One of the most important jobs of any investor is to know just who and what you’re investing in, especially when you utilize a buy-and-hold strategy. This includes the company’s financials but should also extend to its founder or C-suite. Small businesses often can generate a lot of buzz, especially when they’re run by someone who is truly an entrepreneur.
What is an entrepreneur?
Although entrepreneurs are business owners, not all business owners are entrepreneurs. Entrepreneurs are innovators by nature who seek to change or disrupt their industry in some significant way rather than simply service an existing customer base. Some entrepreneurs are financed by venture capital or hedge funds, but many others are self-funded, which leads to a wide range of business sizes run by entrepreneurs.
There are many definitions of the word “entrepreneur,” but you’ll know one by how they approach the business world. Are they looking to simply take over an existing business model, or are they finding unmet needs and filling them? The innovators typically come to mind when we think about entrepreneurs.
Entrepreneurship and the stock market
Although investors often put a great deal of money into high-risk situations hoping for a large return, they are not entrepreneurs because they’re not invested in innovations. But that’s not to say that investors and entrepreneurs are totally unrelated. In fact, they often help one another. When an entrepreneur has a great idea, they may seek funding from rivate equity investors, who can help the idea gain attention that it wouldn’t have otherwise.
When the idea becomes a big enough business, it can become a publicly traded stock through an initial public offering. If investors believe in the entrepreneur who is behind the idea and believe it can be profitable, then they can give the company more funds to work with and generate considerable buzz.
Choosing a stock based on its entrepreneur
Many stocks are eventually sold by their founder. But if you’re interested in companies that are still relatively young, it’s important to look at the entrepreneurs behind them as well. A few solid characteristics of good entrepreneurship include:
- Balancing innovation with reality: It’s great for someone to have an incredible idea, and that’s exactly what entrepreneurship is all about. Sometimes, however, entrepreneurs reach too far and end up in a place where their goals become unattainable. For example, someone might design a new type of mass market vehicle but fail to ensure there will be widely accessible ways to fuel it, thus hitting a dead end.
- Having a long-term plan: Entrepreneurs are always the “idea people” at their company, but they’re not always the best planners. For a company to really succeed, they need both innovation and long-term planning. Ask yourself: How does this entrepreneur plan to fund the business in the difficult years of research and development, and where do they see their company in 10 years?
- Delivering on promises: One of the strongest traits of an entrepreneur is the ability to see what others cannot. Sometimes, though, this leads to problems. Entrepreneurs may firmly believe that their vision is sound, but if they have a history of entering the innovation cycle again and again without delivering on their promises, they may not be the best investment.
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