Different Theories of the Entrepreneur
Let’s see how many you know?
‘Entrepreneur’ is a label we hear being used a lot lately. You probably have an idea of what an entrepreneur is; you might even call yourself one. But do you the know the different theories that have been developed over the years? Here’s some of them. How many do you think make sense today? Also if you think I’ve left out one that’s important be sure to leave a comment in the recommendations.
The Merchant (aka The Original Hustler)
by: Richard Cantillon (1860–1734)
The word ‘entrepreneur’ actually comes from the French word ‘entreprendre’ which means ‘to do something’; and so it’s not a coincidence that a Frenchman gave us its first meaning. The classical political economist, Richard Cantillon said the entrepreneur is someone who is ‘willing to buy at a certain price and sells at an uncertain price’. Basically he (or she… the guy was writing in the 19th century) is like a merchant that gets a profit from strategically getting more for what it takes to acquire something. Under this definition the average person on eBay is an entrepreneur if he or she can be smart about what they sell and for how much.
The Creative Disruptor (aka The Pioneer)
by: Joseph A. Schumpeter (1883–1950)
We get the romanticized idea of the entrepreneur as a disruptor from Schumpeter who said the entrepreneur is a person or group that is able to create something new and disrupt the market. To get technical, the entrepreneur causes a disturbance to market equilibria by bringing into effect some new product or a novel combination of the means of production which can exploit profits through its advantageous and differential position. Schumpeter also went on to say that the entrepreneur is more than just another player on the economic landscape but is actually the figure who drives the development of capitalism forward by opening up new channels for production. We can think of these entrepreneurs as the “crazy ones” of Apple’s ‘Think Different’ campaign, who push the human race forward from their audacity of making something new.
The Risk Taker (aka The Gambler)
by: Frank Knight (1885–1972)
Crudely speaking, companies in any advanced modern economy have a specialized division of labor where you have workers who are following directives and directors who set the course for this direction. For Frank Knight the entrepreneur is the director of economic activity, but unlike the manager who is just employed to do the job of managing, the entrepreneur is the one who bares the responsibility for the success our failure of the business. He or she takes a gamble on the uncertainty of the future of the market and therefore risks losing money or gaining profit through their efforts. We can think of today’s small business owner who wants to be their own boss. But like Spiderman, with great power comes great responsibility.
The Anticipator (aka the Value-adder)
by: Ludwig von Mises (1881–1973)
Marketing today is all about the customer, right? Well, the entrepreneur is someone who anticipates the needs of consumers and supplies them with a product or service— according to Austrian Economist, Ludwig von Mises. He argued that entrepreneurs are only successful if they happen to satisfy consumer need and make a profit. Likewise if they don’t supply the need sufficiently they lose their money. However von Mises was parochial in his view that the entrepreneur’s failure was a terrible thing. Nowadays with the Lean Startup Co. movement we have a different view of what failure means. ‘Entrepreneurial error’ today can be positive if we think of it as validated learning. But really what von Mises meant to say is that when an entrepreneur is successful they are the ones that are doing something useful for society by adding value to the customer.
The Alert Opportunist (aka The Gap Finder)
by: Israel Kirzner (1930–present)
Contrasted to the disruptor of Schumpeter, Kirzner’s entrepreneur spots and fills the gap in the market. He or she has an alertness towards unknown market opportunities. In this view the entrepreneur undergoes a process of discovery to restore equilibrium in the market by acting on their perceived notion of what product or service might satisfy present and future demand. The startup community can debate the merits between the entrepreneur as disruptor or as equilibrium-restorer till the sun goes down. What we should take from this that our definition of the entrepreneur can be different depending on the context in which it is used. Kirzner’s view applies to the approach of the startup canvas where the entrepreneur has to solve a problem. steve blank’s customer development thesis is also all about this very process of discovery for unknown business models.
The Decision-maker (aka Leader el Solo)
by: Mark Casson (1945–present)
Getting closer to present day, we have the idea of the entrepreneur as that individual (and not a group or organization) who specializes in making judgmental decisions about co-ordinating scarce resources for profit. Casson’s entrepreneur is the leader, thinker, motivator and go-getter with the human and social capital to make entrepreneurial profit happen. In other words entrepreneurs have the relevant know-how about starting a business, can rally staff beyond production and can get support from or form partnerships with significant others. This can apply to the individualist Bootstraptor or the high-rolling corporate intrapreneur that have an ability to get sh*t done. The culture question in firms today is important to this definition of the entrepreneur as the one who knows how to instill values into a startup. We can look up to Casson’s entrepreneur as that spirited figure with the gifted capacity of taking on the learnings of mistakes but keeps the ship sailing.
The entrepreneur has been defined in very different ways over a long period of time. But it’s not so much that the meaning has evolved cumulatively over this time; rather it is fair to say that new and more variations in its meaning have been developed as the function of entrepreneurship has adapted to the changing economic, social and political climate historically. Being mindful of its context-specificity and nuance we should keep testing our understanding of entrepreneurship through the following questions:
1. Does entrepreneurship pertain to an individual or can it apply to groups?
2. Is the entrepreneur a ‘disruptor’ or ‘market resolver’? (Schumpeter vs Kirzner)
3. Who has the better theory of the Entrepreneur?
Thanks for reading.
If I’ve left out a theory that you think is important please leave a comment below!