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In the 20th century, the understanding of entrepreneurship owes much to the work of
economist Joseph Schumpeter in the 1940s and other Austrian economists such as Carl
Menger, Ludwig von Mises and Friedrich von Hayek. In Schumpeter, an entrepreneur is a
person who is willing and able to convert a new idea or invention into a successful innovation.
Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to
replace in whole or in part inferior innovations across markets and industries, simultaneously
creating new products including new business models. In this way, creative destruction is
largely responsible for the dynamism of industries and long-run economic growth. The
supposition that entrepreneurship leads to economic growth is an interpretation of the
residual in endogenous growth theory and as such is hotly debated in academic economics.
An alternate, description posited by Israel Kirzner suggests that the majority of innovations
may be much more incremental improvements such as the replacement of paper with plastic
in the construction of a drinking straw.
For Schumpeter, entrepreneurship resulted in new industries but also in new combinations of
currently existing inputs. Schumpeter's initial example of this was the combination of a steam
engine and then current wagon making technologies to produce the horseless carriage. In this
case the innovation, the car, was transformational but did not require the development of a
new technology, merely the application of existing technologies in a novel manner. It did not
immediately replace the horse drawn carriage, but in time, incremental improvements which
reduced the cost and improved the technology led to the complete practical replacement of
beast drawn vehicles in modern transportation. Despite Schumpeter's early 20th-century
contributions, traditional microeconomic theory did not formally consider the entrepreneur in
its theoretical frameworks (instead assuming that resources would find each other through a
price system). In this treatment the entrepreneur was an implied but unspecified actor, but it is
consistent with the concept of the entrepreneur being the agent of x-efficiency.
Different scholars have described entrepreneurs as, among other things, baring risk. For
Schumpeter, the entrepreneur did not bare risk: the capitalist did.
For Frank H. Knight (1921) and Peter Drucker (1970) entrepreneurship is about taking risk.
The behavior of the entrepreneur reflects a kind of person willing to put his or her career and
financial security on the line and take risks in the name of an idea, spending much time as
well as capital on an uncertain venture. Knight classified three types of uncertainty.
Risk, which is measurable statistically (such as the probability of drawing a red colour
ball from a jar containing 5 red balls and 5 white balls).
Ambiguity, which is hard to measure statistically (such as the probability of drawing a
red ball from a jar containing 5 red balls but with an unknown number of white balls).
True Uncertainty or Knightian Uncertainty, which is impossible to estimate or predict
statistically (such as the probability of drawing a red ball from a jar whose number of
red balls is unknown as well as the number of other coloured balls).
The acts of entrepreneurship is often associated with true uncertainty, particularly when it
involves bringing something really novel to the world, whose market never exists. However,
even if a market already exists, there is no guarantee that a market exists for a particular new
player in the cola category.
The entrepreneur is widely regarded as an integral player in the business culture of American
life, and particularly as an engine for job creation and economic growth. Robert Sobel
published The Entrepreneurs: Explorations Within the American Business Tradition in 1974.
Zoltan Acs and David Audretsch have produced an edited volume surveying Entrepreneurship
as an academic field of research, and more than a hundred scholars around the world track
entrepreneurial activity, policy and social influences as part of the Global Entrepreneurship
Monitor (GEM) and its associated reports.
Characteristics of Entrepreneurs
1. Do what you enjoy.
What you get out of your business in the form of personal satisfaction, financial gain,
stability and enjoyment will be the sum of what you put into your business. So if you don't
enjoy what you're doing, in all likelihood it's safe to assume that will be reflected in the
success of your business--or subsequent lack of success. In fact, if you don't enjoy what
you're doing, chances are you won't succeed.
3. Plan everything.
Planning every aspect of your home business is not only a must, but also builds habits that
every home business owner should develop, implement, and maintain. The act of business
planning is so important because it requires you to analyze each business situation, research
and compile data, and make conclusions based mainly on the facts as revealed through the
research. Business planning also serves a second function, which is having your goals and
how you will achieve them, on paper. You can use the plan that you create both as map to take
you from point A to Z and as a yardstick to measure the success of each individual plan or
segment within the plan.
1. The money you receive from clients in exchange for your goods and services you
provide (income)
2. The money you spend on inventory, supplies, wages and other items required to keep
your business operating. (expenses)
Self-promotion is one of the most beneficial, yet most underutilized, marketing tools that the
majority of home business owners have at their immediate disposal.
15. Be accessible.
We're living in a time when we all expect our fast food lunch at the drive-thru window to be
ready in mere minutes, our dry cleaning to be ready for pick-up on the same day, our money
to be available at the cash machine and our pizza delivered in 30 minutes or it's free. You see
the pattern developing--you must make it as easy as you can for people to do business with
you, regardless of the home business you operate.
You must remain cognizant of the fact that few people will work hard, go out of their way, or
be inconvenienced just for the privilege of giving you their hard-earned money. The shoe is
always on the other foot. Making it easy for people to do business with you means that you
must be accessible and knowledgeable about your products and services. You must be able to
provide customers with what they want, when they want it.
The US Small Business Administration says that small businesses create two of every three
new jobs, produce 39% of the gross national product, and invent more than half the nation's
technological innovation. And this kind of statistic could be repeated in country after country
around the world. Just because you work for or run a small company doesn't mean you are
unimportant. Your contribution to your country's economy is huge.
Small Businesses Demonstrate the Essence of Political Freedom
The ability to develop and conduct your own small business is a wonderful expression of your
freedom as a citizen. You may complain about government regulations, but the fact is that
small businesses are less regulated than large firms. This gives small businesses the freedom
to focus on what is really important -- caring for customers.
I'm sure you've noticed that the larger a company grows, the harder it becomes to provide
good customer service. Just try to find the right person to help you on the phone in a huge
corporation -- it'll drive you batty. But when you ask for the owner of a small business,
chances are you'll be speaking to her or him within a few minutes. Marketers toss around
buzzwords like "Customer Relationship Management (CRM)," but it's the small business not
the megacorp that really excels at it. Small businesses know that their livelihood is based on
their customers. Small is great for customers.
Apathy doesn't breed nearly as well in small businesses as it does in big business. Small
business owners and their workers are focused and immensely proud of what they do. Small
business owners are passionate about their businesses. How many employees in bureaucratic
organizations can say the same?
In a small business, you have to excel at a lot of things to succeed. Small business owners and
their key employees are masters of dozens of disciplines and perform their intricate balancing
act like pros. So what if they wear more than one hat? Whom should we admire more -- the
corporate manager or the jack-of-all-trades small business owner, whose skill-set is sharpened
to a razor's edge, and who survives and succeeds and serves? My vote is with the latter.
Small Businesses Allow Owners the Freedom to Innovate
Small business owners learn to be risk takers and innovators. Corporate employees, on the
other hand, too often interpret their prime directive as keeping their jobs. Risk-taking can get
in the way of career-building. Innovative small businesses are prize targets of larger
corporations that often find it more cost-effective to acquire than to innovate on their own.
Large corporations can be adverse to change, while small businesses know that their ability to
make rapid decisions and implement course corrections is their key to success. In the ocean of
business, mega-corporations turn like tankers, while small businesses can zip around them
with the agility of a speedboat.
Small business is not a synonym for small earnings. In fact, many small businesses are
extremely profitable. Their advantages of leanness, maneuverability, innovation, and
customer focus mold them into steady enterprises that earn a significant return on investment
year after year after year.
Being big isn't a worthy goal. But delivering top customer service, a passion for excellence, a
willingness to dream and create, and the freedom to make timely decisions -- these are worthy
of acclaim.