TYPES OF ENTERPRISES
Professor Laura Huang
WHARTON ONLINE
Entrepreneurship
The Enterprise
Types of enterprises
Implications for your business and your lifestyle
WHARTON ONLINE
Entrepreneurship
The Enterprise
Value Creation
Create value through
its operations
Value Distribution
Reach
Allow various parties
to capture value
(founders, investors,
partners, etc.)
Reach everyone
how to reach as many
people as possible
Note: dont confuse type of enterprise with legal structure; legal structures are a different topic
to be discussed in another module
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
Six types of enterprises are the most common
High growth (aka venture-backed)
Lifestyle
Small business
By acquisition
Social focused
All have implications on
1) Business Expectations
2) Lifestyle
Large Corporate-based
WHARTON ONLINE
Entrepreneurship
The Venture-backed Startup
A high growth enterprise that delivers large returns to founders and investors
Business Implications
Getting Started: Firms are often small at birth,
but designed to become very large, very quickly
scalable startups
Typical Silicon Valley startup model
Financial: usually depends on several rounds of
Angel and/or Venture Capital investment
Growth Expectation: rapid growth
Lifestyle Implications
Personal life comes second
Must grow mentality overshadows other
concerns
Can put pressure on personal situation
Lifestyle may suffer, or may need to go
on pause
Need to be ready to give it all for
business growth
Exit: usually these firms start out with an exit
strategy, as investors want a plan to get their
money back
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
Lifestyle Business
Your desired lifestyle drives your business ambitions
Business Implications
Getting Started: Founders have clear view of end
game in terms of desired size (revenue or profit)
Financial: usually funded by the founders
themselves, friends and family, or possibly a bank
loan; probably does not involve formal private
investors (such as venture capitalists)
Lifestyle Implications
Usually has a healthy life / work balance as
the founders trade off higher growth
potential for lifestyle
May involve personal tradeoffs at
moments, or in beginning, but usually
nothing unsustainable
Growth Expectation:
grow to cover equity / debt costs
stops when founders achieve lifestyle desired
Exit: usually no formal exit; rather, founders run
business to allow desired lifestyle
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
Organic Growth Business
Running a stable and manageable operation
Business Implications
Getting started: Founders usually focused on
starting one shop and not focused on high growth
Financial: usually funded by the founders,
friends and family or possibly a bank loan; does
not usually involve formal private investors
Growth Expectation:
Lifestyle Implications
Usually has a healthy life / work balance,
although running a small business can also
be highly stressful depending on the
business and the needs of the founder
May involve long hours as the company is
usually only a handful of employees
grow to cover equity / debt costs
Typically focused on providing not on
wealth
Exit: no formal exit envisioned, founders run
business to support family, lifestyle
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
Entrepreneurship by Acquisition
Buying an existing business
Business Implications
Getting started: Founders look for an attractive
business (possibly underperforming) to buy and
run (possibly to grow or improve)
Financial:
usually founders, friends & family, bank loan
larger acquisition may have larger private
funding (Private equity)
Growth Expectation:
Growth linked with founders ambitions and
investors needs (e.g. return requirements)
Lifestyle Implications
Highly dependent on exit whether run for
cash or run for sale
If run for cash can mean that a founder
skips over initial (and possibly stressful)
startup phase
Due diligence is key - like with a house or
car, there are always things you dont know
when you buy; big question is what
skeletons are in the closet?
Exit: usually run for existing cash-flow or to
improve profitability; may sell at higher price later
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
Social Ventures
Focused on social impact; but may also have a profit mission
Business Implications
Getting started: Founders pursue growth and
profits in support of a broader social mission
Financial: usually via the founders, friends,
family, bank loan, and in some cases Angel
and/or Venture Capital investment (if the
investors sense growth potential)
Lifestyle Implications
Lifestyle implications depend heavily on
type of venture envisioned, its reach, the
funding (friends & family vs. formal
investors)
Growth Expectation: depends on founders and
investors
Exit: usually focused on achieving social
mission, rarely a formal exit envisioned unless
combining with larger socially oriented firm
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
Corporate Intrapreneurship
Jump starting new growth from within a large enterprise
Business Implications
Getting started: usually started at highest levels
of a corporation or in a skunkworks manner (i.e.
secret project of an executive)
Lifestyle Implications
Would be directly linked with internal
corporate and business unit objectives,
goals, needs, and pressures
Financial: largely funded by either the
corporation or a business unit
Growth Expectation:
Usually aimed at jumpstarting growth, entering
a new or fast-paced market that the parent can
not enter easily
Exit: purpose is to establish new growth engines
or assets for the parent company
WHARTON ONLINE
Entrepreneurship
Types of Enterprises
Type
Examples
Venture
Uber
Lifestyle
Custom pool tables
Small
Local town boot shop
Acquisition
Manufacturing plant
Social
Corporate
WHARTON ONLINE
Cotopaxi
Classic skunkworks Boeing
Entrepreneurship
Types of Enterprises
Key points:
Be aware of how the type of enterprise you pursue, the
requirements to get started, and your desired lifestyle
all mesh together
Ultimately you will need to decide what is right for you
WHARTON ONLINE
Entrepreneurship
WHARTON ONLINE
KNO W LE D GE F O R ACT IO N
Entrepreneurship
WHARTON ONLINE
Entrepreneurship
