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Definitions and Basics

    Definition: An entrepreneur is someone who starts up a business by creating a new product or service that someone else wants to buy.

    Being an entrepreneur also means being innovative or creative. You will have to have managerial skills, lots of time, and lots of energy. Once you get your great idea, you may have to produce a physical prototype to show others, or you may have to demonstrate your skill or talent on the spot. You will have to be able to work with the government, lawyers, or your parents to accomplish things like applying for a patent, hiring employees, or coordinating with your parents or spouse on matters of health insurance or rental space. You may have to be able to present your ideas, a business plan, or a prototype or working product or service to a potential investor or lender.

In the News and Examples

    Summer Fun: The Economics of the Lemonade Stand, at SocialStudiesforKids.com.
    You set up shop on a sidewalk or in front of a house or business. You have at least one pitcher of ice-cold lemonade, and you're offering it to anyone who walks by—for a very low price. You most likely got the lemonade from someone in your family, so you don't really have any costs. So, everything you make is pure profit. If you sell your lemonade for 10 cents a glass, then you need to sell only 10 glasses to make a dollar. Sell about 50 glasses and you'll have enough to see that cool new summer movie or buy that great new book or video game....

    But what about that 10 cents you're charging? Could it be more? You might charge 50 cents a glass. You might also end up like the boy in the graphic at right: He's very sad because no one is buying his lemonade. Why? He's charging too much....
    Abdallah on Hair and Running a Small Business. Podcast at EconTalk.
    Wafaya Abdallah of Oasis Hair Salon in Rockville, Maryland talks with EconTalk host Russ Roberts about the challenges and rewards of running a small business. Abdallah discusses her career path from would-be lawyer to owning her own salon with many employees and a management style that is different from the traditional one in her business. She discusses the economics of hair-cutting, how she motivates her employees to be part of the team, the openness of the salon's financial situation, the educational training she offers, and the ways she works with employees to motivate and inspire. You'll also learn how much her scissors cost.
    Bhide on Outsourcing, Uncertainty, and the Venturesome Economy. Podcast at EconTalk.
    Amar Bhidé, of Columbia University and author of The Venturesome Economy, talks with EconTalk host Russ Roberts about the role of entrepreneurship and innovation in a global economy. Bhidé argues that the worries about outsourcing and America's alleged declining leadership in technology are misplaced. He argues that the source of prosperity is not technology per se but the application of technology to actual products that improve our lives and that the American venture system and labor market are very effective at the application of technology. The end of the conversation turns to the role of uncertainty in both venture capital and entrepreneurship but also to the role of financial institutions and financial innovation.
    Rauch on the Volt, Risk, and Corporate Culture. Podcast at EconTalk.
    Jonathan Rauch, of the Brookings Institution and the Atlantic Monthly, talks with EconTalk host Russ Roberts about the evolution of the Chevy Volt, GM's planned electric car. Due to the transparency of GM's effort, Rauch was able to spend a great deal of time on site at GM writing a piece for the Atlantic Monthly on GM's plans and hopes. Rauch discusses the huge risks, GM's past failures, and GM's hopes that the Volt might change the company's culture. The conversation closes with a discussion of competitors and the implications for energy policy.
    Entrepreneurs react creatively to the changing marketplace: Virginia Postrel on Style. Podcast at EconTalk.
    Author and journalist Virginia Postrel talks about how business competes for customers using style and beauty, going beyond price and the standard measures of quality. She looks at the role of appearance in our daily lives and the change from earlier times when style and beauty were luxuries accessible only to the wealthy. She also talks about her donation of a kidney to a friend and how that affected the intensity of her feelings about the policies surrounding organ donations....
    Patents, from the Concise Encyclopedia of Economics
    The economic justification for patents is straightforward. If there were no patents, then someone who invested time and money to create an invention would not necessarily get a return on even a very valuable invention. The reason is that others could imitate his or her invention....
    Ethics in business: John Allison on Strategy, Profits, and Self-Interest. Podcast at EconTalk.
    John Allison, CEO of BB&T Bank, lays out his business philosophy arguing for the virtues of profits, self-interest and production. His definition of justice, one of the core values of his firm, is that those who produce more, get more. He argues that Bill Gates would do more for the world improving Microsoft than running his foundation and giving away money. Allison praises Atlas Shrugged and refuses to let his bank make loans to companies that use eminent domain to acquire property. Is this any way to run a company? Does Allison really run his company this way? How does he deal with the gap between his philosophy and our popular culture's view of business and profits? Listen as Allison and host Russ Roberts discuss BB&T's unusual business strategy....
    More podcasts on Entrepreneurs and Entrepreneurship

A Little History: Primary Sources and References

    Essai sur la Nature du Commerce in Général (Essay on the Nature of Trade in General), by Richard Cantillon on Econlib. Tr. by Henry Higgs.
    Intrigue, murder, posthumous plagiarism, citations by Adam Smith, rediscovery by William Stanley Jevons a century later, and a stunning work on entrepreneurial risk, money, foreign exchange, and banking from the 1700s—what more could one ask for from an 18th century economist? Richard Cantillon offers fascination for historians and economists as much in death as he did in life....

    We've left Higgs's translation intact; but note that his arcane translations of some words like "Undertaker" for "entrepreneur" obscured Cantillon's apparent coining of the word "entrepreneur"—see Mark Casson's article, Entrepreneurship, in the Concise Encyclopedia of Economics for more on this.... [Econlib Editor's Notes]
    Joseph Alois Schumpeter, biography from the Concise Encyclopedia of Economics
    Schumpeter was among the first to lay out a clear concept of entrepreneurship. He distinguished inventions from the entrepreneur's innovations. Schumpeter pointed out that entrepreneurs innovate, not just by figuring out how to use inventions, but also by introducing new means of production, new products, and new forms of organization. These innovations, he argued, take just as much skill and daring as does the process of invention....

Advanced Resources

    McCraw on Schumpeter, Innovation, and Creative Destruction. Podcast at EconTalk.
    Thomas McCraw of Harvard University talks about the ideas of Joseph Schumpeter from his book, Prophet of Innovation: Joseph Schumpeter and Creative Destruction. McCraw and EconTalk host Russ Roberts discuss innovation, business strategy, the role of mathematics in economics, and Schumpeter's vision of competition embodied in his most important idea--creative destruction.
    Risk, Uncertainty, and Profit, by Frank Knight on Econlib.
    The particular technical contribution to the theory of free enterprise which this essay purports to make is a fuller and more careful examination of the rôle of the entrepreneur or enterpriser, the recognized "central figure" of the system, and of the forces which fix the remuneration of his special function....

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