Can You Be a Successful Entrepreneur? Three Things You Need to Know That You Won't Learn in Business School

What do you imagine when you think of an entrepreneur? Perhaps a tech mogul or a some titan of industry whose fortune was founded in a company that changed the course of human events? Or maybe a start-up comprised of a small group of college friends huddled in a dorm room or a garage somewhere trying to invent the "next big thing"? If you imagine yourself to be an entrepreneur - and plan to be successful, there are three things that guide success that have nothing to do with being a start-up, disrupting markets or even being a visionary. And they are the same three fundamentals that make any business a sustainable success.

1. All business is an investment of three buckets of capital : Real Assets, Human Capital and Reputation Capital
2. Risk and Yield are inseparable and manageable market forces
3. An entrepreneur is simply someone who is willing to take unreasonable risks in pursuit of unrealistic rewards.

Entrepreneurship is a form of leadership. It is what you choose to lead and why. Rarely do successful entrepreneurs pursue profit as their principal objective. Successful entrepreneurs are keenly aware that profit is the result of accomplishing their aims, not what they are aiming for. While entrepreneurs must be passionate about their ideas, they often see those ideas as having lives of their own. They perform to an extreme level in order to serve a great worthy purpose, one that makes sense of risking everything they have in order to test the potential of those ideas.

Entrepreneurs are a special breed of leader. They feel a sense of duty to their cause and treat their ideas as things they serve - rather than own.

The generally accepted view of entrepreneurship focuses on individuals who create, launch and grow a business with the aim of capitalizing on its profit potential. We also recognize that doing so is risky business and that most would-be entrepreneurs fail.

All startup businesses are entrepreneurial by default. The risk of becoming a sustainable enterprise on virtually every level is tenuous. Avoiding risk is all but impossible. Those that embrace the need for taking great risk are those who tend to survive the adversity that is practically unavoidable and learn to thrive and gain a sustainable competitive advantage.

Well-established companies also thrive when they behave entrepreneurially. Companies that become risk-adverse or just complacent tend to be those who fail spectacularly. This is well described in Adizis' researched explanation of Corporate Life Cycles. And it was Oren Harari, author of The Leadership Secrets of Collin Powel who suggested that the greatest predictor of a company's impending failure is its present level of success. The risk increases while the tolerance for risk decreases.

We tend to celebrate successful entrepreneurs as courageous folk-heroes; those who head towards the storms that most people would run away from and not only whether them, but come out the other side with more than they started with. They are not seen as mere survivors, but great visionaries who could see their way through what very few would even attempt. And those that attempt and fail over and over again are the unsung heroes that dare others to join the legions of adventurers, mavericks willing to be seen as the crazy ones that Steve Jobs referred to in his now famous Stanford University commencement address.

In my view, however, entrepreneurs are not defined by what they do. They are defined by the risks they take. You can lead a boot strapped start-up or a well-funded mature company and be an entrpreneur. In other words, any business can be led to behave entrepreneurially based on the organization's relationship to risk. And the way the organization operates relative to risk is a matter of leadership and choices.

Every business that operates in a free market system makes money in exactly the same way. It is always a function of leveraging the organization's capital against the risks of the marketplace. Every business exists within the same fundamental market laws that guide investments. We subject capital to risk in hope of reaping some level of return. The greater the risk, the greater the expected return, and safety is gained relative to reducing the expectations of return. The greater the risk, the higher the desired yield.

All businesses have three buckets of capital: tangible assets, human capital and reputation capital. Profit is the yield based on both the investment strategy in terms of risk taking, and the effectiveness of managing the risks undertaken.

Tangible assets are easy to manage since we can carefully measure and account for them. If you keep reasonably accurate standard accounting records based on generally accepted practices and principles, your cash and equivalents are identified on your balance sheet. With routine bookkeeping we can track asset value and cash flow in order to see and manage the risk we are undertaking.

Human and reputation capital might show up as intangible assets if you have calculated the value of good will into your financial statements. CEOs will often view their people and their company reputation as their greatest two assets. But unlike your tangible assets, you don't own your people or even your reputation, so it is far less easy to measure and manage.

This is particularly troublesome since these are the areas where most businesses take on the greatest levels of risk. People come and go and in general can perform quite unpredictably.

Your people are not an asset - because you don't and can't own them.

In fact you rent them. Employee's work product and any intellectual capital they produce may be assets, but your people are not.

Reputation doesn't reside in your company, it resides in the minds of people who make judgements about your company: your customers, employees, suppliers and even your competitors. Your reputation can be damaged by no fault of your own, even deliberately by the deceptive actions of unscrupulous competitors. It may seem that you can control your own reputation, but that is an illusion. We can work to build a good reputation, even attempt to repair a damaged reputation, but your reputation is ultimately beyond your control.

Because your people and your reputation represent such enormous risk, it's natural that they offer the greatest potential for increasing yield. This is why it makes sense to actively invest your real capital - which has a much more controllable and predictable potential return, into your human and reputation capital. This is is exactly what entrepreneurs do.

Start-ups begin with very little or perhaps no tangible capital. They are often built on the sweat equity of founders - who are in essence investing in themselves. They then bet on the spark of being recognized or found by those who will provide the real-assets they need to survive and grow. These can be customers or investors - both of which transact based on the perceived value of the reputation and human capital.

If you are thinking of yourself as an entrepreneur today - or considering taking the plunge, the three things to understand are simple enough just remember, an entrepreneur is simply anyone who is willing to take an unreasonable level of risk in order to pursue an unrealistic level of return. If you are unwilling or unable to manage risk - you might consider keeping your current day job.

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Phil Liebman is the CEO and founder of ALPS Leadership and a Vistage Chair since 2005. He earned his Master of Leadership Arts and Sciences at The Thayer Institute - studying High-Performance Organizations and Competent Leadership under Dr. Lee Thayer. You can learn more about what it takes to become a more effective leader and building and growing sustainable high-performance organizations by visiting ALPS Leadership at www.ALPSLeadership.com