Essential Schumpeter: What is Entrepreneurship?
Welcome to the essential ideas of Joseph Schumpeter. For those aware of Schumpeter,
it's likely his work on the nature and importance of entrepreneurship where he
made his greatest contributions to economics. Schumpeter saw the
entrepreneur as more than just a business owner. Entrepreneurs are the people
who experiment with what he called “new combinations” of resources.
With these they create new products and services … and new methods of production.
They discover new markets and resources, and even find new, more efficient ways to
organize businesses. Here's an example: Suppose Sam opens a pizza parlor.
Schumpeter would not consider Sam an entrepreneur simply because he opens a
restaurant. What makes Sam an entrepreneur, in
Schumpeter's view is that Sam introduces new types of pizzas using unique
combinations of toppings that no one has contemplated before like pineapples and
like pineapples and bacon with whole-wheat crusts. And he revolutionizes how customers order and
receive pizzas by offering free delivery by drones. This Innovation and
experimentation lead to new products, new services, and new markets, which is what
makes Sam an entrepreneur. Schumpeter also addressed another important aspect
of entrepreneurship: The role of profits and losses. If a new idea, in this case
new pizzas and how they're delivered motivates customers to buy the product
to buy the product at prices at least sufficient to cover the costs, then it's successful.
On the other hand, if the new pizza –topped with, say, pickles and rotten eggs—is put
up for sale BUT people don't buy it, the financial losses signal that it doesn't
meet customer wants and needs… and the business loses money and eventually
closes. The prospect of profits is what leads
entrepreneurs to innovate in the first place. But equally important are
financial losses, which also help guide entrepreneurs and resources towards
successful endeavors. For Schumpeter, entrepreneurs and their innovative
products, services, and processes are the key drivers of economic growth and
prosperity. For more information on Joseph Schumpeter, visit