Beginner’s Guide to Entrepreneurship – Part 2: What do ‘Entrepreneur’ and ‘Innovation’ really mean?

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To further clarify entrepreneurship for the layman I thought it pertinent to detail two keys terms, ‘entrepreneur’ and ‘innovation’. To someone new to entrepreneurship like me, these two terms can generate some confusion. The Oxford dictionary doesn’t do much to alleviate this confusion in defining entrepreneurs as “A person who sets up a business or businesses, taking on financial risks in the hope of profit”. Innovation was similarly archaically defined as “A new method, idea, product, etc”. These definitions would not necessarily impede most people as a starting point of interaction with the entrepreneurial community. They do not however reflect the broadening of the definitions of both terms brought about by academia and the media. This broadening of the terms entrepreneur and innovation has come about in recent history and blurred the definition of what today are buzzwords.

If we take the Oxford definition of entrepreneur and extrapolate it to its forgone conclusion, then every business owner is an entrepreneur. This would mean almost every café, bar and restaurant in the Canberra CBD is an entrepreneurial endeavour funded in part by venture capitalists. This of course must be an absurd proposition as it would mean that there are millions of entrepreneurs in Australia alone. The treasury listed 2,045,335 small businesses in operation around Australia during 2011. If we apply the Oxford definition and assume that at the helm of these businesses there is at least one entrepreneur, then during 2011 roughly nine percent of the population were entrepreneurs.

Forbes magazine, in perhaps reaching something of the same illogical conclusion saw fit to further define entrepreneurs. They collated several definitions available over the internet to arrive at “… a person who organises and manages any enterprise, especially a business, usually with considerable initiative and risk.” This definition is a better working definition as it begins to detail the dichotomy between business owners and entrepreneurs, whilst referencing the need for initiative. Now it would be easy to read initiative as a by word for innovation but we should abstain from doing so. Innovation is a term which like entrepreneur, has been redefined scores of times and is liable to undergo a semantic drift, if such a process has not already begun.

To further detail the definition of entrepreneur I began to investigate the first uses of the term. There is conjecture over the first use of the word in the conversational and academic senses, both as a noun or verb. West Virginia University professor of economics Russel S. Sobel, in an article for the Library of Economics and Liberty explained the genesis of entrepreneur. Originally the word was a French verb, entreprendre meaning “to do something”. He then further detailed how the word entered the English language, as a noun referring to someone who began a business. Before crediting economist Richard Cantillon as being the first to use the term in an academic sense in 1703, to mean someone who is willing to bear the personal financial risk of a business venture. Now definitions change over time and rightly so, the entrepreneur that Cantillon refers to was almost certainly something else after the Industrial Revolution.

In an attempt to find a modern working definition of entrepreneur, I began to look for academics who could define an entrepreneur as something more tangible than just someone who starts a business and encounters risk. This search led me to the late Harvard professor Joseph Schumpeter and his theory of entrepreneurship. Schumpeter was one of the first to expound the concept of entrepreneurship in academia and his theories prescribe the entrepreneur as an economic leader, an instrument of change. His 1942 work Capitalism, Socialism and Democracy gave a detailed insight to his theories and the means by which entrepreneurs instigate change.  The process of this change is called ‘creative destruction’ in which entrepreneurs lead the economy, tearing down the old and replacing it with the new. Creative destruction is of course cyclical, of benefit and present increasingly so in the modern economy. His definitions of entrepreneurs are apt, perceptive of the dichotomy between business owners and entrepreneurs “…. everyone is an entrepreneur only when he actually carries out new combinations, and loses that character as soon as he has built up his business, when he settles down to running it as other people run their business.” Thus it would seem innovation is essential to the act of being an entrepreneur. Once innovation disappears from the equation, one is rendered a business owner.

Schumpeter also detailed innovation, dividing it into five subdivisions: new products; new methods of production; exploration of new markets of production; new sources of supply and new ways to organise a business. These subdivisions may seem superfluous but they help to further define both innovation and its relationship to the entrepreneur. One may be an entrepreneur by virtue of owning a business. One may be innovative by more than the simple virtue of what the business sells. To put it succinctly, there are only so many ways to make a purist’s coffee but there are many new sources of supply and new ways to organise businesses.

As something of an interesting side note Schumpeter’s casting of the entrepreneur as the leader, the agent of change in an economy brings about interesting, if rhetorical questions. Is being an entrepreneur an occupation? Does it have a history comparable to other professions? Do or did entrepreneurs comprise a social class? Did entrepreneurship create a method of escape for the proletariat? If any of these were true, what would co-working spaces be by extension?

The layman of course has no need for rhetorical questions, subdivisions and discussion about the genesis of terms. All that should trouble the layman, myself included, is the need to engage our logical faculties, to second guess the definition and application of terms which have become malleable buzzwords. Terms which are redefined by people in dress shirts and jeans to suit their own purposes, through the authoritative mediums: of TED conferences; corporate retreats and board meetings.

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