What Is Entrepreneurship?

What do we mean by the term entrepreneurship?

Entrepreneurship has a wide range of meanings. On the one extreme, an entrepreneur is a person of very high aptitude (and courage) who pioneers change, possessing characteristics found in only a very small fraction of the population. On the other extreme of definitions, anyone who wants to work for himself or herself is considered to be an entrepreneur by some.

The concept of entrepreneurship has been discussed since the 1700s and the word entrepreneur originates from the French word, entreprendre, which means “to undertake.” In a business context, it means to start a business.

The Dictionary.com definitions of “entrepreneur”:

“a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.”

Thus, entrepreneurs, in the purest sense, are those who identify a need – any need – and fill it, and is independent of product, service, industry or market.

However, experts in finance and economists believe it is more than that. To some economists, an entrepreneur is one who identifies risks and is willing to bear such in a new venture provided that there is a significant chance for profit. Others believe the entrepreneur plays the role of an innovator who sells or markets his ideas. Still, others suggest that entrepreneurs continuously develop goods or processes that the market needs and are not currently and readily available.

Schumpeter’s View of Entrepreneurship

During the last century, economist Joseph Schumpeter (1883-1950) focused on how the entrepreneur’s passion and drive for innovation and improvement creates upheaval and change. Schumpeter considered entrepreneurship to be a force of “creative destruction.”

He placed an emphasis on innovation, such as:

  • new products
  • new production methods
  • new markets
  • new forms of organization

Wealth is created when such innovation results in new demand.

From this viewpoint, one can define the function of the entrepreneur as one of combining various inputs in an innovative manner to generate value to the customer with the hope that this value will exceed the cost of the input – thus generating superior returns that result in the creation of wealth.

The entrepreneur takes on “new combinations,” and, whether intentionally or not, renders old industries obsolete. Previously established ways of doing business are often destroyed by the creation of newer and more efficient methods of operationsn– as we have seen with “uberisation”.

Business expert Peter Drucker (1909-2005) expands more on this idea, he describes the entrepreneur as someone who constantly searches for change, responds to it, and takes advantage of such change as opportunities. For example, the changes in communications trends – from typewriters to personal computers to the Internet to social media – illustrates these ideas.

Many financial experts and economists today agree that entrepreneurship is a necessary ingredient for economic growth and increasing employment opportunities in all societies. In developing countries, successful small-scale businesses are the primary engine rooms of job creation, income growth, and poverty reduction/eradication. Therefore, governments need to focus more on entrepreneurship as a crucial strategy for economic development.

Policies to foster entrepreneurship are essential. Governments can provide incentives and an enabling environment that will encourage entrepreneurs to risk venturing into new business climes. Among these are laws that enforce intellectual property rights and encourages a competitive market system.

Community cultural practices also influence how much entrepreneurship there is within it. A community that accords the highest status to those at the top of hierarchical organizations or those with professional expertise may unintentionally discourage entrepreneurship. A culture or policy that accords high status to the “self-made” individual is definitely more likely to encourage rapid entrepreneurship growth.

Entrepreneurial ventures require the enterprising individual to arrange for capital, raw materials, manufacturing locations and skilled employees necessary to produce a good or offer a service. Marketing, sales and distribution are other important aspects which are controlled by the entrepreneur.

Today’s technological advancements (like online ventures) have allowed the entrepreneurs to skip a few mandatory needs (like procuring manufacturing facilities, door-to-door marketing) or selected functions which can now be outsourced to freelancers (like marketing, sales & distribution), but the risk is still borne by the entrepreneur.

Entrepreneurship is different from:

  • Inheriting and/or running an existing business (family owned, co-owned)
  • Working for other businesses or entrepreneurs for a salary
  • Being a commission agent
  • Selling already available goods or services as a franchisee or dealership

 

What are the primary differences between Small Businesses and Entrepreneurial Ventures?

Many people use the terms “entrepreneur” and “small business owner (or SME)” synonymously. While they may have much in common, there are significant differences between the entrepreneurial venture and the small business. Entrepreneurial ventures differ from small businesses in these ways:

  • Amount of wealth creation – rather than simply generating an income stream that replaces traditional employment, a successful entrepreneurial venture creates substantial wealth, whereas a SME could be a small restaurant, for example.
  • Speed of wealth creation – while a successful small business can generate significant profit over a lifetime, entrepreneurial wealth creation often is rapid; for example, within 5 years.
  • SMEs usually deal with known and established products & services, whereas Entrepreneurial Ventures are usually more innovative. For example, an Uber driver is not considered to be an entrepreneur, whereas the founders of Uber (Travis Kalanick and Garrett Camp) are.
  • Risks – Small Businesses deal with known risks; Entrepreneurial Ventures are more adventurous and often deal with unrecognized uncertainties.
  • Impact – EVs generally impact economies & communities in a significant manner, which also results in a cascading effect on other sectors like job creation. Small businesses are more limited in this perspective and remain confined to their own domain and group.
  • Innovation – entrepreneurship often involves substantial innovation beyond what a small business might exhibit. This innovation gives the venture the competitive advantage that results in wealth creation. The innovation may be in the product or service itself, or in the business processes used to deliver it.