Introduction to Entrepreneurship

Topics: Entrepreneurship, Joseph Schumpeter, Economics Pages: 19 (6080 words) Published: April 28, 2013
MEANING OF THE WORD ENTREPRENEURSHIP & ENTREPRENEUR The word Entrepreneurship is derived from the French verb “ENTERPRENDRE” and it literally means “between taker “or “go between”. According to Oxford Dictionary, Entrepreneur can be defined as “one who undertakes an enterprise, especially a contractor – acting as intermediary between capital and labour” EVOLUTION OF THE CONCEPT OF ENTREPRENEURSHIP Earliest Period An early example of the earliest definition of an entrepreneur as a go between is Marco Polo, who attempted to establish trade routes to the Far East. As a go between, Marco Polo would sign a contract with a money person (forerunner of today’s venture capitalists) to sell his goods. A common contract during this time provided a loan to the merchant adventurer at a 22.5 percent rate, including insurance. While the capitalist was a passive risk bearer the merchant adventurer took the active role in trading, bearing all the physical and emotional risks. When the merchant adventurer successfully sold the goods and completed the trip, the profits were divided with the capitalist taking most of them (up to 75 percent), while the merchant adventurer settled for the remaining 25 percent. Middle Ages In the middle ages, the term entrepreneur was used to describe both an actor and a person who managed large production projects. In such large production projects, this individual did not take any risks but merely managed the project using the resources provided, usually by the government of the country. A typical entrepreneur in the middle ages was the cleric – the person in charge of great architectural works, such as castles and fortifications, public buildings, abbeys and cathedrals. 17th Century The reemerging connection of risk with entrepreneurship was developed in the 17 th century, with an entrepreneur being a person who entered into a contractual arrangement with the government to perform a service or to supply stipulated products. Since the contract price was fixed, any resulting profits or losses were the entrepreneur’s. One entrepreneur in this period was John Law, a Frenchman who was allowed to establish a royal bank. Richard Cantillon, a noted economist and author in the 1700s developed one of the early theories of the entrepreneurship and he described an entrepreneur as risk taker, observing that the merchants, farmers, craftsmen and other sole proprietors are the entrepreneurs because he observed that these people “buy at a certain price and sell at an uncertain price, therefore operating at a risk.” 18th Century In the 18th century, the person with the capital was differentiated from the one who needed capital. In other words, the entrepreneurs were distinguished from the capital provider (the present day venture capitalists). One reason for this differentiation was the industrialization occurring throughout the world. Many of the inventions 1|P ag e

developed during this time were reactions to the changing world, as was the case with the inventions of Thomas Edison who developed new technologies and were unable to finance their invention themselves. Edison was the capital users (entrepreneurs), not providers (venture capitalists). 19th & 20th Century In the late 19th and early 20th centuries, entrepreneurs were frequently not distinguished from managers and were viewed mostly from an economic perspective. According to Richard Ely & Ralph Hess “Briefly stated, the entrepreneur organizes and operates an enterprise for personal gain. He pays current prices for the materials consumed in the business, for the use of the land, for the personal services he employs and for the capital he requires. He contributes his own initiative, skill and ingenuity in planning, organizing and administering the enterprise. He also assumes the chance of loss and gain consequent to unforeseen and uncontrollable circumstances. The net residue of the annual receipts of the enterprise after all the costs have paid, he retains for...
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