From startup entrepreneur to Captain of Industry

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From startup entrepreneur to Captain of Industry

Of all the scholars of economics, Schumpeter has probably offered the greatest insight into Entrepreneurship. Schumpeter insisted that the essence of entrepreneurial activity (EA) was not simply in pulling together businesses in established ways, but in creating new combinations in all aspects of economic and business activities. These new combinations when successful could disrupt market equilibriums and generate the entrepreneurial profits.
"Many a factory in the seventeenth and eighteenth centuries was just a shed that a man was able to put up by the work of his hands, and required only the simplest equipment to work it."

Joseph A. Schumpeter

The entrepreneur in many cases, explains Schumpeter started with personal work (usually manual), plus a quite small fund from his/her initial savings, "and brains, of course". That was all that was needed to start an enterprise. Risky endeavours one might think, and correctly so. The typical dictionary definition of an entrepreneur is “one who organizes, manages, and assumes the risks of a business or enterprise.”

Entrepreneurs, typically, exhibit a risk seeking behaviour. From Cantillon to Knight, and from Schumpeter to Kahneman the entrepreneur or undertaker, is described as someone who is not risk averse and usually overoptimistic in his/her choices, skills, or assumptions. Being usually new entrants who have, as Schumpeter explains, created a new combination of underutilised resources forces them to take higher risks to bring a new product or service into the market. These actions induce the risk-seeking behaviour, and although they might pay a lot of attention to their returns, they are overconfident in addressing the risks.

It is though this optimism and will to succeed, as well as their persistent hard work and dream of better life that make the entrepreneurs entrepreneurial in the first place.
“the function of his saving is to raise him above the necessity of submitting to daily drudgery for the sake of his daily bread and to give him breathing space in order to look around, to develop his plans and to secure cooperation.”

Joseph A. Schumpeter

Even if the dream might begin in a shed with hard work and some small funding from personal savings, soon enough the would-be entrepreneur will find himself/herself in the need of extra funding to further develop their startup enterprise. It is true that one does not ordinarily go from garage-to-giant by the means of saving from a wage or salary in order to expand their business, nor by the small profits of the new business alone, but from borrowing from other people's savings. In fact, the means required in order to start an enterprise in the modern world explains Schumpeter, are typically provided by borrowing other people’s savings.

References

Schumpeter, J. A. (Joseph A. (1954) Capitalism, socialism and democracy. 4th ed. . London: Allen and Unwin Ltd.

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