Entrepreneurship is the creation or extraction of economic value through identification and commercialization of opportunities to deliver products or services, a process that typically requires considerable innovation, initiative, and risk-taking to establish and grow an enterprise.
The term entrepreneur () refers to an individual who creates and/or invests in one or more businesses, bearing most of the risks and enjoying most of the rewards. The process of setting up a formal business, as well as any other unconventional modes of profit creation, are considered to be entrepreneurship. The entrepreneur is often seen as an innovator, a source of new ideas, goods, services, and business procedures; however, the central focus of entrepreneurship remains the pursuit of profit.
Narrower definitions of entrepreneurship include the process of designing, launching, and operating a new business, often similar to a small business, or (per Business Dictionary) as the "capacity and willingness to develop, organize, and manage a business venture along with any of its risks to make a profit". Individuals who create these businesses are often referred to as "entrepreneurs".
In the field of economics, the term entrepreneur is used for an entity that has the ability to translate inventions or technologies into products and services. In this sense, entrepreneurship encompasses the activities of both established firms and startups.
Perspectives on entrepreneurship In the 21st century, the governments of nation states have tried to promote entrepreneurship, as well as enterprise culture, in the hope that it would improve or stimulate economic growth and competition. After the end of supply-side economics, entrepreneurship was supposed to boost the economy.
As an academic field, entrepreneurship accommodates different schools of thought. It has been studied within disciplines such as management, economics, sociology, and economic history. Some view entrepreneurship as allocated to the entrepreneur. These scholars tend to focus on what the entrepreneur does and what traits an entrepreneur has. This is sometimes referred to as the functionalistic approach to entrepreneurship. Others deviate from the individualistic perspective to turn the spotlight on the entrepreneurial process and immerse in the interplay between agency and context. This approach is sometimes referred to as the processual approach, or the contextual turn/approach to entrepreneurship.
Elements Entrepreneurship includes the creation or extraction of economic value. It is the act of being an entrepreneur, or the owner or manager of a business enterprise who, by risk and initiative, attempts to make profits. Entrepreneurs act as managers and oversee the launch and growth of an enterprise. Entrepreneurship is defined by scholar V. Ratten as:
In the early 19th century, the French economist Jean-Baptiste Say provided a broad definition of entrepreneurship, saying that it "shifts economic resources out of an area of lower and into an area of higher productivity and greater yield". Entrepreneurs create something new and unique—they change or transmute value.Say, Jean-Baptiste (1803). Traité d'économie politique. Paris.
Regardless of the firm size, big or small, it can take part in entrepreneurship opportunities. There are four criteria for becoming an entrepreneur. First, there must be opportunities or situations to recombine resources to generate profit. Second, entrepreneurship requires differences between people, such as preferential access to certain individuals or the ability to recognize information about opportunities. Third, taking on a level of risk is a necessity. Fourth, the entrepreneurial process requires the organization of people and resources.Shane, S. A. (2003). A general theory of entrepreneurship: the individual-opportunity nexus. Northampton, Massachusetts: E. Elgar.
Entrepreneurship involves creating something new with value by devoting the necessary time and effort, assuming financial and social risks, and receiving resulting monetary rewards.Hisrich, Robert D.; Peters, Michael P. (1998). Entrepreneurship. Irwin/McGraw-Hill. p. 10.
The entrepreneur is a factor in and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith in the late 17th and early 18th centuries. However, entrepreneurship was largely ignored theoretically until the late 19th and early 20th centuries and empirically until a profound resurgence in business and economics since the late 1970s.
In the 20th century, the understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. According to 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.
Extensions of Schumpeter's thesis about entrepreneurship have sought to describe the traits of an entrepreneur using various data sets and techniques. Looking at data from the Global Entrepreneurship Monitor (GEM), entrepreneurial traits specific to the Association of Southeast Asian Nations (ASEAN) are: experience in managing or owning a business, pursuit of an opportunity while being employed, and self-employment. In the decision to establish a new business, the ASEAN entrepreneur depends especially on their own long-term mental model of their enterprise, while scanning for new opportunities in the short-term. These driving characteristics allude to the presence of serial entrepreneurship in the region.
It has been argued, that 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 debated in academic economics. An alternative 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 making of drinking straws.
Entrepreneurial opportunities The exploitation of entrepreneurial opportunities may include: Developing a business plan Hiring human resources Acquiring financial and material resources Providing leadership Being responsible for both the venture's success or failure Risk aversion
The economist Joseph Schumpeter (1883–1950) saw the role of the entrepreneur in the economy as "creative destruction", Which he defined as launching innovations that simultaneously destroy old industries while ushering in new industries and approaches. For Schumpeter, the changes and "dynamic economic equilibrium brought on by the innovating entrepreneur [were] the norm of a healthy economy". While entrepreneurship is often associated with new, small, for-profit start-ups, entrepreneurial behavior can be seen in small-, medium- and large-sized firms, new and established firms and in for-profit and not-for-profit organizations, including voluntary-sector groups, charitable organizations and government.
Entrepreneurship may operate within an entrepreneurship ecosystem which often includes: Government programs and services that promote entrepreneurship and support entrepreneurs and start-ups Non-governmental organizations such as small-business associations and organizations that offer advice and mentoring to entrepreneurs (e.g. through entrepreneurship centers or websites) Small-business advocacy organizations that lobby governments for increased support for entrepreneurship programs and more small business-friendly laws and regulations Entrepreneurship resources and facilities (e.g. business incubators and seed accelerators) Entrepreneurship education and training programs offered by schools, colleges and universities Financing (e.g. bank loans, venture capital financing, angel investing and government and private foundation grants)
In the 2000s, usage of the term "entrepreneurship" expanded to include how and why some individuals (or teams) identify opportunities, evaluate them as viable, and then decide to exploit them. The term has also been used to discuss how people might use these opportunities to develop new products or services, launch new firms or industries, and create wealth. The entrepreneurial process is uncertain because opportunities can only be identified after they have been exploited.
Entrepreneurs exhibit positive biases towards finding new possibilities and seeing unmet market needs, and a tendency towards risk-taking that makes them more likely to exploit business opportunities.
History Historical usage
"Entrepreneur" (, ) is a loanword from French. The word first appeared in the French dictionary entitled compiled by Jacques des Bruslons and published in 1723. Especially in Britain, the term "adventurer" was often used to denote the same meaning. The study of entrepreneurship reaches back to the work in the late 17th and early 18th centuries of Irish-French economist Richard Cantillon, which was foundational to classical economics. Cantillon defined the term first in his , or Essay on the Nature of Trade in General, a book William Stanley Jevons considered the "cradle of political economy". Cantillon defined the term 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". Cantillon considered the entrepreneur to be a risk taker who deliberately allocates resources to exploit opportunities to maximize the financial return. Cantillon emphasized the willingness of the entrepreneur to assume the risk and to deal with uncertainty, thus he drew attention to the function of the entrepreneur and distinguished between the function of the entrepreneur and the owner who provided the money.• Landström, H. & SpringerLink 2005, Pioneers in entrepreneurship and small business research, Springer Science+Business Media, New York, N.Y.
Jean-Baptiste Say also identified entrepreneurs as a driver for economic development, emphasizing their role as one of the collecting factors of production allocating resources from less to fields that are more productive. Both Say and Cantillon belonged to French school of thought and known as the physiocrats.
Dating back to the time of the medieval guilds in Germany, a craftsperson required special permission to operate as an entrepreneur, the small proof of competence (), which restricted training of apprentices to craftspeople who held a Meister certificate. This institution was introduced in 1908 after a period of so-called freedom of trade (, introduced in 1871) in the German Reich. However, proof of competence was not required to start a business. In 1935 and in 1953, greater proof of competence was reintroduced (), which required craftspeople to obtain a Meister apprentice-training certificate before being permitted to set up a new business.
In the Ashanti Empire, successful entrepreneurs who accumulated large wealth and men as well as distinguished themselves through heroic deeds were awarded social and political recognition by being called "Abirempon" which means big men. By the eighteenth and nineteenth centuries AD, the appellation "Abirempon" had formalized and politicized to embrace those who conducted trade from which the whole state benefited. The state rewarded entrepreneurs who attained such accomplishments with Mena(elephant tail) which was the "heraldic badge"
20th century