You must be logged in.
You must be logged in.
THE KEYS TO UNDERSTANDING ENTREPRENEURSHIP.
The keys to understanding entrepreneurship are that the entrepreneur discovers opportunities, responds to opportunities and generates opportunities by bearing uncertainty. This process is a competitive process which exists when there is freedom; freedom for those with better ideas to pursue their ideas, and freedom for those with a greater willingness to serve to then go ahead and serve the needs conveyed via the market process.
Entrepreneur is a function, not a person. The greatest tool of an entrepreneur is foresight. The function of being an entrepreneur is using available means more efficiently to provide for the wants of consumers. Entrepreneurs determine how much capital should be invested and directed toward particular consumer goods. Consumers have more urgent and less urgent needs. The entrepreneur is to provide for the most urgent needs before less urgent needs are fulfilled. By successfully anticipating future consumer wants, entrepreneurs are to find the most efficient means available to satisfy consumer needs. Those with the best foresight in predicting future consumer needs enjoy entrepreneurial profits, and the surplus profits are plowed back into the enterprise and invested. Those with poorer foresight experience losses, and try other means of satisfying consumers. This process allows for the most capable to accumulate capital for investment to continue to better serve the future wants of consumers.
When speaking about entrepreneurship people underestimate the role of luck in it. Theoretically it seems very simple: the best ones in finding out what people need and would consequently buy, manage to stay afloat and make a profit. The reality is somehow different. Luck (yours and the one of your fellow competitors) plays an extremely large role. To be on the right place at the right time can count much more than any entrepreneurial abilities. With the above I wish to say that most of the most famous and richest people in the world are rich not because of their outstanding abilities but because of pure luck. Many books try to find out similarities between them and attribute these people’s success to these common traits. However they do not check “the cemetery”, namely how many people (entrepreneurs) possess these singular qualities but have never reached further than square one. People like to find reasons (post factum) for someone’s success, but very often there are none, just luck.
In general people underestimate the role of luck. I suggest you read Nassim Taleb’s books. They will change your views about the world we live in. His views are entirely compatible with the Austrian ones. They are however more realistic.
Every successful person with whom I have worked has defined luck something like this: LUCK = Labor Under Correct Knowledge. My experience definitely bear this out. None of them think that success is based on intelligence, knowledge, skill, or even hard work. Success seems to be based more on accurately identifying the best course of action and persistence. Regardless of how hard alchemists work, they will never be successful because their work is based on faulty premises.
Clearly there are some advantages derived from birth, but for those of us born in a free country, we have the same number of opportunities. The differences between us have to do with what we do with them. Obviously, some choices also do limit or increase our opportunities, but that is not “luck.”
I 100% agree. There isn’t a single business strategy out that that wasn’t executed without some degree of luck. Successful entrepreneurship is increasing the probability that your foresight is more correct than others, though there is always chance of things beyond your control working for or against you.
Inequality is a good thing in a market economy. We each have different skills and knowledge that we can leverage for everyone’s benefit. People are naturally shifted to those professions where they excel. People performing tasks in which they are specialized increases productivity per labor hour and derives the greatest benefit from the division of labor.
I do not know many entrepreneurs but I would like to give you an example from N. Taleb’s books.
The big trader: He has started at the beginning of the dot.com boom. There had been something special in his trading style because he made the most money from trading. Much more than the others. After several years he becomes a millionaire. And people look at him with awe. What capable person he is. How well he trades. Somebody may even write a book about him, extolling his singular traits as a trader. However the dot.com boom comes to an end abruptly. And out big shot trader becomes suddenly (in a week or so) a popper. What has happened?
Actually, he had been nothing special at all. He had been carried by the wave (of money printing and stock price rise). There had been something specific in his trading style that made him better suited to the particular situation than the others, but when the circumstances changed he just disappeared. He had been lucky to be at the right place and time and to have the particular qualities necessary for this short (from an economic standpoint) time period.
I am not questioning that there are entrepreneurs who survive many many crises. What I am saying is that a significant part of today’s market players are where they are because of a twist of fortune which worked in their favor.
Fooled by Randomness is an interesting book where he talks about his career. A big factor in entrepreneurship today is State which increases uncertainty and risk. Doing business with fiat money and property which is not appropriated through the market, is sure to make things even more difficult for the entrepreneur. Either he will have to change his character and use political means to get an edge, or have some sort of luck come in.
If the trader’s style is particularly fragile, he may lose in one day all profits from his entire career.
Remembering that entrepreneurship is either active or latent is helpful. In addition even if it is active, but the person is ill-equipped, the opportunities may not be recognized or acted upon. When the State distorts the market signals and functions then active entrepreneurship may tend to favor those who have not seen the ethical implication of statism. To an observer this may cause the reputation of entrepreneurship to be tainted. In terms of justice statism is what leads to the creation of such an environment. The entrepreneurs are only indirectly responsible for the deterioration of an ethical economy in a world that is permeated with statism.
Remembering that entrepreneurship is either active or latent is helpful. In addition even if it is active, but the person is ill-equipped, the opportunities may not be recognized or acted upon. When the State distorts the market signals and functions active entrepreneurship may tend to favor those who have not seen the ethical implication of statism. To an observer this may cause the reputation of entrepreneurship to be tainted. In terms of justice statism is what leads to the creation of such an environment. The entrepreneurs are only indirectly responsible for the deterioration of an ethical economy in a world that is permeated with statism.
Fooled by Randomness is an interesting book where he talks about his career. A big factor in entrepreneurship today is State which increases uncertainty and risk. Doing business with fiat money and property which is not appropriated through the market, is sure to make things even more difficult for the entrepreneur. Either he will have to change his character and use political means to get an edge, or have some sort of luck come in.
