What is Entrepreneurship?
"What is entrepreneurship?" Typically
economists have either defined entrepreneurship in terms of either
(1) An
outcome or a phenomenon (self-employment, startups )
(2) A way of thinking or acting (creativity,
innovation, alertness, etc)
Entrepreneurship is the process of starting a business or other organization. The entrepreneur develops
a business model, acquires the
human and other required resources, and is fully responsible for its success or
failure. Entrepreneurship operates within an entrepreneurship
ecosystem.
Many
definitions of entrepreneurship can be found in the literature describing
business processes. The earliest definition of entrepreneurship, dating from
the 18th century, used it as an economic term describing the process
of bearing the risk of buying at certain prices and selling at uncertain
prices.
Broadening
the definition to include the concept of bringing together the factors of
production. This definition led others to question whether there was any unique
entrepreneurial function or whether it was simply a form of management.
Early this century, the concept of innovation
and creation was added to the definition of entrepreneur-ship. This innovation
could be process innovation, market innovation, product innovation, factor
innovation, and even organizational innovation.
Later
definitions described entrepreneurship as involving the creation of new
enterprises and that the entrepreneur is the founder.
Although entrepreneurship studies are one of the
fastest growing fields in colleges and universities around the world…
A realistic understanding of entrepreneurship has
been crowded out by neoclassical economics with its assumptions of perfect competition
and production functions, which treat the firm as acting according to a
predetermined path.
Austrian School of economics' view of heterogenous
capital goods and an active, thinking entrepreneur to establish their
definition of entrepreneurship. They explore seven different conceptions of
entrepreneurship, discussing each and how they connect entrepreneurship with
the firm
1.
Entrepreneurship as Small-Business Management
In this approach, entrepreneurship is
strictly linked with firms that qualify as small businesses "it deems
'entrepreneurial' virtually all aspects of small or new business management,
while excluding the identical tasks when performed within a large or
established business." This structural approach to entrepreneurship is one
of the weakest yet still holds influence among colleges and universities today.
2.
Entrepreneurship as Imagination or Creativity
When defined by personal, psychological
characteristics such as imagination and creativity, entrepreneurship becomes
"a specialized activity that some individuals are particularly
well-equipped to perform." Using this conception, entrepreneurship has no
observable connection to the theory of the firm. The services of
imaginative orcreative people could be purchased when necessary by the firm. This conception
leaves one wanting further explanation as well.
3.
Entrepreneurship as Innovation
This conception of entrepreneurship was
championed by economist Joseph Schumpeter. He argued the entrepreneur
introduces
"new combinations" of ideas and resources and dynamically
shakes up the economy out of its previous equilibrium state. Schumpeter called
this process "creative destruction." The entrepreneur is the source
of economic change. In this conception, entrepreneurship is only demonstrated
within the firm when it introduces new products, processes, or strategies. The
regular day-to-day operation of the firm has nothing to do with
entrepreneurship. The firm's nature and structure has no effect on the level of
entrepreneurship. Thus the connection between entrepreneur and firm is weak.
4.
Entrepreneurship as Alertness to Opportunities
This conception is most attributed to
economist Israel Kirzner. "
Opportunities" have come to be defined as
"situations in which resources can be redeployed to create value through
various forms of arbitrage." Entrepreneurs are characterized as having
special knowledge or insight that no one else has. According to the conception,
entrepreneurs only need to be aware of profit opportunities. They do not need
to own assets. Since they are merely exercising privileged knowledge, they are
neither facing uncertainty nor necessarily bearing any risk. Entrepreneurs
either earn profits or break even, but it is unclear how they suffer
losses." In this conception, entrepreneurs do not need a firm to be
entrepreneurs.
5.
Entrepreneurship as the Ability to Adjust
This is the approach of Nobel Prize–winning
economist Theodore Schultz. This approach assumes that innovation is occurring
in the economy and measures entrepreneurship by how people adjust to large
changes in the economy. Entrepreneurship is defined as "the ability to
reallocate one's resources in response to changing circumstances." Schultz
argued that entrepreneurial ability is a resource with an actual market price
and quantity. By this conception, it is not only implied but overtly asserted
that entrepreneurship could simply be purchased by firm management. Management
could purchase the services of entrepreneurs during times of great change.
Beyond that, there is no real connection between the entrepreneur and the firm.
6.
Entrepreneurship as Charismatic Leadership
7.
Entrepreneurship as Judgment
Entrepreneurship is defined as
"judgmental decision-making under conditions of uncertainty."
Judgment is defined as "decisive action about the deployment of economic
resources when outcomes cannot be predicted according to known
probabilities." In this conception, the entrepreneur is an active,
creative agent. He is not passively identifying opportunities that he is aware
of, but rather creating new opportunities by his judgment.
Decision-making
under uncertainty is the qualifying function of entrepreneurship whether it
involves imagination, creativity, and leadership or not.
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