Entrepreneurship has been described as the “capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. (BusinessDictionary.com, 2018)The original entrepreneurs can be traced back to New Guinea, where locals exchanged, a black volcanic glass called obsidian, used to make hunting arrowheads for other needed goods. These early entrepreneurs exchanged one set of goods for another (Creative Chemicals and Cosmetics, 2018). This exchange of goods was known as barter. As the population of these tribes increased overtime, one of the most important advances took place that changed entrepreneurship forever, specialization. Instead of each tribe making similar goods, tribes now produced what they were best at and exchanged it for specialized goods produced by other tribes. Overtime specialization changed from tribes specializing in producing goods to countries specializing in producing goods which can be seen in the modern era. The next major advancement was the introduction of money. While the monetary system still had much advancement to go through, its invention over four thousand years ago was of crucial importance to the world we live in today. The use of money, an accepted medium to store value and enable exchange, has greatly enhanced our lives, our world, and more importantly our future.
Looking at the history of successful entrepreneurs, one thing is common, innovation. Innovation is the process of translating an idea or invention into a good or service that creates value or for which customers will pay (BusinessDictionary.com, 2018). Mark Zuckerburg is probably the best example of an innovative entrepreneur of this century. Mark Zuckerberg first launched his website as a Harvard student from his dorm room back in the year 2004 and decided to call it Facebook. Who would have thought that you could chat, call, video call, share pictures etc on the same website? After taking the risk of dropping out from Harvard and working on his website with support from investors, He is now worth $74.2 billion (En.wikipedia.org, 2018). When asked about innovation, his reply was, “a lot of people think that innovation is just having your great idea but a lot of it is just moving quickly and trying a lot of things” (Fast Company, 2018). So how important is innovation in the world we live in? Business enterprise produces monetary benefit and keeps the economy running, which offers rise to the significance of innovation in business. Innovation has always been the key to growth and success. An economist named Joseph Schumpeter developed a phrase, “creative destruction”, the previous century. He believed that the flow of economic activity and employment are interconnected and indeed, the crucial part of growth. Schumpeter described various innovations that lead to growth, for example, the new trade relationships, an introduction of new products and new methods of production. As examples, the reorganization of a business, economic activity and citing the discovery of raw materials. Through creative destruction, each innovation would lead to temporary periods of unemployment and business stress as the economic system was reconstructed to become more efficient. (Heertje, 2005) This idea of creative destruction led to a whole line of study in economics known as “growth theory.” Growth theory made great progress in the 1950s with the work of a Nobel Prize winner, economist Robert Solow. In one of his studies, Solow concluded that nearly 90 percent of the rise in U.S. growth during the first half of the twentieth century came from technological growth, and not, as most economists had assumed, from the mere accumulation of machinery. (CEO, 2018)
Innovation leads to higher growth which can lead to greater investments in research and development, which leads to more innovation. The forces that drive innovation are not necessarily random events. They are usually driven by the need to be competitive. That is true today, just as it was one hundred years ago. In today’s society, you don’t have to dig deep to find a place where innovation has taken over and the society as a whole has evolved. Thanks to scientists such as Benjamin Franklin and Thomas Edison that today it takes only a flick of a switch to light up a room. Over time electricity and its uses have evolved which have led to a different society altogether. Furthermore, innovation in the way we communicate has taken place over the past century. Gone are the days when you had to rely on Pony express and telegram to communicate with someone. The development of phone lines have changed the way we communicate and things didn’t just stop there. Innovative entrepreneurs like Steve Jobs revolutionized the communication industry. In the year 1975, the 20-year-old Jobs and friend Wozniak set up a shop in Jobs’ parents’ garage, started the venture Apple, and began working on the prototype of the Apple I. To generate the initial capital to start Apple, Steve Jobs sold his microbus, and Steve Wozniak sold his calculator to raise $1350. The two made enough revenue by selling the Apple I to work on a much-advanced version. In 1977 they introduced the Apple II which was the first personal computer with color graphics and a keyboard. The computer made first-year sales of $3 million and two years later went on to make $200 million(Staff, 2018). Steve Jobs and Apple went to change the mobile phone market when he first introduced the iPhone back in 2007. Today Apple is worth over $900 billion and has more importantly changed the way we communicate with our society (Fortune, 2018). Apple rivals, Microsoft is another example of a company that changed the way we communicate today. Founder Bill gates worked endless hours from his garage, programming, and developing coding. After years of hard work today Bill Gates is worth $90.2 billion and Microsoft is worth $650 billion (Monica, 2018). One may have his argument against Bill Gates but what he has done is not only benefit the society by changing the way we interact but also by helping millions across the globe in the healthcare, education, and information technology sector by donating $35 billion in charity(Gates, 2014). These examples prove that these innovations have not only helped the society prosper but also made the society dependent on it. Today, many of the businesses that run the society is highly dependent on the technologies mentioned above and wouldn’t be able to function without them.
The question that arises is that, did the innovation mentioned above create lasting value? Let’s take the automotive industry as an example here. The automotive industry was the perfect example of how an industry should operate in the 20th century. It was dominated by entrepreneurs and innovators who made billions with the dream of every person driving a car. At first, not everyone could afford a car and some thought it wasn’t safe. With time cars became more affordable and much safer. Looking at the potential of the industry, many companies jumped in to enjoy profits which meant that companies had to come up with new ideas to survive in the competitive market. What has happened lately is an important lesson for other industries. Instead of further innovating and making improvements, the automotive industry has become static. For the past few years, car companies have made slight changes here and there to their cars in terms of looks. For example, the 2000 model of the GMC Yukon and the 2009 model had almost no difference. (Herold, 2018) Only now, facing the risk of going out of business has companies made some innovative changes. Companies are now coming out with fuel efficient and environmentally friendly cars to stay in the market considering the environmental factors. Is it too late for these companies considering companies such as Tesla are now in business? The question is how could this have been prevented? The answer lies in the risk factor. Companies that took the risk of investing capital in research and development are now prospering. Risk has a key factor to play in entrepreneurship and can be supported by Franks Knight and the uncertainty concept. Knight stressed the distinction between risk and uncertainty: risk exists when outcomes are uncertain but can be predicted with some probability, being insurable; uncertainty arises when the probability of outcomes cannot be calculated; and true uncertainty occurs when the future is not only unknown but also unknowable with unclassifiable instances and a non-existent distribution of outcomes (Gartner et al., 2016). Moreover, Knight argued that it was such uncertainty that gives rise to the “pure profit”, which in turn is the entrepreneurship’s life blood. Entrepreneurs were hence held responsible for economic progress, through for instance improvements in technology and business organization, but becoming an entrepreneur was known to involve risk and uncertainty. So one can say that, had the companies in the automotive industry taken the risk of innovation earlier, not only would they be more successful but the society could have benefited more. This example shows that an entrepreneur anticipates future events. Von Mises argued that the entrepreneur’s “success or failure depends on the correctness of his anticipation of uncertain events. If he fails in his understanding of things to come, he is doomed. The only source from which an entrepreneur’s profits stem is his ability to anticipate better than other people the future demand of consumers” . We can back this up with Kirzner’s concept of “spontaneous learning” and “alertness”. It is alertness that allows entrepreneurs to identify profitable opportunities, corroborating the importance of the entrepreneur’s “information-transforming” function already defended by Hayek (1948). For Kirzner, the market process is said to be driven by entrepreneurs “alertness” to unnoticed, unexploited gains from exchange. Alertness thus refers to an attitude of receptiveness or preparedness to recognize existing, overlooked opportunities and, consequently, the attainment of market equilibrium requires entrepreneurial action. To further answer the question raised earlier (did innovation create lasting value?) we can use William Baumol and the role of incentives. Baumol’s (1990; 1993) basic thesis says that the supply of entrepreneurs in a society is constant, but that the societal value of their self-interest varies according to the rewards available. Baumol believed that growth can’t be explained by bringing together the various factors of production. He further argued that productive entrepreneurship and human activity are needed to combine the factors of production in a profitable way. This is why an institutional environment that encourages human experimentation and productive entrepreneurship becomes the ultimate determinate of economic growth. (Abouzeedan, Hedner and Klofsten, 2010)
It is absolutely essential for economic development that everyone in our society keeps looking for ways to improve. Improvement doesn’t only mean looking for new technologies but also come up with new ways to think about business and to analyze performance. We have to keep in mind that even though innovation plays a key part of the equation, alone won’t help the society develop and survive. The moment we stop looking ahead and innovating to our full potential is the moment that we are doomed.