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A Look at Theory
Written by: N Nayab Edited by: Rebecca Scudder Updated Aug 27, 2011 People use the terms "entrepreneur" and "entrepreneurship" interchangeably. The entrepreneur is the person who starts his own business. The exact definition of "entrepreneurship" still remains a vague concept, though various entrepreneurship theories have defined the concept.
Richard Cantillon (1680-1734) was the first of the major economic thinkers to define the entrepreneur as an agent who buys means of production at certain prices to combine them into a new product. He classified economic agents into landowners, hirelings, and entrepreneurs, and considered the entrepreneur as the most active among these three agents, connecting the producers with customers. Jean Baptise Say (1767-1832) improved Cantillions definition by adding that the entrepreneur brings people together to build a productive item.
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Alfred Marshall in his Principles of Economics (1890) held land, labor, capital, and organization as the four factors of production, and considered entrepreneurship as the driving factor that brings these four factors together. The characteristics of a successful entrepreneur include:
thorough understanding of the industry good leadership skills foresight on demand and supply changes and the willingness to act on such risky foresights
Success of an entrepreneur however depends not on possession of these skills, but on the economic situations in which they attempt their endeavors. Many economists have modified Marshalls theory to consider the entrepreneur as the fourth factor itself instead of organization, and which coordinates the other three factors.
taxation policy industrial policy easy availability of raw materials easy access to finance on favorable terms access to information about market conditions availability of technology and infrastructure marketing opportunities
Joseph Schumpeters innovation theory of entrepreneurship (1949) holds an entrepreneur as one having three major characteristics: innovation, foresight, and creativity. Entrepreneurship takes place when the entrepreneur
creates a new product introduces a new way to make a product discovers a new market for a product finds a new source of raw material finds new way of making things or organization
Schumpeters innovation theory however ignores the entrepreneurs risk taking ability and organizational skills, and place undue importance on innovation. This theory applies to largescale businesses, but economic conditions force small entrepreneurs to imitate rather than innovate. Other economists have added a dimension to imitating and adapting to innovation. This entails successful imitation by adapting a product to a niche in a better way than the original product innovators innovation
Peter Drucker (1909-2005) holds innovation, resources, and an entrepreneurial behavior as the keys to entrepreneurship. According to him entrepreneurship involves 1. increase in value or satisfaction to the customer from the resource 2. creation of new values 3. combination of existing materials or resources in a new productive combination
References
Image Credit: 1. geograph.org.uk/Dennis Thorley under CC 2.0 license 2. flickr.com/-Xv under CC 2.0 license