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 peel back the surface, there is a conflict between different theoreticians and academicians as to what it means to have entrepreneurship or be an entrepreneur. During this essay, we will discover not only the differences in the Economic Schools of Thought centred around entrepreneurship but also how entrepreneurship has contributed to economic development. In addition, by looking at influential figures we’ll determine what’s made them an entrepreneur and see how they fit into different Schools of Thought.
It is a popular idea that the term Entrepreneur is thought to have first devised and advanced by Jean-Baptiste Say, however in his book Essai sur la Nature du Commerce en Général meaning ‘Essay on the Nature of Trade in General’, Richard Cantillon was first to introduce this term. Within the text, Cantillon writes that there is a clear split within Society of those who are fixed-income earners and those who are on a non-fixed income basis. Entrepreneurs “bare the risk of fixed costs of production and uncertain selling prices”. In addition, contrastingly 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.
Jean Baptiste Say, a French School of Thought Economist, built on the work that Cantillon had put forward. He described Entrepreneurship as the “Process of using resources intelligently to better manage uncertainty”. 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, most notably he wrote that Administration and Resource Coordination was a central theme of Entrepreneurship. They use judgements to employ, buy and find consumers. 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 Electric 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 thirds largest Information Technology company by revenue. This suggests that having the capabilities to expand and grow as a company is one of the keys to mass success.
CAN THIS RELATE TO INNOVATION RATHER THAN VISION?
Israel Kirzner (1973) offered an alternative view of Entrepreneurship – suggesting that an entrepreneur is someone who discovers previously unnoticed profit opportunities. They stay within the market until the level of competition experienced reduces the profit opportunity. This may be characterised by having the skills to execute a vision – and may offer a more succinct view regarding Entrepreneurship.
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 steps or innovation – 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 need to be three major versions before it can become a mass market product”. 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. Whilst Innovation, whether that be 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 to you that is 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 of Economics highlight that Entrepreneurship has many different traits and characteristics.
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”, within his earlier theory branded an Entrepreneur as an innovator who is able to “act with confidence beyond the range of familiar beacons”. 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 must happen, enabling the Economy to move forward. 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 iPod by Apple, it was a product that changed the face of the portable music industry. When it was first introduced, by Steve Jobs in 2001, Apple managed to bring the portable music format to the masses and, with a revolutionary 5GB hard drive, the small white player was capable of holding 1,000 songs. This is an example of Radical Innovation as it completely changed the music industry, with millions being granted access to the ever-growing music scene (with over 420 million sales between 2006 and 2014 alone). 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. This was only possible due to the products that Apple offered, the Radical Innovation, drove Steve Job’s to bring what may think impossible to the market, and for that reason Innovation as a concept must be central to entrepreneurship.
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”, 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 the viability of existing goods and processes, 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 synthase a theory that fit alongside neo-classical ideas. According to Casson, entrepreneurship is the pursuit of risky innovative projects that may contribute to the economy – efficiency and growth. How successful these ventures are depending on the information collected by the individual following by a judgement. Within the theory, Casson suggests that the entrepreneurs, especially the successful ones where good judgement has been shown, are rewards in the form of profits or salaries. 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”. 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.
Based on the Oxford English’s Definition of an Entrepreneur “The activity of setting up a business or businesses, taking on financial risks in the hope of profit” one can argue that innovation is not necessary in order 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, they will fall into the category. However, this is not to say that it makes one a successful Entrepreneur. In order to compete in a market, you need to be providing something different that is deemed more valuable than a competitor, alternatively if there is no competition in your market then you must have innovated in order to create a new industry or be providing something that others deem superior to what they may seek to create. Both things are essentially Innovation thus it must be noted 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.