All,
A few weeks ago Franz Lohrke posted a "Definition" of Entrepreneurship.
I strongly disagree with his definition and suggest the following instead.
Franz Lohrke’s Entrepreneurship Definition was as follows
If fortune favors the bold, luck happens when preparation meets opportunity,
and entrepreneurship occurs when enterprising individuals find valuable
opportunities, then fortunate (or lucky) entrepreneurs, who build valuable
enterprises, are often those individuals, who are both bold and prepared.
My Observations on Lohrke’s Definition of Entrepreneurship are as follows.
There is no need to include “fortune” or “luck” or even “preparedness” in
any definition of entrepreneurship. However, as David Birch’s pioneering
research [Job Creation in America. New York: Free Press.1987] clearly
demonstrated, during the mid-20th Century the vast majority (>80%) of all
new jobs in the U.S. were created by what he (Birch) called “gazelles”,
i.e., high growth new ventures. [Note: Birch’s later works extended these
findings to most developed economies] And, since the primary goal of
Entrepreneurship is to create such high growth new ventures (not small
businesses that will remain small), leaving job creation out of any definition
of entrepreneurship is an oversight of the first magnitude, i.e., it is
such a major oversight as to make any definition of Entrepreneurship that
excludes job creation essentially worthless.
I suggest the following Entrepreneurship Definition instead.
Entrepreneurship occurs when an individual (or team) identifies an opportunity
to create value for their customers and themselves by providing products (or
services) that satisfy previously unmet customer needs; and in the process
of doing so build new organizations that create jobs for their employees and
value for their suppliers.
I also offer some additional observations on the Definition of Entrepreneurship
From an economic perspective, we are living in the greatest period in human
history. Today, the average annual income and personal wealth of people around
the world is higher than at any other time in human history. Why? It’s because
of the progress of business around the world. More specifically, it’s because
business is the primary organ of society that drives innovation (the creation
of new products and services) and productivity (the production of existing
products and services more effectively, efficiently, and economically). In this
context, existing businesses are, in general, the primary drivers of productivity.
For instance, the average cost of an inexpensive new car today, such as a Ford
Focus Sedan, is just over $16,000 U.S. By contrast, the average cost of the
initial 1908 Model T Ford adjusted for inflation was about $40,000 in today’s
dollars. And that Model T did not have any of the safety features now mandated
by federal law. Nor did the Model T have today’s fuel efficient engines, power
steering, air conditioning, and myriad other features that most of us now consider
necessities for a new car. And, this example could be repeated for most other
existing products and services, such as food, housing, radio, television, etc.,
etc. In short, the myriad productivity advances made by existing businesses
have enabled most members of our society to enjoy a better standard of living
than at any other previous period in human history. By contrast, new ventures,
in general, are responsible for introducing most new products and services to
our society. Apple, Facebook, Google, Microsoft, and Twitter are just a few of
the thousands of new companies that have introduced such new products to today’s
society over the past half century.
This dichotomy between the roles of existing and new businesses can be better
appreciated by examining the examining the employment demographics of various
groups of individuals in society. In ancient Egypt, there were only about six
major groups of “employees”: (1) The Political Leaders [Pharaohs]; (2) The
Religious Leaders [High Priests]; (3) The Military Leaders and Soldiers; (4)
The Farmers who produced the food; (5) Those who produced clothing, weapons,
jewelry, and all of the other products available in ancient Egypt, and (6)
Merchants [Who traded these goods and services]. At that time, over 70% of the
total population was engaged in farming. By the end of World War II, only about
7% of the total U.S. population was engaged in farming, and today that number
has decreased to less than 3%. The most significant aspect of this statistical
comparison is the fact that such reductions in the percentage of any society’s
population employed in any business activity associated with that society MUST
decrease over time. Why? Because, if this does not happen, there will be no
one available to produce the various new products and services that are invented
and brought to market by entrepreneurs. Put differently, for Apple, Facebook,
Google, Microsoft, and Twitter and all other new ventures to grow, the number
of people employed in auto production, farming, and making and selling all
other existing products and services must decrease.
Franz Lohrke’s definition of Entrepreneurship totally overlooks this second
reality of the entrepreneurship process, namely that entrepreneurship not only
involves the creation of new products and services, it also involves the creation
of the new jobs that are associated with the production of these new products and
services. The key point here is that existing businesses must (1) improve the
overall quality and effectiveness of the existing products and services they make,
and (2) make these existing products and services at lower prices and costs [from
a constant dollar perspective] in order to grow and prosper, which in turn means
that they must make these existing products and services with fewer employees. Put
differently, if entrepreneurs did not create new products and services, which by
necessity involves the creation of new jobs to produce these new products and
services, there would be an increasing percentage of our population that would be
unemployed. In short, any definition of entrepreneurship that does not include
entrepreneurship’s role in job creation is not worth the paper it’s printed on.
The Role of Innovation & Productivity in Human Economic Progress
According to Peter Drucker, the basic purpose of business is to create a customer.
If so, then Innovation and Productivity are the two basic functions of business
because
1. Business is the organ of society charged with the creation of economic growth
2. Innovation & Productivity are the two engines that drive all economic growth
3. Therefore, Innovation & Productivity are the two basic functions of all business!
Respectfully,
Dr. Charles Hofer
770-455-4280 Cell 1
770-757-3575 Cell 2
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