“The fundamental impulse that keeps the capital engine in motion comes from the new consumers’ goods, the new methods of production and transportation, the new markets … [The process] incessantly revolutionizes from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact of capitalism.” ~ Joseph Schumpeter
Entrepreneurship is central to the American identity. The American experiment itself is a profound entrepreneurial undertaking, grounded in the frontier spirit of freedom, adventure, and self-reliance, and a commitment to democratic values of fairness and cooperation. Entrepreneurs, past and present, play a prominent role in our popular culture, and the ability to strike out on one’s own is woven into our nation’s social fabric.
Indeed, entrepreneurship seems to be everywhere, but what is it exactly?
Entrepreneurship is an elusive concept to pin down. Despite widespread interest in the topic and a broad recognition of its importance to the economy, there remains a lack of consensus about how to specifically define entrepreneurship. ‘Entrepreneur’ is an English derivation of the French word ‘entreprendre’ (to undertake), leaving wide latitude for interpretation and application.
This ambiguity is reflected in modern conceptions of entrepreneurship. Some define it statically, as small business owners or the self-employed, while others narrow it to firms that employ people. Others still follow the “Schumpeterian” dynamic view, or the creation of something new or improved to seize on a commercial opportunity – especially those innovations of product or process that are substanially different, and the growth-oriented businesses that are organized around them.
Similarly, the study of entrepreneurship covers a wide range of domains, including economics (incentives, markets), management (opportunity, process), sociology (influence, norms), psychology (motivation, biases), anthropology (history, culture), geography (co-location, regionalism), and law (contracts, firm structure). This span of disciplines reveals that the study of entrepreneurship covers both processes and states of being, firms and individuals, internal organization and external environment, market motivations and extra-rational behavior, and temporal or lifecycle dimensions. In other words, entrepreneurship is a complex phenomenon.
Our preferred definition of entrepreneurship and related concepts encompass these elements in both scope and domain:
- Entrepreneurship is the process by which individuals or a group of individuals (entrepreneurs) exploit a commercial opportunity, either by bringing a new product or process to the market, or by substantially improving an existing good, service, or method of production. This process is generally organized through a new organization (a start-up company), but may also occur in an established small business that undergoes a significant change in product or strategy (see below on growth).
- An entrepreneur is a person who organizes the means of production to engage in entrepreneurship, often under considerable uncertainty and financial risk. Entrepreneurs may partner with other entrepreneurs to jointly found companies (co-founders), or with an existing organization (e.g., corporate or university spin-outs).
- A start-up company is a business organization that is formed by an entrepreneur or a group of entrepreneurs, which is used to coordinate the process of entrepreneurship under a common ownership structure.
- A defining characteristic of start-ups is growth – either as a stated business objective or as the result of its success. Fundamentally, what differentiates entrepreneurial ventures from small businesses, and entrepreneurs from small business owners, is a desire or ability to grow – for entrepreneurs, growth is the primary objective, not to be one’s own boss or other non-pecuniary factors.
- A second basic feature of start ups is that they are temporary – the stage of “starting up” is one of potentially many in a company’s lifecycle (e.g., sustained existence, an acquisition or public offering, decline, or closure), and thus must end. The study and policy priorities of entrepreneurship, entrepreneurs, and start-ups, then, are concerned with the process of establishing and developing growth-oriented companies in their early, formative years.
In sum, entrepreneurship is the process of starting and developing a company, with the aim of delivering something new or improved to the market, or by organizing the means of production in a superior way. This process is principally organized through the formation of a start-up company, is managed by entrepreneurs, often under considerable personal and financial risk, and is temporary in duration, as a phase in a business’s lifecycle. A key distinction between start-ups and other small or young businesses is an aspiration (realized or not) to substantially grow. As companies mature out of the start-up phase, they evolve into sustainable businesses, are acquired or sold to public investors, or decay and may eventually shut down, as new companies start-up and take their place.
“Entrepreneurship: A Survey of the Literature,” David Audretsch, European Commission, 2003.
“A Tale of Two Entrepreneurs: Understanding Differences in the Types of Entrepreneurship in the Economy,” Bill Aulet and Fiona Murray, Kauffman Foundation, 2013.
“Why Washington Has It Wrong on Small Business,” Aaron Chatterji, The Wall Street Journal, 2012.
“Entrepreneurship: A Working Definition,” Thomas Eisenmann, Harvard Business Review, 2013.
“The Divide Between Subsistence and Transformational Entrepreneurship,” in Joshua Lerner and Scott Stern (Eds.), Innovation Policy and the Economy, Volume 10.