ability would make you a great buyer entrepreneur.

  • Hands-Off: A buyer entrepreneur can have a more passive role in the company operations. When you purchase a company, you can hire somebody knowledgeable to run it. You can quite literally kick back and reap the profits. [But you shouldn’t downplay how important that hiring decision is.]

Disadvantages:

  • You Need Lots of Money: Unfortunately, buyer entrepreneurship is best-suited for people with money. You can secure financing to purchase a business, but many buyer entrepreneurs already have money in the bank and can purchase a company outright. Borrowing money will also increase the risk of your investment.

  • You Might Not Understand the Industry: You don’t have to be an expert about the industry you’re buying into—but it certainly helps. If you’re going to purchase a restaurant, for instance, wouldn’t it be helpful if you knew a thing or two about the food service industry? If you don’t understand the industry that you’re buying into—the technology, the economics, the practices—then you’re more likely to make uninformed business decisions.

2. Hustler Entrepreneurship

There’s a certain type of person that’s made to be a hustler. Hustlers are usually outgoing, highly motivated individuals who are willing to work hard to bring in money. They enjoy talking to people and selling whatever product they have to sell. Some of the most famous hustlers include Mark Cuban and Daymond John, both of whom started their career selling a variety of small products around their neighborhood.

Hustler entrepreneurship doesn’t necessarily mean that you’re street hustling. It means that your approach to business is focused on small, grassroots campaigning. Sometimes that’s the most efficient and cost-effective way to raise brand awareness, generate a cash flow, or secure investors and strategic partners.

Advantages:

  • Don’t Need a Lot of Financing: Hustler entrepreneurs are great at doing things cost-effectively, from marketing to administrative work—they’ve got the drive and stamina to wear multiple hats. That means they can run a business without needing quite so much financing, so they operate with less risk.

  • Resiliency: Hustlers have thick skin and aren’t so discouraged by setbacks or obstacles. If you’re a hustler, you’ll work long and hard to push your business to success.

Disadvantages:

  • Burnout: Unfortunately, hustlers are still human. When you’re pushing yourself to your limits and wearing multiple hats, you’re likely to get burnt out at some point—which always leads to decreased performance. You can only hustle for so long before you have to hire people to help you.

  • Less Financing: Entrepreneurs who can launch a business with little startup costs should be admired. But sometimes, you need a little more money to quickly generate a cash flow. A hustler’s hard work will eventually plateau, and the only way to promote growth is to raise capital.

3. Imitator Entrepreneurship

Imitator entrepreneurship is when you copy another company’s ideas and improve them.

“Imitator” has a negative connotation, but there’s nothing wrong with imitator entrepreneurship. In some cases, imitator entrepreneurship is not only smart, but necessary—like in the case of green energy (more imitators = cheaper technology = more adoption = healthier planet).

Want to repurpose a product for a new demographic? Or employ a new marketing strategy for a poorly-selling product? Imitator entrepreneurs infuse old products with new ideas.

Advantages:

  • Ease: It’s easier to refine an existing business idea than to build a business from scratch.

  • Benchmarking: It’s easy for you to gauge your success because you can compare your product’s performance with the original’s performance.

  • No Hindsight: You can learn from the original product’s failures and avoid making those mistakes, making imitator entrepreneurship less risky.

Disadvantages:

  • Less Innovation: Imitator entrepreneurship is not devoid of creativity—it takes a lot of creativity to figure out how a product or business model can be improved. But when you’re an imitator entrepreneur, you probably won’t be creating anything that’s brand new. And you might frequently be compared to the original.

4. Innovative Entrepreneurship

Innovative entrepreneurship is the opposite of imitator entrepreneurship. Innovative entrepreneurs try to come up with completely new business ideas and products. That’s a hard enough task on its own, but these entrepreneurs also try to turn those ideas into profitable companies.

Innovative entrepreneurs tend to be big dreamers. They’re ambitious and highly passionate about their ideas—maybe even obsessive. They’re not intimidated about developing new products or business models, and they find ways to make their ideas stand out in a crowd.

Advantages:

  • You Get All the Credit: You’ll get to enjoy all the praise that comes with being an innovator.

  • You’re the Benchmark: If your idea succeeds, it’ll draw imitators. Thankfully, you’ll set the benchmark for all similar products or business models.

  • Less Competition: As the saying goes, “the early bird gets the worm.” Your idea may have little competition initially—it could take competitors years to catch up to you. [As was the case with the Netflix streaming service.]

Disadvantages:

  • You Get All the Credit: It’s nice to get credit as an innovator until public opinion turns against your product or business model. In just a few years, you can go from a beloved visionary to testifying before Congress. Hopefully, you’ll be rich by then.

  • Timing is Everything: It could take years to develop an innovative idea, but you might not have so much time to spare—not if you have a loan to pay off or if there are competitors that are nipping at your heels. And sometimes, an innovative product will only take off if it’s released at the right time. It’s very possible to create something that’s ahead of its time.

5. Research Entrepreneurship

Research entrepreneurs are primarily focused on developing new technologies or business models. Some research entrepreneurs may also be interested in the logistics of building a business, but they’re mostly preoccupied with testing and discovering new ideas.

Research entrepreneurs wait to start a business until they have a complete understanding of the product and business model they’ve created. They rely on data and facts to inform their decision-making.

Advantages:

  • Preparation: Research entrepreneurs are prepared for any contingencies or obstacles that may arise when rolling out a new product. They’ll also create fantastic business plans and financial strategies.

  • Less Risk: It’s safe to assume that the more prepared you are, the less risk you’ll carry. Lenders may think so, too.

  • Thrill of Discovery: For curious minds, the research process is fun, rewarding, and pleasantly challenging. It’s a great type of entrepreneurship for deep thinkers.

Disadvantages:

  • Takes Longer to Get Going: Research entrepreneurs take longer to bring their ideas to fruition. That’s not inherently bad, but it can be if you have competitors or outstanding debt.

  • Can Be Risk Averse: Research entrepreneurs generally tend to avoid risk or mitigate it. There’s nothing wrong with avoiding risk, but sometimes the greatest gains come from risk-taking.

What is a Real Estate Entrepreneur?

A real estate entrepreneur is an entrepreneur that pursues real estate investment opportunities. There are different types of real estate entrepreneurship, some that require you to buy property, and some that don’t.

types of entrepreneurship

Types of Real Estate Entrepreneurship

There are five types of real estate entrepreneurship:

  1. Real Estate Mutual Funds

  2. Real Estate Investment Trusts

  3. Short-Term Rentals

  4. Real Estate Company Investing

  5. Real Estate Notes

Each type of real estate entrepreneurship requires a different level of time commitment and financial investment.

1. Real Estate Mutual Funds

A mutual fund is a pool of stocks in which you can buys shares. You’ll receive dividends based on the performance of the shares included in the mutual funds. A real estate mutual fund is a mutual fund that only includes real estate-related stocks.

A real estate mutual fund might be a good fit for you if you have money to invest but not enough money to purchase a property. You can use the dividends from the mutual fund to save up for a down payment or contribute to a retirement account.

2. Real Estate Investment Trusts

A real estate investment trust (REIT) is a company that collects money from investors and uses the funds to finance a variety of different real estate projects. The investors might receive interest or dividends on their investment.

REITs are similar to real estate mutual funds, but REITs generally require a more significant investment. An REIT is another excellent way to passively invest in real estate without having to buy property.

3. Short-Term Rentals

If you have money to purchase a property, you might consider turning it into a short-term rental.

A vacation rental is the most popular type of short-term rental. If you buy a property in a location that’s popular with travelers, you can rent it out using a website like Airbnb. You’ll have to make sure the property is cleaned after each rental, but that’s a small price to pay for the large returns you’ll generate.

Short-term rentals are also suitable for college towns, where students typically sign leases for six months to one year. In college towns, you can charge rent that’s significantly higher than the market average.

real estate company

4. Real Estate Company Investing

Another good type of passive investment for real estate is to buy stocks in a company that finances or develops real estate projects. This is basically just stock investing, but you’re only doing it for real estate-related companies.

Unlike mutual funds, individual stocks carry much more risk. However, some stocks may generate returns that are far higher than mutual fund returns. Be sure to do plenty of stock research, so you’ll know which companies are more likely to perform well.

5. Real Estate Notes

A real estate note (also known as a “mortgage note”) is just a loan that someone has taken to finance a property. Lenders may sell these notes to buyers, who will then collect the mortgage payments and interest.
Like REITs or mutual funds, buying real estate notes is a passive type of real estate investment. The practice carries a considerable amount of risk. Before you purchase a note, you should investigate the borrower’s credit rating and financial situation to ensure they’re not at risk of defaulting on the loan.

If the borrower defaults on the loan, the house will be used as collateral. However, it’s the interest payments that make real estate notes a profitable investment, so it’s better to buy a note in which the borrower is making their payments on time.

Summary

Entrepreneurship is when you open a new business. There are five different types of entrepreneurship, and each one requires a different amount of time commitment and financial risk: 1) Buyer Entrepreneurship 2) Hustler Entrepreneurship 3) Imitator Entrepreneurship 4) Innovation Entrepreneurship 5) Research Entrepreneurship. Real estate entrepreneurship is a type of entrepreneurship in which you make money through the real estate industry. In real estate entrepreneurship, you’ll find opportunities that may require you to purchase property and also those in which you can be a passive investor.


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The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.

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