An entrepreneur is someone who starts up a business. The business could be anything from making and selling jewelry at local fairs or on e-Bay, to opening a restaurant or food truck or tree-trimming service, to starting up an online service to help people wade through insurance options or charities, to becoming a consultant, to inventing and patenting a better mousetrap, to building a factory or buying and facilitating working with the local government on the rezoning of land to balance business versus resident concerns, to creating a whole new way to use the Internet. The key feature to being an entrepreneur is being a self-starter. The sky’s the limit.
Entrepreneurs have to have an idea about something that will sell or be of interest to others. But an idea is not enough. Entrepreneurs also have to be able to carry that idea through, hire or consult with others, conve bankers or family that the idea is worthy enough to lend to them, or saving enough in advance that they don’t have to borrow. They also have to be able to make hard decisions such as when the idea is too costly or when to change course. And they have to have the courage to take risks and to pick themselves up and start over after failure. Being an entrepreneur is not for everyone. Any child who runs a lemonade stand in the hot sun may learn that a few dollars are not a good enough reward for a long day hawking to people driving by. But the lesson learned by an entrepreneur is often that there’s a better way. Failure is the teacher of success. Often, the motivation is not just about making money, but about succeeding.
Definitions and Basics
Entrepreneurship, from the Concise Encyclopedia of Economics
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. When the market value generated by this new combination of resources is greater than the market value these resources can generate elsewhere individually or in some other combination, the entrepreneur makes a profit. An entrepreneur who takes the resources necessary to produce a pair of jeans that can be sold for thirty dollars and instead turns them into a denim backpack that sells for fifty dollars will earn a profit by increasing the value those resources create….
Experimenting with Teaching Economics: The Entrepreneur. YouTube video by Arnold Kling on EconLog. Entrepreneurs defined and discussed.
These are for my high school classes, where I teach AP statistics and AP economics…. This is the first econ lecture.
Innovation, from the Concise Encyclopedia of Economics
“Innovation”: creativity; novelty; the process of devising a new idea or thing, or improving an existing idea or thing. Although the word carries a positive connotation in American culture, innovation, like all human activities, has costs as well as benefits. These costs and benefits have preoccupied economists, political philosophers, and artists for centuries….
Creative Destruction, from the Concise Encyclopedia of Economics
Entrepreneurs introduce new products and technologies with an eye toward making themselves better off–the profit motive. New goods and services, new firms, and new industries compete with existing ones in the marketplace, taking customers by offering lower prices, better performance, new features, catchier styling, faster service, more convenient locations, higher status, more aggressive marketing, or more attractive packaging. In another seemingly contradictory aspect of creative destruction, the pursuit of self-interest ignites the progress that makes others better off.
Producers survive by streamlining production with newer and better tools that make workers more productive. Companies that no longer deliver what consumers want at competitive prices lose customers, and eventually wither and die. The market’s “invisible hand”–a phrase owing not to Schumpeter but to Adam Smith–shifts resources from declining sectors to more valuable uses as workers, inputs, and financial capital seek their highest returns….
Patents, from the Concise Encyclopedia of Economics
The economic justification for patents is straightforward. If there were no patents, then someone who invested time and money to create an invention would not necessarily get a return on even a very valuable invention. The reason is that others could imitate his or her invention….
Profit, Loss, and Discovery. YouTube video, LearnLiberty.org.
Economics professor Howie Baetjer of Towson University explains how the market process generates improvements in the human condition. In particular, he highlights how profit & loss serve to help people channel their activities in creative and socially useful directions.
In the News and Examples
Are Entrepreneurs Modern Day Heroes?, a LearnLiberty video.
Donna Matias demonstrates that entrepreneurs are not evil. Rather, they are heroes who successfully fulfill the needs of consumers.
Abdallah on Hair and Running a Small Business. Podcast at EconTalk.
Wafaya Abdallah of Oasis Hair Salon in Rockville, Maryland talks with EconTalk host Russ Roberts about the challenges and rewards of running a small business. Abdallah discusses her career path from would-be lawyer to owning her own salon with many employees and a management style that is different from the traditional one in her business. She discusses the economics of hair-cutting, how she motivates her employees to be part of the team, the openness of the salon’s financial situation, the educational training she offers, and the ways she works with employees to motivate and inspire. You’ll also learn how much her scissors cost.
Munger on Microfinance, Savings, and Poverty. Podcast at EconTalk.
Mike Munger of Duke University talks with EconTalk host Russ Roberts about microfinance. Munger argues that cultural forces make it difficult for some families to save, and the main value of microfinance is to allow a higher level of savings. Families are willing to save via microfinance even though returns can be negative. Munger argues that this counterintuitive result is possible when other means of savings are unavailable. Munger also discusses microfinance that is used for entrepreneurship and the potential role for microfinance in development.
Chris Anderson on Makers and Manufacturing. EconTalk Podcast.
Chris Anderson, author of Makers: The New Industrial Revolution, talks with EconTalk host Russ Roberts about his new book–the story of how technology is transforming the manufacturing business. Anderson argues that the plummeting prices of 3D printers and other tabletop design and manufacturing tools allows for individuals to enter manufacturing and for manufacturing to become customized in a way that was unimaginable until recently. Anderson explores how social networking interacts with this technology to create a new world of crowd-sourced design and production.
Entrepreneurs react creatively to the changing marketplace: Virginia Postrel on Style. Podcast at EconTalk.
Author and journalist Virginia Postrel talks about how business competes for customers using style and beauty, going beyond price and the standard measures of quality. She looks at the role of appearance in our daily lives and the change from earlier times when style and beauty were luxuries accessible only to the wealthy. She also talks about her donation of a kidney to a friend and how that affected the intensity of her feelings about the policies surrounding organ donations….
The Vanishing Entrepreneur, a LearnLiberty video.
Law professor Donna Matias knows how difficult it can be to start a new business. In her work as director of a legal clinic at the University of San Diego School of Law, she helps low- and moderate-income entrepreneurs navigate the legal hurdles they encounter. She tells the story of one client who wanted to operate a transportation service, and faced a mountain of challenges as a result.
Do you want to live in the world of Atlas Shrugged?, a LearnLiberty video.
In this video, Prof. Jennifer Burns shows how Rand’s plot and characters demonstrate classical liberal themes, principally through innovative entrepreneurs who are stifled by laws and regulations instituted by their competitors.
Tabarrok on Innovation. EconTalk Podcast.
Alex Tabarrok of George Mason University talks with EconTalk host Russ Roberts about his new book, Launching the Innovation Renaissance.Tabarrok argues that innovation in the United States is being held back by patent law, the legal system, and immigration policies. He then suggests how these might be improved to create a better climate for innovation that would lead to higher productivity and a higher standard of living.
Bhide on Outsourcing, Uncertainty, and the Venturesome Economy. Podcast at EconTalk.
Amar Bhidé, of Columbia University and author of The Venturesome Economy, talks with EconTalk host Russ Roberts about the role of entrepreneurship and innovation in a global economy. Bhidé argues that the worries about outsourcing and America’s alleged declining leadership in technology are misplaced. He argues that the source of prosperity is not technology per se but the application of technology to actual products that improve our lives and that the American venture system and labor market are very effective at the application of technology. The end of the conversation turns to the role of uncertainty in both venture capital and entrepreneurship but also to the role of financial institutions and financial innovation.
Ethics in business: John Allison on Strategy, Profits, and Self-Interest. Podcast at EconTalk.
John Allison, CEO of BB&T Bank, lays out his business philosophy arguing for the virtues of profits, self-interest and production. His definition of justice, one of the core values of his firm, is that those who produce more, get more. He argues that Bill Gates would do more for the world improving Microsoft than running his foundation and giving away money. Allison praises Atlas Shrugged and refuses to let his bank make loans to companies that use eminent domain to acquire property. Is this any way to run a company? Does Allison really run his company this way? How does he deal with the gap between his philosophy and our popular culture’s view of business and profits? Listen as Allison and host Russ Roberts discuss BB&T’s unusual business strategy….
Farmers as entrepreneurs: Lisa Turner on Organic Farming. EconTalk Podcast, December 2012.
Lisa Turner of Laughing Stock Farm talks with EconTalk host Russ Roberts about life as a small organic farmer. She describes her working day, the challenges of farming, the role of the U.S. Department of Agriculture in her life and what some job applicants who want to work on her farm need to understand about business.
More podcast episodes on Entrepreneurs and Entrepreneurship
A Little History: Primary Sources and References
Essai sur la Nature du Commerce in Général (Essay on the Nature of Trade in General), by Richard Cantillon on Econlib. Tr. by Henry Higgs.
Intrigue, murder, posthumous plagiarism, citations by Adam Smith, rediscovery by William Stanley Jevons a century later, and a stunning work on entrepreneurial risk, money, foreign exchange, and banking from the 1700s—what more could one ask for from an 18th century economist? Richard Cantillon offers fascination for historians and economists as much in death as he did in life….
We’ve left Higgs’s translation intact; but note that his arcane translations of some words like “Undertaker” for “entrepreneur” obscured Cantillon’s apparent coining of the word “entrepreneur”—see Mark Casson’s article, Entrepreneurship, in the Concise Encyclopedia of Economics for more on this…. [Econlib Editor’s Notes]
Joseph Alois Schumpeter, biography from the Concise Encyclopedia of Economics
Schumpeter was among the first to lay out a clear concept of entrepreneurship. He distinguished inventions from the entrepreneur’s innovations. Schumpeter pointed out that entrepreneurs innovate, not just by figuring out how to use inventions, but also by introducing new means of production, new products, and new forms of organization. These innovations, he argued, take just as much skill and daring as does the process of invention….
McCraw on Schumpeter, Innovation, and Creative Destruction. Podcast at EconTalk.
Thomas McCraw of Harvard University talks about the ideas of Joseph Schumpeter from his book, Prophet of Innovation: Joseph Schumpeter and Creative Destruction. McCraw and EconTalk host Russ Roberts discuss innovation, business strategy, the role of mathematics in economics, and Schumpeter’s vision of competition embodied in his most important idea–creative destruction.
Risk, Uncertainty, and Profit, by Frank Knight on Econlib.
The particular technical contribution to the theory of free enterprise which this essay purports to make is a fuller and more careful examination of the rôle of the entrepreneur or enterpriser, the recognized “central figure” of the system, and of the forces which fix the remuneration of his special function….