INTRODUCTION TO ENTREPRENEURSHIP

An entrepreneur is someone who organizes, manages, and assumes the risks of a business or
enterprise. An entrepreneur is an agent of change. Entrepreneurship is the process of discovering
new ways of combining resources. “The Concise Encyclopedia of Economics”
http://www.econlib.org/library/Enc/Entrepreneurship.html

EVOLUTION
A Chronological List of the Definition of 'Entrepreneur'

● 1734: Richard Cantillon: Entrepreneurs are non-fixed income earners who pay known costs
of production but earn uncertain incomes.

● 1803: Jean-Baptiste Say: An entrepreneur is an economic agent who unites all means of

production- land of one, the labour of another and the capital of yet another and thus
produces a product. By selling the product in the market he pays rent of land, wages to
labour, interest on capital and what remains is his profit. He shifts economic resources out of
an area of lower and into an area of higher productivity and greater yield.

● 1934: Schumpeter: Entrepreneurs are innovators who use a process of shattering the status
quo of the existing products and services, to set up new products, new services.

● 1961: David McClelland: An entrepreneur is a person with a high need for achievement. He

is energetic and a moderate risk taker.
● 1964: Peter Drucker: An entrepreneur searches for change, responds to it and exploits
opportunities. Innovation is a specific tool of an entrepreneur hence an effective entrepreneur
converts a source into a resource.

● 1971: Kilby: Emphasizes the role of an imitator entrepreneur who does not innovate but
imitates technologies innovated by others. Are very important in developing economies.

● 1975: Howard H. Stevenson of Harvard Business School: entrepreneurship is the pursuit of

opportunity without regard to resources currently controlled.

● 1975: Albert Shapero: Entrepreneurs take initiative, accept risk of failure and have an
internal locus of control.

● 2013: Ronald May: An Entrepreneur is someone who commercializes his or her innovation.

Richard Cantillon
Cantillon first used the word “entrepreneur.” He defined an entrepreneur as a person who pays a
certain price for a product and resells it at an uncertain price: "making decisions about obtaining
and using the resources while consequently admitting the risk of enterprise." The word first
appeared in the French dictionary entitled "Dictionnaire Universel de Commerce" compiled by
Jacques des Bruslons and published in 1723.

Joseph Schumpeter
According to Schumpeter, an entrepreneur 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 offerings across
markets and industries, simultaneously creating new products and new business models. Thus,
creative destruction is largely responsible for the dynamism of industry and long-term economic
growth. The idea 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 horsedrawn 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, bearing risk. For
Schumpeter, the entrepreneur did not bear risk: the capitalist did. Joseph A. Schumpeter (1934)
believed that the equilibrium ideal was imperfect Schumpeter (1934) demonstrated that changing
environment continuously provides new information about the optimum allocation of resources
to enhance profitability some individuals acquire the new information before others, recombine
the resources to gain an entrepreneurial profit (Schumpeter, 1934) Schumpeter of the opinion
that entrepreneurs shift the Production Possibility Carve to a higher level using innovations
(Schumpeter, 1934)

Frank Knight and Peter Drucker

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 color 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 colored balls.
The acts of entrepreneurship are 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.