Define entrepreneurship in your
own words and demystify in by writing down your own example o metaphor and a
paradox about it.
An entrepreneur is someone who
organizes, manages, and assumes the risks of a business or enterprise. An
entrepreneur is an agent of change. Entrepreneurship is the process of
discovering new ways of combining resources. When the market value generated by
this new combination of resources is greater than the market value these
resources can generate elsewhere individually or in some other combination, the
entrepreneur makes a profit. An entrepreneur who takes the resources necessary
to produce a pair of jeans that can be sold for thirty dollars and instead
turns them into a denim backpack that sells for fifty dollars will earn a
profit by increasing the value those resources create. This comparison is
possible because in competitive resource markets, an entrepreneur’s costs of
production are determined by the prices required to bid the necessary resources
away from alternative uses. Those prices will be equal to the value that the
resources could create in their next-best alternate uses. Because the price of
purchasing resources measures this opportunity cost— the value of the forgone
alternatives—the profit entrepreneurs make reflects the amount by which they
have increased the value generated by the resources under their control.
Entrepreneurs who make a loss,
however, have reduced the value created by the resources under their control;
that is, those resources could have produced more value elsewhere. Losses mean
that an entrepreneur has essentially turned a fifty-dollar denim backpack into
a thirty-dollar pair of jeans. This error in judgment is part of the
entrepreneurial learning, or discovery, process vital to the efficient
operation of markets. The profit-and-loss system of capitalism helps to quickly
sort through the many new resource combinations entrepreneurs discover. A
vibrant, growing economy depends on the efficiency of the process by which new
ideas are quickly discovered, acted on, and labeled as successes or failures.
Just as important as identifying successes is making sure that failures are
quickly extinguished, freeing poorly used resources to go elsewhere. This is
the positive side of business failure.
Successful entrepreneurs expand
the size of the economic pie for everyone. Bill Gates, who as an undergraduate
at Harvard developed BASIC for the first microcomputer, went on to help found
Microsoft in 1975. During the 1980s, IBM contracted with Gates to provide the
operating system for its computers, a system now known as MS-DOS. Gates
procured the software from another firm, essentially turning the thirty-dollar
pair of jeans into a multibillion-dollar product. Microsoft’s Office and
Windows operating software now run on about 90 percent of the world’s
computers. By making software that increases human productivity, Gates expanded
our ability to generate output (and income), resulting in a higher standard of
living for all.
Sam Walton, the founder of Wal-Mart,
was another entrepreneur who touched millions of lives in a positive way. His
innovations in distribution warehouse centers and inventory control allowed
Wal-Mart to grow, in less than thirty years, from a single store in Arkansas to
the nation’s largest retail chain. Shoppers benefit from the low prices and
convenient locations that Walton’s Wal-Marts provide. Along with other
entrepreneurs such as Ted Turner (CNN), Henry Ford (Ford automobiles), Ray Kroc
(McDonald’s franchising), and Fred Smith (FedEx), Walton significantly improved
the everyday life of billions of people all over the world.
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