What It Means
Entrepreneurship is the practice of forming a new business or commercial enterprise, usually in an industry or sector of the economy with a large capacity for growth. Entrepreneurship is generally synonymous with resourcefulness, ingenuity, and the ability to take calculated risks in order to introduce a new, untested product or service into the marketplace. These traits are often referred to collectively as the “entrepreneurial spirit.”
Entrepreneurship is driven by the entrepreneur, a person who launches and oversees the operations of a new business venture. The entrepreneur is generally self-employed, self-motivated, and ambitious and is willing to take chances to meet his or her goals. Unlike the capitalist, a businessperson who generally limits his or her role to financing commercial ventures, the entrepreneur is the driving force behind the formation of a new business and asserts a great deal of control over the key management decisions. Many entrepreneurs also assume responsibility for hiring and managing employees. Successful entrepreneurs tend to be highly skilled at organizing and motivating their employees.
In some cases the entrepreneur invents or develops a new product or service, which then forms the core of his or her new business. In other cases, however, the entrepreneur simply discovers a new way to market and sell an existing product or service. The risks undertaken by the entrepreneur are often considerable. Some entrepreneurs invest everything they own into their new enterprise, with no guarantee that the business will succeed. Other times a successful businessman will risk his reputation on a new idea, the failure of which could potentially jeopardize his entire career. Because of the high level of risk involved in entrepreneurial endeavors, the entrepreneur generally hopes to earn a high rate of return in the venture.
According to many twentieth-century economists, entrepreneurship is an indispensable aspect of capitalism. Capitalism is an economic system characterized by free markets (situations in which goods and services are bought and sold, with competition determining the prices), private or corporate ownership of the means of producing and distributing goods and services, and minimal government regulation of business practices. In a capitalist economy prosperity is driven by economic growth. Entrepreneurship helps promote such growth by continually providing the economy with new ideas that ultimately lead to more efficient and profitable business models.
When Did It Begin
While qualities of entrepreneurship have undoubtedly played an important role in business innovation since the earliest days of commerce, the concept of entrepreneurship is relatively new. According to economic historian Fritz Redlich (1892–1978), entrepreneurship first emerged in the sixteenth century, when German military officers regularly recruited mercenaries for armed expeditions throughout Europe. In Redlich’s view, these recruiters exhibited many of the qualities of the modern business entrepreneur, demonstrating a willingness to take great risks in traveling into hostile territories and embarking on dangerous military campaigns.
The word entrepreneur was first introduced by the Franco-Irish economist Richard Cantillon (1680–1734), who coined the term in his landmark work Essay on the Nature of Commerce in General. Although Cantillon wrote the book just before his death in 1734, it was not published until 1755. In the early nineteenth century French political economist Jean-Baptiste Say (1767–1832) was among the first to argue that the entrepreneur played an indispensable role in promoting economic growth.
The writings of British political economist and philosopher John Stuart Mill (1806–73) brought the word entrepreneur into popular use. Like Jean-Baptiste Say, Mill viewed the entrepreneur as a dynamic force in business innovation. Mill’s contemporaries, however, felt that the concept of entrepreneurship was at odds with classical economics (a theory asserting that economies were driven by markets rather than individuals). As a result, the importance of entrepreneurship was downplayed by most mainstream economic thinkers of Mill’s time.
More Detailed Information
In modern capitalism, entrepreneurship found its most fertile breeding ground in nineteenth-century America. A number of significant factors contributed to the emergence of the entrepreneur in the early decades of the United States. For one, the American sense of national identity, rooted in qualities of personal freedom, independence, and a strong work ethic, proved highly conducive to the rise of the entrepreneurial individual. At the same time, the ready availability of raw materials in the United States, combined with the nation’s large geographical size and rapidly expanding population, provided the resources and the potential markets for long-term economic growth. Furthermore, the federal government imposed few regulations on private business and allowed liberal access to the nation’s natural resources. All of these circumstances led to the rise of enterprising, ambitious entrepreneurs who, rather than feeling overwhelmed by the challenges of building a new national economy, viewed the seemingly limitless potential for growth as an unprecedented opportunity.
One of the most important American entrepreneurs of the late nineteenth century was the Scottish-born steel magnate Andrew Carnegie (1835–1919). The epitome of the “self-made man,” Carnegie rose from humble origins to become one of the wealthiest and most powerful businessmen in America. He embodied many of the essential characteristics of the entrepreneur. Hardworking and friendly, Carnegie impressed his early employers with his dedication, intelligence, and ambition, qualities that earned him rapid advancement at an early age. He was also fiercely dedicated to self-improvement, and throughout his life he strove to educate himself on a range of subjects, from economics and business to literature and art.
In many ways, the story of Carnegie’s success is representative of the entrepreneurial ideal. At age 16 he began working as a messenger for a telegraph office and quickly earned a series of promotions, becoming superintendent of the Pittsburgh branch of the Pennsylvania Railroad Company before he was 20. Although his pay was modest, Carnegie soon began making shrewd investments, eventually earning enough capital to begin investing in larger, more lucrative businesses, such as oil and steel. By the 1870s he had purchased his first steel mill in Braddock, Pennsylvania; numerous other steel mill purchases followed, and in 1892 he formed the Carnegie Steel Company, which soon became the most profitable corporate entity in the world. In 1901 he sold his steel holdings and devoted the rest of his life to philanthropic pursuits.
By the early twentieth century economists had begun to develop more sophisticated theories of entrepreneurship. In his book The Theory of Economic Development (1912), Austrian economist Joseph Schumpeter argued that creativity, initiative, and risk taking, all key characteristics of the entrepreneurial enterprise, were essential to technological innovation and economic growth. Schumpeter’s writings proved influential, and as a result the entrepreneur took on far greater significance in twentieth-century economic theory. In his early work Schumpeter emphasized the role of the individual who possessed unternehmergeist (“entrepreneurial spirit”) in driving innovation. Later he focused on the entrepreneurial aspects of the corporation, arguing that the solitary entrepreneur was being replaced by corporate research and development departments, in which groups of individuals collaborated to develop new business ideas.
Later in the twentieth century a number of economists, notably American Frank H. Knight (1885–1972) and Austrian-born Peter Drucker (1909–2005), tried to quantify the role of innovation and risk in defining the modern entrepreneur. In Knight’s view the risk associated with entrepreneurship was primarily calculated and controlled, and the entrepreneur’s decision-making process was greatly informed both by his or her own past business experience and by close analysis of diverse business models. Knight argued that the successful entrepreneur paid careful attention to the laws of probability (the likelihood of a particular event occurring) in assessing the risk of a particular business decision. In his book Innovation and Entrepreneurship (1985), Drucker examined forms of entrepreneurship that focused less on technological advances and more on discovering new ways to market existing products and services. In Drucker’s view the quintessential entrepreneur was Ray Kroc (1902–84), the founder of McDonald’s, who transformed a single hamburger restaurant into an internationally branded chain. Drucker also asserted that the characteristics of the successful entrepreneur were not innate to the unique individual but rather were traits that most people could study and learn to adopt.
In the late twentieth century the rise of the corporation resulted, to some degree, in the diminished importance of the individual entrepreneur. Joseph Schumpeter had foreseen this shift almost a century earlier. He had predicted that the advancement of entrepreneurship, particularly its role in making corporations more systematized and efficient, would ultimately diminish the power of the individual to act with the decisiveness and boldness characteristic of the entrepreneur. Schumpeter argued that the eventual result would be corporatism, a bureaucratic system composed of diverse, politically organized groups that would assume responsibility for the management of certain sectors of the economy, while the traditional figure of the entrepreneur would be replaced by the corporate manager or director.
In the 1980s institutionalized, corporate entrepreneurship became known as “intrapreneurship.” The word was coined by Stanford economics professor Robert A. Burgelman in 1983, and it was later popularized by author Gifford Pinchot in his book Intrapreneuring: Why You Don’t Have to Leave the Corporation to Become an Entrepreneur (1985). In Pinchot’s view, successful intrapreneurship relies on the collective efforts of creative individuals working within a corporate setting.