Entrepreneurial capitalism is key to the success for entrepreneurship. But few words are as abused in the lexicon of the business world, as ill defined in the management literature, and as open to multiple meanings as entrepreneurship. The concept of entrepreneurship has been in our modern society for thousands of years and in the history of economic study the word has been overused, and in some cases underused.

Definition of entrepreneurial capitalism: private capital, investing in private start-ups, with potential for a viable harvest

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Jack Kemp: Does government create jobs, or do entrepreneurs? Does government spending spur growth, or do lower taxes, less regulation, and spending limits? Can government direct investment better than the private sector? The answers to these questions provide the keys to designing a strategy for long-term growth in America.

Entrepreneurs, Low Taxes, Create Economic Growth

For nearly every entrepreneur, access to private equity capital, or risk capital, is a key ingredient to successful business growth.

Entrepreneurship, combined with support from venture capital, is a major force driving economic growth in the United States. Thomas McConnell of New Enterprise Associates said, “Venture capital investment is a national phenomenon that helps set the U.S. economy apart from others in the world.” Venture capital financed groundbreaking research and untold improvements in infrastructure and technology. The average venture-backed company employs nearly 100 workers within five years and creates almost twice as many jobs as their nonventure-backed competitors.

Venture capital, risk capital, was perfected in the Reagan era with the help from Jack Kemp. Things changed with President Ronald Reagan’s election in 1980, when the business environment shifted from President Carter’s “Days of Malaise” as the Republicans produced political leaders committed to entrepreneurial capitalism. Their thrust took shape under “supply-side economics,” which was first envisioned by economic adviser Dr. Arthur Laffer. His winning thesis was simply this: Lower the marginal tax rates. He believed that individuals should keep more of their hard-earned money, which would encourage them to make more.

In August 1981, less than seven months after being sworn in, President Reagan signed the Kemp-Roth bill into law. It was the cornerstone of what would become the most successful economic policy for new business venturing in U.S. history. The bill’s treatment of capital gains, a lowering of the top capital gains tax rate from 28 percent to 20 percent, made high risk investments even more attractive, causing a twofold increase in commitments to venture capital funds in 1981.

Entrepreneurs then launched a boom that would last, except for a brief eight months following the Gulf War in 1991, until the end of the twentieth century. It was the longest period of economic expansion in the nation’s history. Between 1983 and 2003, the Dow Jones Industrial average provided an annual return of 11 percent. For comparison, between 1965 and 1983 its annual return was 1 percent.

According to the U.S. Department of Labor Non-Farm Employment Data, the American economy generated over 27 million new jobs between 1980 and 1995. Over 24 million of these new jobs were created by small- and medium-size entrepreneurs operating high-growth ventures. As Dr. Laffer predicted, even Washington, D.C., prospered well, with the U.S. Treasury revenues increasing 28 percent to more than $1 trillion in 1990.

At the closing of the last century, MIT economist Lester Thurow had this to say: In what will come to be seen as the third industrial revolution, new technological opportunities are creating fortunes faster than ever before. The United States has created more billionaires in the past fifteen years than in its previous history—even correcting for inflation and changes in average per capita gross domestic product.

3m Optical Systems Managing Corporate Entrepreneurship

Understanding the term: Entrepreneurship

Carl Voigt, dean of the Marshall School of Business at the University of Southern California, explains, “We sort of defined entrepreneurialism too narrowly as someone who wants to start their own business. But entrepreneurialism can also mean finding new business opportunities and expansion at existing companies.”

Starting with practically nothing, an entrepreneur is one who organizes a new venture, manages it, and assumes the associated risk. The term entrepreneur is broadly defined to include business owners, innovators, and executives in need of capital to start a new project, introducing a new product, or expanding a promising line of business.

We include technology transfer experts, technologists at leading universities, and consultants and advisors assisting in all aspects of venturing. An entrepreneur’s principal objectives are profit and growth, and they will employ formal strategic management practices to achieve them.

Types of Entrepreneurs

We use a broader definition and scope of entrepreneurial activity, segmenting all entrepreneurial activity into seven types of entrepreneurs: small business and lifestyle, franchise, professional fast growth and serial, corporate, creative disrupters and innovators, extreme, and social and nonprofit.

1. Small Business, Lifestyle, and Family Entrepreneurs
A small business entrepreneur is an individual who establishes and manages a business for the principal purpose of furthering personal goals. They comprise around 90 percent of all entrepreneurial activity in the United States. The business may overlap with family needs and desires. These ventures merely provide a reasonable lifestyle for the founding entrepreneurs. Their average net worth is less than $6 million, and they choose to stay small.

These “lifestyle ventures” typically fall below 20 percent annual growth rates, their five-year revenue projections are below $10 million, and average net income does not exceed $2 million. Retailing is one of the few sectors where entrepreneurial activity is extensive. Each year, some 60,000 new retail businesses are started. The National Retail Federation in Washington, D.C., reports that 1.3 million retailers or over 95 percent of all retailers own and operate a single store.

2. Franchise Entrepreneurs
Franchising started in the 1840s and became an American institution. One out of sixteen workers is employed at a franchise, and franchising accounts for nearly $1 trillion in retail spending. Franchising is where a franchisor is offering a franchisee exclusive rights in return for their payment of royalties and conformance to standardized operating procedures. Franchising represents a great opportunity for entrepreneurs. An entrepreneur buying into a franchise increases the odds for survival to as much as 90 percent over starting up independently.

There are three basic types: product franchising, like automotive dealerships; service franchising, like Century 21; and business format, like McDonald’s. Since there are some 2,300 franchises to choose from, we suggest reading books like Ann Dugan’s Franchising: The Complete Guide to Evaluating, Buying and Growing Your Franchise Business. Dugan will help you to find the right franchise and to negotiate the franchise lease; it also provides sample franchise agreements.

3. Professional Fast-Growth and Serial Entrepreneurs
Fast-growth ventures have been called “the backbone of the U.S. economy.” Numbering less than 350,000, they create about two-thirds of all new job growth. Professional entrepreneurs lead these ventures, which typically employ between 20 and 500 people, have sales growth of at least 20 percent each year for four straight years, and target five-year revenue projections between $10 and $50 million.

Less than 10 percent of all start-ups make it to this level. As can be expected, it is well documented that these high-growth ventures receive great investor interest. A small business entrepreneur will typically retain 100 percent ownership, since the primary motivation is financial independence and control. In contrast, serial entrepreneurs are comfortable with relinquishing control to “a more traditional chief ex

3m Optical Systems Managing Corporate Entrepreneurship