Being an entrepreneur is the role a person acquires when he or she seek opportunities for profit. Typically this is done by purchasing land, labor and production functions in various markets, combining them in a firm and then selling the resulting land, production function or service in another market. If this can be done in such a way that the medium of exchange obtained in the selling market is greater then the medium of exchange in the buying market, then a profit is earned. This profit is payment to the entrepreneur for his or her efforts of discovery and coordination. This discovery process is of benefit because it seeks to find the best use for land, labor and production functions.
The size of the potential profit, which is a measure of how much misallocation of resources there is, will drive the effort the entrepreneur expends to seek the profit. As entrepreneurs satisfy the market, new market prices will be established in both the buying and selling markets. Entrepreneurial effort will continue until the profit is eventually driven to zero.
At this point the markets are in an evenly rotating state and no profit exists. At the point of zero profit there is no need for a change in activities as there is no alternate use for the resources that better satisfies demand. The point of zero profit does not mean that economic activity should stop - only that the best use for resources, given the current conditions, has been found. Entrepreneurs, by seizing profit, in a sense put themselves out of business and must continually seek new opportunities if they are to earn entrepreneurial profit.
Entrepreneurs do not earn a steady payment for their efforts but gain uneven payments that can be far in excess of what could be earned by selling their labor services. It is also important to distinguish the role of an investor from that of an entrepreneur. An investor has saved medium of exchange which can be used to purchase an entrepreneurial plan and share in the entrepreneur's discovery. An entrepreneur brings the business plan to the investor and does not necessarily provide the medium of exchange for the investment. The entrepreneur usually needs to invest in the preparation of the plan that is brought to the investors.
An entrepreneur is not a scientist or an inventor but someone who seeks to use the research, invention or innovation to provide economic benefit. The entrepreneur usually seeks investors who will provide the investment necessary to commercialize the invention or innovation.
Rapid unanticipated changes in the amount of medium of exchange will disrupt economic calculations. The disruption usually results in broken promises because contracts are generally written in terms of future payments of specific amounts of medium of exchange. The broken promises cause temporary unemployment and waste of resources as entrepreneurs reallocate resources to profitable activities.
Information is not cost-less. If the cost of obtaining the information about profitable opportunities and investment sources is too high, then entrepreneurs will not discover that there is a profit to be made. This is why there is a need for efficient exchanges where correct, unbiased information is readily available.
In some ways almost everyone is an entrepreneur. For example, if one is making the choice of deciding to divert resources to learning a new skill, one needs to determine if the new skill will provide significantly more income for the same amount of time expended than the skill it replaces.
Since there are always changing conditions due to innovation, natural resource availability, changes in taste and other factors, there is no cause for concern that entrepreneurial activity will not be needed.
Copyright 2014-2019 Richard A. Cornell, PE