Entrepreneurship, of entrepreneurship and what it means to

Entrepreneurship, as a commonly accepted concept, is
something that has been widely known about for generations, after first being
introduced by Richard Cantillon in 1730. However, when we start to analyse the
concept in more detail, we find there are many different definitions of
entrepreneurship and what it means to be an entrepreneur. During this essay, we
will review the differences in the Economic schools of thought centred around
entrepreneurship and also how entrepreneurship has contributed to economic
development. In addition, by looking at influential figures, we’ll discuss
whether innovation is central to entrepreneurship and review how they fit into
different schools of thought.

 

It is widely thought that the term entrepreneur was first
introduced and used by Jean-Baptiste Say in 1803, however in his book Essai sur la Nature du Commerce en Général
(‘Essay on the Nature of Trade in General’) in 1755, Richard Cantillon was
the first person to introduce this term.

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Within the text, Cantillon writes that there is a clear
split within society of those who are fixed-income earners working for others
on some form of salary and those who are not. The latter, called entrepreneurs
were said to “bear the risk of fixed
costs of production and uncertain selling prices” (Rothbard, 2006, p. 351) implying that unlike
those who work for others, entrepreneurs are greater financial risk takers and
are likely to be owners of, or investors in, businesses. In addition,
contrasting to later theories of entrepreneurship, which will be discussed
later, Cantillon suggested that entrepreneurs brought equilibrium by being able
to correctly predict different consumer preferences.

 

This suggests that to have entrepreneurship one must be
willing to take a financial risk in order to gain profit. There are many
examples of this, with investment being seen as a risk to take with a start-up
company.  For example, in its first
conception, in 2004, Peter Thiel invested over $500,000 into Facebook. This was
seen as a huge financial risk due to the relatively new industry that Facebook
was entering. In 2012, he sold the remaining 20 million, out of 44 million
shares, cashing out just over $1 billion (Cowley, 2012).

 

Jean Baptiste Say, a French school of thought economist,
built upon the work of Cantillon.  He
described entrepreneurship in the following way. “The entrepreneur shifts economic resources out of an area of lower
productivity and into an area of higher productivity and greater yield” (Extra, 2009). He argues that
merely creating a better supply does not guarantee an increased demand level –
especially if you bring things to the market that no one values.

Say looked at different characteristics of an entrepreneur,
and most notably wrote that administration and resource coordination were key
skills for entrepreneurs and that they use sound judgement to “buy materials, collect labourers and find
consumers” (Robert F. Hébert, 1888, p. 38). The French school
of thought suggests that management and resource acquisition take priority over
innovation.

With its factor of production management and coordination,
Amazon is the front-runner in the e-commerce industry and shows how Say’s
theory of entrepreneurship works in practice. With an intense management
structure and high productivity with regards to its allocation of goods and
service, Amazon is the fourth most valuable public company in the world (Encyclopedia, 2017). This suggests that
using resources efficiently and intelligently is central to entrepreneurial
success.

 

Joseph Alois Schumpeter (1934), classed as the
German-Austrian school of thought, went against existing views surrounding
entrepreneurship as being a risk-bearer and a manager of a company – instead
choosing to describe an entrepreneur as someone who tried to destroy
commonality within a market, by introducing a game-changing product or service
to an industry – characterised by Radical Innovation. Schumpeter derived this
idea from Marxist thought suggesting that it was the innovative entry by
entrepreneurs that caused and sustained economic growth, acting as a disruptive
force, even if that meant extinguishing the value of already established firms.
The suggested idea of radical innovation in a market causes cycles of “creative destruction” (Schumpeter,
1994, p. 83),
within his earlier theory branded an entrepreneur as an innovator who is able
to “act with confidence beyond the range
of familiar beacons” (Schumpeter, 1994, p. 132). In short, this
suggests that entrepreneurs are way-makers who drive the economy forward, they
push passed familiarity. In order to go beyond the status quo, one may suggest
that innovation is an essential driver of economic growth.

 

This form of innovation can benefit the original status quo,
for example when steam-powered ships were first introduced to the market,
sailing ships developed more in the next 50 years than they had in the previous
300 years. This concept could also be categorised as non-acceptance and
emphasises that many markets fight back trying to stop radical innovation from
destroying normality. However, the market will eventually adapt, causing the
new improvements in the market to take over.

 

One example of a piece of radical innovation was the Apple
iPod in 2001. It was a product that changed the face of the portable music
industry allowing millions of consumers access to the ever-growing music scene
(with over 420 million sales between 2006 and 2014 alone (Statista, 2014)). Steve Jobs was hailed as being one of
the greatest modern-day entrepreneurs, with his ruthlessness and immense
clarity about what he sought to achieve.

 

Israel Kirzner (1973) offered a slightly different view of
innovation in entrepreneurship – suggesting that an entrepreneur is someone who
discovers previously unnoticed profit opportunities, rather than someone who
purely innovates. They stay within the market until the level of competition
experienced reduces the profit opportunity. This idea contrasts with other
Economist’s views suggesting that it is the ability to see a gap in the market
and execute a vision in order to maximise profit. In addition, he also stated
that alertness was fundamental to entrepreneurship, allowing an individual to
react to market changes quickly. Within the market, however, there is
asymmetric information, therefore, the level of knowledge an individual has
will dictate the “detection and
exploitation of opportunities” (Lechner, 2016).

 

Amazon can also be described as entrepreneurship through
innovation as, without the idea for an e-commerce site, Amazon would not have
been created. However, without the production management and coordination, it
would not have been as successful. Therefore, innovation was the initial
entrepreneurial step, but, resource management has ensured its long-term
success.

 

One of the greatest entrepreneurs of the 21st Century is
Elon Musk – founder of SpaceX and Tesla, Inc. Tesla, Inc has a large vision of
changing the whole automobile industry with the introduction of electric cars,
a radical worldwide change. Elon started with a small start-up company and
recognised that in order to change the way that people drive, there needed to
be incremental innovation steps – which he highlighted during the Model 3
unveiling conference in 2016.

 

Elon, during a TED talk interview, stated that he believed
that “when introducing a new technology
there needs to be three major versions before it can become a mass market
product” (Talks, 2013).
Firstly, to introduce the world to the electric car, Tesla produced a high cost
low volume car, in their second stage two midrange and mid volume cars were
brought to market, these incremental steps were designed to slowly introduce a
new element to the industry – a luxury electric car, as well as raising funds
and capital for their final step. The final stage is to introduce a low-cost
high-volume car, the Tesla Model 3. What this shows is that one of the main
concepts that are fundamental to entrepreneurship is a vision, not only a
vision but a plan to carry out that vision (Tesla, 2016).

Whilst innovation, whether radical or incremental, is part
of this vision and helps to build substance, it is the awareness to understand
the market or industry and see the opportunities that present themselves that
are fundamental to entrepreneurship. Of course, what Tesla is creating is
innovative, what is more impressive is how they are bringing it to market.
Anyone can have or be given a good idea; however, it takes a clinical
implementation of a structured plan to bring those ideas to market.

 

Many Economic theories highlight that entrepreneurship has
many different traits and characteristics, one central idea is innovation, can
be split into two forms: radical and incremental.

In his introduction to the book Capitalism, Socialism and
Democracy by Joseph Schumpeter Richard Swedberg, a Swedish Sociologist states
that Schumpeter “argued that economic
life always starts with the actions of a forceful individual and leads to the
rest of the economy” (Schumpeter, 1994, p. xi), suggesting that
there is a knock-on effect to the rest of the economy due to Radical
Innovation. Interestingly, there are other Economists who agree with
Schumpeter’s idea; Cheah (1990), suggested that Radical Innovation can lead on
to Incremental Innovation, the innovation discussed early by Kirzner. The
abolishment of the status quo enables other, arguably lesser, Innovation to
occur in incremental steps. Even though the new ventures threaten “continued viability of existing
products/processes” (Paul Westhead, 2013), it stimulates the
introduction of new entrepreneurs of a range of new processes and developments
complementary to the original endeavour.

 

Mark Casson, a British economist and academic, drew on
different theories regarding entrepreneurship, including those of Joseph
Schumpeter’s theory of innovation and Israel Kirzner’s theory of
opportunity-seeking, in order to develop a theory that fitted alongside
neo-classical ideas. His theory is very similar to that of Richard Cantillon
and states that entrepreneurship is the pursuit of risky innovative projects
that may contribute to the economy – efficiency and growth. How successful
these ventures are, will depend on drive of the entrepreneur and their
perceived future rewards such as salaries or profits. Contrastingly to
Schumpeter’s views, Casson sees entrepreneurs as risk bearers in the economy.
This mainstream School of Thought is one that is arguably most fits with the modern-day
definition of an entrepreneur. The Oxford English dictionary describes
entrepreneurship as the “The activity of
setting up a business or businesses, taking on financial risks in the hope of
profit” (Dictionaries, 2017). Those entrepreneurs who are confident
in the judgement being made will commit their own funds – or use the funds of
another – being optimistic of being rewarded.

 

If one only used the Oxford English’s Definition of an
entrepreneur then one could argue that innovation is not necessary to be
classed as an entrepreneur as long as an individual is taking a financial risk,
such as spending money to start up a business.

However, taking into account the various schools of thought
if an individual is only investing money in someone else’s innovative idea and
not contributing in any other way to the business they cannot be classed as a
true entrepreneur, although they are taking a financial or opportunity risk –
as they are foregoing the benefit of using their investment somewhere else.

 

Using Cantillon’s theory allows anyone who invests in a
company to classed as an entrepreneur, whilst more recent theories place more
emphasis on the role of innovation rather than purely financial risk. It is
possible to take financial risk without being an entrepreneur however it is not
possible to innovate without being classed as an entrepreneur.

The various schools of thought all suggest that an
entrepreneur is someone who develops something new, different or deemed more
valuable than a competitor or is providing something that others deem superior.
Both of these suggestions are a form of Innovation thus it must be stated that
Innovation is central to successful entrepreneurship.

 

To conclude, based on the analysis of different Economic
Theories and by looking at the traits of successful entrepreneurs, it must be
concluded that Innovation is a central aspect of entrepreneurship, the two
terms are links as it is the implementation of entrepreneurial behaviour that
allows innovation to take place. Whilst, it is clear that one does not need to
innovate in order to be classed fit into the definition of an entrepreneur, it
must be noted that it doesn’t guarantee success. A key theme throughout the
theories looked at is Casson’s idea of “reward”;
combining this with Schumpeter and Kirzner’s ideas on Innovation it may be
concluded that successful innovation, whether it be incremental or radical,
that leads to reward is the key theme to entrepreneurship.