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A few years ago I met a venture capitalist who tried to impress me with his entrepreneurial credentials.

“I’ve always been an entrepreneur!” he proclaimed. “After I graduated I immediately joined a little startup, named Yahoo!” He looked quite pleased with himself.

He was in his early 30’s. I thought about it a moment. “So, how many employees were there when you started?”

“Just 350 back then.” He answered smugly.

I paused. “And when did they go public? Wasn’t it around then?”

“Well, yes. Just before I joined.” Now he looked uncomfortable. Or annoyed. Either way, he seemed to think I was calling his bluff; I quickly changed the subject.

But I was astonished. Here was a guy claiming he was an entrepreneur, because 10 years earlier he had joined a public company with 350 employees. And he’s telling this to actual entrepreneurs.

Was Yahoo! a high growth company? Sure. Did he have a pivotal role in that growth? Perhaps. Was there plenty he could be proud of? I’ve no doubt. Does that make him an entrepreneur? Not a chance.

Plenty of people like to think of themselves as entrepreneurial. They like to think they are creative, resourceful, intolerant of bureaucracy, and able to get things done. And they may be; but that doesn’t make them entrepreneurs.

So what distinguishes an entrepreneur from other employees?

An entrepreneur creates businesses out of nothing. They develop a business the same way a real estate developer develops a shopping center, an artist creates a painting, a musician writes a song, a novelist writes a book, or a mother bears a child. They start with a blank slate.

The Litmus Test

Here is a simple test to help identify entrepreneurs:

  1. Did you work for the company before it had an office?
  2. Did you work for the company before it was incorporated?
  3. Did you work for the company before it had a name?
  4. Did you write a personal check to open the company’s bank account?
  5. Have you guaranteed the company’s payments with your personal assets?
  6. Do you know what a Resident Agent does, and have you ever hired one?
  7. Do you know where the Articles and Bylaws are? Did you help edit them?
  8. Have you faced personal financial ruin if the company fails–or does not succeed quickly enough?
  9. Does your career directly depend upon the success of the company?
  10. Have you found yourself dreading payday, rather than looking forward to it?
  11. Do you have stock options? (A trick question: no entrepreneur has stock options; they have stock.)

Very few entrepreneurs would ever answer “No” to more than one of these questions. A true entrepreneur has experiences that employees just don’t get. And it changes them.

Essential Characteristics

A true entrepreneur understands the greatest challenges of starting a new business. Those challenges are personal and emotional–usually unrelated to any particular business issue. And it gives them a maturity and understanding of where and how economic value is created that few other people ever really understand.

They come to realize that the success traits of an entrepreneur are not about education, or language, or gender, or field of study, or even that undefinable charisma that would make you the envy of your MBA class. In fact, many successful entrepreneurs barely know what an MBA is, let alone have one.

A true entrepreneur must be able to face the most difficult truths; the market never sugar-coats reality.

Nor are they dishonest, or lacking integrity–one of the worst myths perpetrated about entrepreneurs. To be successful, a true entrepreneur must be able to face the most difficult truths; the market never sugar-coats reality. It’s easy to hide from your own flaws in a large company–to blame your manager, your co-workers, another team, or a partner. But in the naked reality of a startup, there’s nowhere to hide and nobody else to blame. It takes a lot of integrity to face up to that and adapt.

A successful entrepreneur has a vision for a business, and is willing to bet that they can make it happen. An entrepreneur takes huge personal risks, but often doesn’t perceive their actions as risky–in large part because they are betting on themselves. They bet their time, effort, and reputation on their own success. And they believe in themselves. They are betting on their own vision and their own ability to make it happen.

By contrast, most venture capitalists have very little understanding of risk–and are not even betting their own money. And investors, employees and others are typically placing their bets on other people’s success and vision, rather than their own.

The Critics

Ironically, it is people like the man above who are quickest to judge entrepreneurs. They think they know what makes a “good” entrepreneur, when in fact they don’t really know what an entrepreneur is. And that leads to fatal mistakes. (One of the most common is thinking the entrepreneur can be easily replaced. Despite overwhelming evidence that entrepreneurs drive the long-term success of their businesses, they are often asked–or forced–to step aside, to make way for “professional” management with no true entrepreneurial experience. A more successful strategy is to surround and support the entrepreneur with complementary skills.)

Entrepreneurs drive the economy. They create the jobs for employees; they produce the returns that investors rely upon. It is their vision, creativity, and ultimately their production that pays effectively all of a nation’s taxes.

But they are often derided by others–and particularly those with little or no entrepreneurial experience. While getting started, they are constantly being told they are not big enough, established enough, or mature enough. They are constantly being compared with other companies–either past companies that failed, proving this new venture is doomed as well, or large companies that succeeded, proving this new venture cannot succeed because someone else already has a lock on the market. All this while being told that they are either too young, or too old, or not from the right school, or living in the wrong city, or studied the wrong major in college, or not a good leader… the list is endless.

Usually the single biggest challenge a true entrepreneur faces is the need to overcome the negativity of others. They must have the courage of their convictions, a strong belief in themselves, and the ability to identify when they must change course, and to do so without hesitation. Critics often think this should be easy, and that any hesitation is a character flaw of the entrepreneur. They are convinced that they would never succumb to such weakness. What they fail to realize is that they already have; there’s a reason those critics have never started companies.

A young entrepreneur’s best cheerleaders are usually older entrepreneurs, who understand the challenges of starting a new business. They understand that most of what one learns in business school can be bought. They understand that an entrepreneur’s biggest challenges are not marketing strategies, or hiring, or getting financing. Rather, they are staying positive, focused, and upbeat. And they understand the rewards for starting a new venture are both financial and emotional in nature. Yes, the business must be financially successful. But a true entrepreneur also understands the statement, “I would have paid for the experience.”

My Greatest Entrepreneurial Moment

I’ve been fortunate to work with some fantastic companies, with some great rewards. But one of my greatest moments as an entrepreneur was when I got to tell a single mother of two who had recently joined our company that she now had health insurance, and that it covered her girls. They were eight and ten years old, and this was the first time they’d ever been insured.

It was a burden she had carried their entire lives. As she realized it had been lifted, she burst into tears.

Explain that to your investors.