An entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the population. In other words, anyone who wants to work for himself or herself is considered to be an entrepreneur.
The word entrepreneur originates from the French word, entreprendre, which means “to undertake.” In a business context, it means to start a business. It can also be said that an entrepreneur is one who organizes, manages, and assumes the risks of a business or enterprise.
Entrepreneurs come from all types of backgrounds and create all kinds of businesses. People of all ages choose to become entrepreneurs. Some own tiny craft shops while others own huge construction companies. Entrepreneurs try to identify unmet needs in the marketplace. Then they provide a service or product to meet those needs. When they succeed, their businesses flourish and profits are earned. But if their business idea is unsuccessful, they may lose the money they invested.
Schumpeter’s View of Entrepreneurship
Austrian economist Joseph Schumpeter ‘s definition of entrepreneurship placed an emphasis on innovation, such as:
- new products
- new production methods
- new markets
- new forms of organization
Wealth is created when such innovation results in new demand. From this viewpoint, one can define the function of the entrepreneur as one of combining various input factors in an innovative manner to generate value to the customer with the hope that this value will exceed the cost of the input factors, thus generating superior returns that result in the creation of wealth.
Entrepreneurship vs. Small Business
Many people use the terms “entrepreneur” and “small business owner” synonymously. While they may have much in common, there are significant differences between the entrepreneurial venture and the small business. Entrepreneurial ventures differ from small businesses in these ways:
- Amount of wealth creation – rather than simply generating an income stream that replaces traditional employment, a successful entrepreneurial venture creates substantial wealth, typically in excess of several million dollars of profit.
- Speed of wealth creation – while a successful small business can generate several million dollars of profit over a lifetime, entrepreneurial wealth creation often is rapid; for example, within 5 years.
- Risk – the risk of an entrepreneurial venture must be high; otherwise, with the incentive of sure profits many entrepreneurs would be pursuing the idea and the opportunity no longer would exist.
- Innovation – entrepreneurship often involves substantial innovation beyond what a small business might exhibit. This innovation gives the venture the competitive advantage that results in wealth creation. The innovation may be in the product or service itself, or in the business processes used to deliver it
Employees vs. Entrepreneurs
Entrepreneurs assume risk. This makes them different from employees, who are people who work for someone else. Both may make decisions, but only the entrepreneur is directly affected by the consequences of those decisions. Sam Jones manages a record store owned by Felipe Santiago. Sam decides to keep the store open until midnight during the week. If the additional hours bring in customers and increase profits, Sam may be praised by Felipe. He may even get a raise. However, Sam won’t directly receive any of the profits because he is an employee. The additional earnings will flow to Felipe, the owner.