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New Enterprises · Lecture 1 of 12 · 4:40

Lecture 1: What is Entrepreneurship

What is Entrepreneurship on YouTube

Study guide

What this lecture covers

The lecture opens Bill Aulet's course by asking what entrepreneurship actually means, since the word is used loosely for very different activities. It draws a line between small and medium enterprise (SME) entrepreneurship and innovation-driven enterprise (IDE) entrepreneurship, arguing that they require different skills, capital and risk tolerance even though both count as "starting a company."

After watching, you should be able to tell the two apart in a real example and understand why the course, and the 24-step framework it introduces, is built around IDEs rather than local service businesses.

Key ideas

  • SME entrepreneurship: small, often local businesses such as a dry cleaner or restaurant that grow roughly linearly and stay under owner control.
  • IDE entrepreneurship: innovation-driven ventures aimed at global or super-regional markets, built on a unique innovation.
  • Cash flow pattern: IDEs typically lose money early, then grow exponentially if the model works, unlike the steadier cash flow of SMEs.
  • Ownership structure: SMEs usually stay owned by the founder or family; IDEs bring in shareholders and outside capital.
  • Different skill sets: Aulet compares the two to basketball and baseball, since success in one does not guarantee success in the other.
  • Job creation pattern: a small number of successful IDEs can generate a large number of jobs, while SMEs need to exist in large numbers and stay more geographically spread out.

Before you watch

  • No prior lecture is required; this is the first video in the course and sets up terms used throughout.

Check your understanding

  1. What distinguishes an SME from an innovation-driven enterprise in terms of target market?
  2. Why do IDEs typically show negative cash flow before they show exponential growth?
  3. Why does Aulet compare the two types of entrepreneurship to basketball and baseball?
  4. Why can a small number of IDEs create a large number of jobs compared to SMEs?

Vocabulary

entrepreneurship (noun)
The activity of starting and running a new business, often taking on financial risk.
Entrepreneurship covers everything from a small shop to a global tech startup.
small and medium enterprise (SME) (noun)
A small, often local business that stays under its owner's control.
A neighborhood restaurant is a typical small and medium enterprise.
innovation-driven enterprise (IDE) (noun)
A startup built around a unique new idea, aimed at large or global markets.
An innovation-driven enterprise often grows much faster than a local shop.
framework (noun)
A structured method or set of steps used to approach a problem.
The course introduces a 24-step framework for building a startup.
capital (noun)
Money used to start or grow a business.
An IDE often needs more outside capital than a small local business.
risk tolerance (noun)
How much uncertainty or potential loss a person is willing to accept.
IDE founders usually need a higher risk tolerance than SME owners.
exponential growth (noun)
Growth that speeds up rapidly over time, rather than staying steady.
A successful IDE can show exponential growth once its model works.
cash flow (noun)
The movement of money in and out of a business over time.
IDEs often have negative cash flow before the business takes off.
shareholder (noun)
A person or group that owns part of a company through shares.
IDEs typically bring in shareholders to fund their growth.
job creation (noun)
The process by which businesses generate new employment opportunities.
A single successful IDE can drive large-scale job creation.
geographically spread (phrase)
Located in many different places rather than concentrated in one area.
SMEs tend to be geographically spread across many local communities.
linear growth (noun)
Growth that increases steadily at roughly the same rate over time.
Small businesses often grow in a linear rather than exponential pattern.
global market (noun)
A market that reaches customers across many countries.
IDEs typically aim at a global market, not just a local one.
super-regional (adjective)
Covering an area larger than one region, though not the whole world.
Some IDEs target a super-regional market rather than a purely global one.
outside capital (noun)
Money invested by people who are not the company's founders.
IDEs often rely on outside capital to fund fast growth.
control (business) (noun)
The power to make key decisions about how a company runs.
SMEs usually stay under the founder's control.
unique innovation (noun)
A distinctive new idea or product not already available elsewhere.
IDEs are built around a unique innovation as their core advantage.
distinguish (verb)
To recognize or show the difference between two things.
The lecture distinguishes SME entrepreneurship from IDE entrepreneurship.
term used loosely (phrase)
A word applied broadly to many different things, often losing precision.
The word entrepreneurship is used loosely for very different activities.
dry cleaner (noun)
A business that cleans clothes using special chemicals instead of water.
A dry cleaner is a common example of a small local business.

Chapters

From the YouTube description

MIT 15.390 New Enterprises, Fall 2013
View the complete course: http://ocw.mit.edu/15-390F13
Instructor: Bill Aulet

In this video, two dramatically different types of entrepreneurship are discussed: Small and Medium Enterprise Entrepreneurship (SME) and Innovation Driven Enterprise Entrepreneurship (IDE) and what this distinction means for aspiring entrepreneurs.

License: Creative Commons BY-NC-SA
More information at http://ocw.mit.edu/terms
More courses at http://ocw.mit.edu

Lecture 2: What is Innovation →