The Entrepreneur: Theories and Evolution of the Concept
The Entrepreneur
Classical Economists
Richard Cantillon: Defined the entrepreneur as an individual who buys the means of production at certain prices to combine them into a product that will sell at an uncertain price in the future.
J.B. Say: Viewed the entrepreneur as an agent who combines other economic factors in an agency or production company.
Adam Smith: Considered the capitalist employer and the owner to be the same person.
Karl Marx: Equated the capitalist employer with the entrepreneur.
Alfred Marshall: Defined the employer as someone who contributes knowledge through organization and whose function is the management of business. Marshall, along with Say, recognized the distinction between the income from capital contributed by the capitalist employer and the profit derived from organizing economic activity and taking risks.
Employer as Organizing Agent
J.S. Mill: Described the entrepreneur as an organizer of productive activities who coordinates and combines factors of production, planning to obtain products for the market. Mill also saw the entrepreneur as an agent of practical action who makes economic forecasts with the goal of making money, a confident and adventurous agent who assumes risk and ensures the income of hesitant and timid owners or suppliers of financial resources.
The Theory of Employer Risk
F.H. Knight: Proposed that the employer hires or acquires production factors at certain prices, creating monetary income for other agents based on a prediction about the future selling price of the products. The employer bears the entire risk of economic activity. The employer’s faith in predictions about consumer demand and market prices determines whether they adjust their costs to the estimated selling price. If calculations and predictions are correct, the employer earns profits due to their ability to accept uncertainty. If incorrect, they will incur losses. Knight distinguished between two activities: the employer who assumes risk and makes choices, and the director who gives orders and performs the organizing function.
The Theory of the Innovative Entrepreneur
Joseph Schumpeter: Argued that innovation creates imbalance, leading to economic progress and granting the company temporary market power that generates extraordinary profits until imitation by other companies restores balance.
The Theory of Employer Control or Decision-Makers
Two important contributions come from H.A. Simon and J.K. Galbraith. Simon focused on the administrative man, while Galbraith focused on the technostructure or executives who wield power and direct business, especially in large companies.
Entrepreneur as Administrative Man
Simon proposed that the employer acts as an administrative man who requires complete knowledge and anticipation of consequences. However, since the future is unpredictable, the employer can only anticipate possible values, leading to flawed decisions. This requires a choice among all possible alternative behaviors, but in reality, only some of these alternatives are visible. Stimuli are controlled to achieve higher goals, and individual decisions can be integrated into a concrete plan. However, decision-making is not the job of a single individual but a composite and complex process that gives rise to the concept of planning, involving a multitude of factors. The employer as administrative man relies on a relationship of authority to achieve multiple objectives, with a hierarchy that streamlines the management function. Simon’s view portrays the employer in a complex economic world where their management is unfounded due to limitations in knowledge, experience, and common sense.
Technostructure as Entrepreneur
Galbraith viewed the entrepreneur as the director of a powerful company, with the ability to drive business through group decision-making. This ruling elite is composed of technicians, sales executives, engineers, designers, specialists, and scientists who contribute their knowledge. At the head of this technostructure is the CEO, Managing Director, or board of directors.
The Theory of the Entrepreneur as Leadership Role
W.G. Bennis and I.H. Schein emphasized the leadership and strategist role of the entrepreneur. The entrepreneur plans, organizes, creates teams, coordinates, informs, and anticipates. The entrepreneurial leader possesses the following attitudes:
- Clear leadership skills and entrepreneurship.
- Expertise in strategy formulation and implementation, requiring strong organizational skills.
- Extensive knowledge of marketing and a market orientation towards the client.
- Strong people management skills, with ease and skill in communication.
- Excellent negotiation and conflict resolution skills, requiring flexibility and the ability to manage change in both the organizational and competitive environment.