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. 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.

This comparison is possible because in competitive resource markets, an entrepreneur’s costs of

production are determined by the prices required to bid the necessary resources away from
alternative uses. Those prices will be equal to the value that the resources could create in their
next-best alternate uses. Because the price of purchasing resources measures this OPPORTUNITY
COST— the value of the forgone alternatives—the profit entrepreneurs make reflects the amount
by which they have increased the value generated by the resources under their control.

Entrepreneurs who make a loss, however, have reduced the value created by the resources under
their control; that is, those resources could have produced more value elsewhere. Losses mean
that an entrepreneur has essentially turned a fifty-dollar denim backpack into a thirty-dollar pair
of jeans. This error in judgment is part of the entrepreneurial learning, or discovery, process vital
to the efficient operation of markets.

The profit-and-loss system of CAPITALISM helps to quickly sort through the many new resource
combinations entrepreneurs discover. A vibrant, growing economy depends on the EFFICIENCY of
the process by which new ideas are quickly discovered, acted on, and labeled as successes or
failures. Just as important as identifying successes is making sure that failures are quickly
extinguished, freeing poorly used resources to go elsewhere. This is the positive side of business
failure.

Successful entrepreneurs expand the size of the economic pie for everyone.

The role of the entrepreneur in creating value by moving resources out of less productive areas
and into more productive ones. Entrepreneur refers to a person who assumes both the risk and
the management of a business.

This uncertainty has led to the terms “lifestyle” entrepreneur and “gazelle” (or “high growth”)
entrepreneur. Lifestyle entrepreneurs open their own businesses primarily for the nonmonetary
benefits associated with being their own bosses and setting their own schedules. Gazelle
entrepreneurs often move from one start-up business to another, with a well-defined growth plan
and exit strategy.

The Four Types of Entrepreneurship

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1. Small Business Entrepreneurship

Travel agents, internet commerce storefronts, carpenters, plumbers, electricians, etc. They are
anyone who runs his/her own business. They hire local employees or family. Most are barely
profitable. Their definition of success is to feed the family and make a profit, not to take over an
industry or build a $100 million business. As they can’t provide the scale to attract venture
capital, they fund their businesses via friends/family or small business loans.

2. Scalable Startup Entrepreneurship

These entrepreneurs start a company knowing from day one that their vision could change the
world. They attract investment from equally crazy financial investors – venture capitalists. They
hire the best and the brightest. Their job is to search for a repeatable and scalable business
model. When they find it, their focus on scale requires even more venture capital to fuel rapid
expansion.

Scalable startups in innovation clusters (Silicon Valley, Shanghai, New York, Bangalore, Israel,
etc.) make up a small percentage of entrepreneurs and startups but because of the outsize returns,
attract almost all the risk capital (and press.) Startup America was focussed on this segment of
startups.

3. Large Company Entrepreneurship

Large companies have finite life cycles. Most grow through sustaining innovation, offering new
products that are variants around their core products. Changes in customer tastes, new
technologies, legislation, new competitors, etc. can create pressure for more disruptive
innovation – requiring large companies to create entirely new products sold into new customers
in new markets. Existing companies do this by either acquiring innovative companies or
attempting to build a disruptive product inside. Ironically, large company size and culture make
disruptive innovation extremely difficult to execute.

4. Social Entrepreneurship
Social entrepreneurs are innovators focus on creating products and services that solve
social needs and problems. But unlike scalable startups their goal is to make the world a
better place, not to take market share or to create to wealth for the founders. They may be
nonprofit, for-profit, or hybrid. Resource type

The importance of Entrepreneurship

Entrepreneurs create demand
 Entrepreneurs create businesses that hire people

Their businesses require a number of hands to help them translate their vision into reality. It all
starts of with one persons’ vision that turns into a shared vision for the rest of his/her team.

 Entrepreneurs pay taxes

The tax paid by entrepreneurs further contributes to the state income that is used to contribute to
facilitating state services, i.e. Health Care.

 Entrepreneurs create demand for products which in turn creates jobs for other
businesses

Buying raw materials for their businesses will in return create other businesses and more jobs
will be created as well.

 Entrepreneurs introduce new technologies in the market

There is always a fresh angle and a new way of doing things / providing services. They create
new products and provide new services to the market.

 Entrepreneurs stimulate the economy by instilling confidence in people

Entrepreneurs, through the jobs and businesses they create, are vital to the GDP equation.

Therefore people in society need to switch from the mentality of classifying the small business
sector as a separate small entity, when in fact it is the core foundation for big businesses and our
economy.