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Cast Down Your Bucket Where You Are: How Entrepreneurs Use The Institutions of Entrepreneurship To Thrive In The Technological Epoch

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How can institutions such as education, family, language, laws, and economy be understood as the catalysts for emerging institutions of entrepreneurship?

From an entrepreneurial perspective, institutions result from emerging social phenomena based on subjective experience and perspective. Institutions of entrepreneurship include action, technology, knowledge and learning, culture, and values. You see, institutions of entrepreneurship do not thwart marketplace initiatives; instead, they are instrumental for entrepreneurial action to advance into the near future. Many of our institutions are the result of human action and not of design, but over time, predetermined narratives tend to come into existence. From an entrepreneurial point of view, set narratives of entrepreneurship are guides toward a general framework of individual potentialities and should not be deterministic. Institutions serve as constraints and, at the same time, as action enablers.

As in all entrepreneurial matters,  subjectivity applies. The subjectivity of entrepreneurial institutions should allow individuals the ability to take advantage of newly emerging market opportunities. If nascent entrepreneurs go about serving others in the marketplace the same way as previous actors, they will ultimately get the same result. As a case in point, it was Einstein who changed Newton’s longtime theory of gravity by pointing out there is a special and a general relativity. Einstein replaced Newton’s theory, not using the same thoughts and processes as Newton, but from his subjective institutional experiences, knowledge, and skills that he possessed at a particular point in time as new ideas emerged. The theory of relativity gave physics a massive leap in science. The conventions of physics allowed Einstein to use the institutional framework to discover and attempt to be part of something useful for science and the layperson.

Can we extend this same sentiment to the entrepreneur to advance using the institutions of entrepreneurship?

I say yes! An entrepreneur’s experience within institutional environments is subjective, so in the words of Booker T. Washington, nascent entrepreneurs should “cast down your bucket where you are.” Ideally, everyone should have the opportunity to “cast down a bucket where they are,” particularly via emerging entrepreneurial institutions, as a means to learn from the marketplace and participate in the market economy.

Emerging entrepreneurship institutions – such as starting a business on the internet – are the key to entry into markets that may have once been unobtainable for some people, primarily because institutions are subjectively experienced. In many ways, institutions can be identity-producing. If Mary Kay started her business a certain way, it does not mean others following her footsteps have to do it the same way to be successful as she was. Like Isaac Newton, she inspired. Emerging entrepreneurial institutional environments, for those individuals steeped in institutional identity, provide a chance for individuals to realize an alternative to the normative ways of participating in a given marketplace. Moreover, nascent entrepreneurs can use emerging institutions via institutional superhighways through multiple technological devices (i.e., smartphones, laptops, social, and e-commerce platforms) to make transaction-based sales that can serve consumers across the globe.

Institutional environments ought to allow everyone the chance to pursue their entrepreneurial plans. As we know, plans are often diverted due to unexpected events, which is why entrepreneurial institutional environments should serve as market feedback mechanisms and not barriers to market entry. Dropping a bucket means using production factors to serve consumers in the best possible way, not waiting for the ideal circumstance to participate in the marketplace. Entrepreneurs should not wait for an ideal situation, ideal investment, or the perfect business idea.

Within the institutions of entrepreneurship, one should be able to drop down their bucket where they are. Institutions of entrepreneurship should make room for new entrepreneurial participants via technological devices, i.e., smartphones, tablets, laptops. Higher levels of entrepreneurship are not the cause but the effect of technological advancements. Technology is not static but dynamic and the same for the people using it. “Tools and machinery are primarily not labor-saving devices, but means to increase output,” as Ludwig von Mises once said.

A recent report showed that 14% of business owners are between 30-39, and 4 % are between 18 and 29. These demographics (especially 18-29) own smartphones or laptops with access to e-commerce platforms and digital media – basically access to consumer markets at their fingertips. The next logical question is: if 13% of millennials spend over 12 hours on their phones daily, how can they participate in the marketplace? The data speak to the fact that everyone has the chance to drop their buckets where they are and serve their fellow man.

“At least 81% of entrepreneurs do not have access to a bank loan or venture capital,” says a recent Kauffman Foundation report. The report goes on to say, “Very little of the total capital flow to entrepreneurs is geared toward women and people of color.” Again, institutional environments are entirely subjective, as there is too much diversity among people and circumstances to assume that everyone interested in entrepreneurship might uniformly enter the market and participate evenly. Nevertheless, that is the point! Instead of institutional barriers preventing entrepreneurship, institutions of entrepreneurship and emerging institutions ought to function as superhighways of entrepreneurial accessibility via the means of one’s talent and resources where they are, as indeed most people have access to technological devices.

There are 272.6 million smartphone users across the United States, which means that 272.6 million business opportunities are waiting for people to drop down their buckets. Not to mention, 52.4% of the population worldwide use their smartphone to access the internet.

Entrepreneurship is a function of the market process, an activity that should be open to anyone willing to serve others’ needs. Internet searches are now an institution; they’re how people express needs. There are vast amounts of these internet searches, providing the inquisitive entrepreneurial mind with a million ways to start a business. However, the problem is that not all potential entrepreneurs will experience the same institutional environments uniformly. We all have different plans and expectations of how entrepreneurial institutions should facilitate entrepreneurial pursuits, whether it be the production of music, art, lectures, reading material, cooking lessons, painting services, or exercise tutorials. If buckets are dropped where the person is, the only cost incurred by the nascent entrepreneur is time, and the chances are that someone got served, which is the first step towards the ideal success narrative that we often connotate with entrepreneurship.

Again, there are entrepreneurial opportunities only if entrepreneurial institutional environments create an entry for anyone willing to drop their bucket where they are. Entrepreneurial institutions should operate as uncertainty reducers and not uncertainty enhancers. Therefore, the conventional institutional environments ought to support emerging entrepreneurial opportunities and individual action. The institutions of entrepreneurship should accommodate action in emerging institutions so that the entrepreneurial spirit can pour the horn of plenty on all of us.

Thinking About Reducing Marketing and Advertising During This Down Economy? Perhaps You Should Think Again.

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These are interesting times for sure, with many small and large companies making hasty decisions to cut back and, in many cases, to cut out of their budget, the most competitive market tool – advertising.

Companies that are in survival mode should not decrease their advertising spend in the short run. It is an error to assume that customers are not searching for information about a product or service that you can provide. While on the surface, it might seem clear-headed to eliminate marketing activities to protect your firm’s assets, but might we not forget that marketing in general and advertising, in particular, are, in the end, informational devices that drive revenues for the long-run? Everything has a cost, even information, which increases customers’ knowledge of what you offer, location, and price. Advertising identifies sellers to customers and reminds infrequent customers about changes in the state of the market. Companies change what they offer and at what price, along with the changes in customer consumption patterns. Therefore, marketing is an investment, not an expense – this especially rings true for a down economy.

Some say companies that consistently advertise reap significant market benefits more often than competing companies, even during a down economy. Marketing – as far as advertising is concerned – offers firms a market advantage when it comes to customer search costs and brand awareness in the long run. Decreasing marketing and advertising during a down economy comes at a cost to the company and the customer. Cutting advertising diminishes the amount of information in circulation, thereby cutting brand awareness, customer conversions, and unit sales. Essentially, in a COVID economic landscape, firms that do not produce information, i.e., do not advertise and promote their products and services, increase customers’ search costs. In a post-COVID landscape, those firms that decided to decrease marketing and advertising will have created an uphill battle for themselves, making it extremely difficult to break through the noise! If you want to be a market leader, understand that it costs to be the boss!

Marketing is information dissemination, and the firms that do not provide customers with useful information promptly are sure to lose market share, awareness, and customer commitment. Even more costly to the firms that do not advertise during this COVID economy will be the loss of permanence and significance, especially for nascent companies. Newer companies will suffer the errors of not advertising during a down economy in the long run. As opposed to established companies, nascent companies have to break through established brand positions in the market.

Case in point, customers do not know what they need to know unless you tell them – and trust me; they want to know! Without your firm’s marketing, customers will be forced to search and purchase elsewhere. In other words, customers have high time preferences – they want satisfaction now – and added high search costs now will result in a more uncertain future for a company.

Now is the time to be even more vigilant about informing and educating your customers based on specific quality measures, prices, and your offering’s importance to them. Remember, market success is about the delivery of a timely, essential product or service information. Information delivery can be accomplished by incrementally informing customers via content pages, digital campaigns, podcasts, digital marketing, and digital promotions to reap the benefits of digital flexibility that increasingly lower customers’ search costs.

We must also not forget that advertising is a social function. A function that should not be ignored but fulfilled. At the same time, advertising is the primary device in which companies of all types bring forth market opportunities to customers. That is, the information costs incurred by the customer are the driver from not knowing to know. Why would customers cease to accept information from their market providers during a down economy? Do customers cease buying things of importance during a down economy? Brands that are choosing to go dark on marketing must think about the subjective nature of customer value and expectations. Failure to meet expectations in the future will result in long periods of resuscitation going into a post-COVID economy.

There are many new methods on the horizon for you to deliver timely advertising. However, it is best to use the technique most satisfactory to your customer, not to all customers, i.e., customers are different in the information needed. Tailored information delivered to your customer during this slowdown is a moment in time where much ground can be gain in lowering knowledge acquisition costs and increasing rapid-fire production of information. Continuous advertising, during this down economy, enables customer conversions and, at any rate, reduces the information cost for customers who find themselves searching for updates of the state of the changing market.

Knowledge comes at a cost. Therefore, the mistake of not advertising will indeed allow a competitor to reap the benefits of your inaction. Unfortunately, customer information and decision-making often are based on past market conditions. Trust me; your customers will love you for keeping them in mind and lowering their search costs, and showing your commitment to them when times are not so great.

 

The Importance Of Behavioral Data: It Is Not What Customers Say, It Is What They Do.

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It is preposterous to assume what customers say is more important than where they place their feet and the price they pay for products or services. The customer’s mind is still elusive and challenging for entrepreneurs. If understanding the mind of the customer were easy, everyone would do it!

The insights of the Austrian School of economics tell us that people act purposefully toward future betterment. That is, customers and entrepreneurs both act to attain better future situations than their current situations compared to if they had not acted at all. Customers operate on a value scale, an important insight developed by Carl Menger, elucidating that value is in customers’ minds. In this regard, Menger urged entrepreneurs to “reduce the complex phenomena of human economic activity to the simplest elements”.[1] I echo the sentiments of Carl Menger, but some do not. For example, a recent article titled, 2 Simple Steps For Testing If Your First Customers Like Your Product recommends surveys and the search for “moments of truth” and “tipping points”. The only simple way of ascertaining customers’ product sentiment is through the market itself.

The market process provides excellent insights into customers’ unspoken motives and whether they like your products and services. The best way to figure out if your customer likes your products is to turn to market phenomena. That is, the market price, as reflected by customers’ subjective valuation and competitors’ offerings. Different opinions about the value of a product or service are drawn out through this process. The real test, the market signals, shows how much and to what extent customers are willing to sacrifice to attain your product or service offering.

The customer wants the product with high use value, intended for whatever purposes to help them reach their end. The value of any product is in the customer’s eye, the same way that beauty is in the beholder’s eye! We never truly know to what extent a customer chooses your product over a competitor’s. That is to say, the only reliable data on customer sentiments are that customers have purchased your products – the more, the merrier. Ludwig von Mises in Human Action expressed that, “It is ultimately always the subjective value judgments of individuals that determine the formation of prices.”[2]  Market prices and exchanges alert the entrepreneur whether the product is more or less valuable to the customer than the forgone opportunity to withhold their cash holdings. Money measures prices, and prices measure value. Buying and selling or market abstention determine prices. As such, prices are what customers are willing to pay for a product based on their subjective valuation, keeping in mind their future benefit from that product.

In his salient book, Economics for Real People, Gene Callahan agreed that “only real market prices convey information on the freely chosen values of acting man.”[3]

Therefore, it is sensible to observe market price signals as a means of analyzing customer sentiments. Customer dissatisfaction and loyalty occur when product or service incongruities exist. Market incongruities also exist between the entrepreneurs’ perceptions of changing market realities. The entrepreneur’s function is to address any market incongruities in which the customer, because of market changes, is better off than they were before. The market is in constant movement, which means customer preferences are in perpetual motion.

Retention of customers is a less complicated phenomenon that an entrepreneur might observe. Only individuals act in concert with one another in a spontaneous way to reach their goals in any given market. As the author of the cited article proposes, the concept of customer retention is somewhat misguided because retention relates to competitors’ actions and their substitutable products. The question should be, how many substitutable products exist in my ecosystem? Are other entrepreneurs doing the same that I am not doing?

First, the customer is the holder of the perception of value. Secondly, the customer making future choices is the cornerstone of the basic axiom of action. While taste preferences change over time, so do the market actions of your customers and your competitors. The first axiom of praxeology is that people act; they act to pursue a better situation based on the choices they are presented with. Mises reminds us of this in his work titled, Human Action. What the customer says and the action customers take are two different things, because it is the customers’ action that provides market signals to the entrepreneur. As long as you satisfy the customer’s needs and wants, profits will ensue, and losses decrease.

You strive to get rewarded for the risks involved with bringing new products to the market. Your competitors are seeking the same market reward.

Some do not understand how competition works as a signal of incongruities, leading to profits or losses. Indeed, competition exists so long as customers have market choices and can exercise them. The reality is that customers vote with their dollars and feet. They may voice their liking of your products, but at the same time, are enthralled with a competitors’ quality, service, and price of their product. Competition, therefore, acts as the entrepreneurs’ light post, guiding them toward market opportunities that may go unrealized or deterring them from those that are unfit.

Competition, in the Austrian view, is aimed at who can serve the customer best. Providing the best quality and product to the customer is the leading role of entrepreneurial competition. Competition is not and should not be insidious – rather, it should be productive and dynamic. If entrepreneur A wants to enter a market with capital to prove he or she can do things better than entrepreneur B, that should be his or her choice. Entrepreneur B will come to realize they missed many market opportunities only because that knowledge appears as a result of the competitiveness of entrepreneur A. For example, customers may choose the products of entrepreneur A one day and B the next.

It is not what customers say, but what they do. Entrepreneurial insight about the market and the changes that will occur should be the guiding light for entrepreneurs. Entrepreneurs have to ascertain how people will respond to changes. Customer purchases, retention, a likeness of products or services, and loyalty are results of entrepreneurial market observation, and not causes.

[1] Carl Menger Principles of Economics

[2] Ludwig von Mises: Human Action

[3] Gene Callahan:  Economics for Real People

 

What’s A Good Entrepreneur To Do? Make A Profit, Thereby Serving Society In The Best Possible Way.

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A January 2020 Forbes Magazine article titled “Why Doing Good Is Good For Business” clearly left out critical information: who is the good or bad entrepreneur? According to the author, good entrepreneurs are doing good if their primary objective is not to make a profit. And bad entrepreneurs are doing bad if their primary objective is to make a profit.

Basically, the author suggested that, to be good, a business should not pursue profit and, along with it, customer satisfaction. Ignoring the profit motive is deemed more important than the entrepreneurial reward of profit that comes from providing a service or product to customers who demand value. The bad entrepreneur is only concerned with making money, surviving in the market, and serving consumers. The bad entrepreneur pursues charitable deeds but not at the cost of what consumers demand. You see, being the good entrepreneur only helps a few concentrated groups but ignores the diffuse effects of many consumers, profit rewards, and potential failure. What is the good entrepreneur to do?

Let’s be honest. If the entrepreneur is not primarily motivated by profit, what happens if the business fails or can no longer service its customers due to profits invested in nonmarket activities that do not serve them? Unfortunately, there is a public perception that does not allow entrepreneurs to pursue a profit motive only, because others must choose for them—they call them good entrepreneurs. They call them good if they subordinate the profit motive to lofty, nonmarket, eleemosynary endeavors outside the scope of producing consumer value.

Professor Walter Williams wisely advised: “Profit guides resources to their highest valued uses as determined by people’s wants and desires.”1 Should entrepreneurs disregard the profit motive, making it secondary, and replace it with nonmarket motives? What would the effect of nonmarket motives be on the entrepreneur and the customer? When Coca-Cola changed its formula, said Williams, it was because of customer preference. Consumer preference was a warning sign to the potential loss of profit which brought back the original formula! Actually, good entrepreneurs focus on nonmarket motives—endeavors that are outside their division of labor in the first place. Ludwig von Mises once asked, “What is the good entrepreneur to do?”2

Shouldn’t the primary goal of entrepreneurs be to remain profitable so that, at a minimum, they are able to run their businesses and continue production, which then serves customers who choose to buy their products and services? Don’t entrepreneurs deserve to earn a reward for taking risks and putting their livelihoods in jeopardy to procure materials and goods to bring to the market? To eliminate the profit motive is to ask entrepreneurs to provide their vital service to consumers perhaps at a higher cost than they would otherwise. Profit is not only the reward given by satisfied customers, but is also a market signal of what to do more of and what to do less of. You see, the good entrepreneur, not having a profit motive, primarily focuses on motives that do not serve customer needs.

Market Customers Are Ignored

For example, your local pizzeria owners generally do not know you personally, but they know that you want hot delicious pizza. That’s their motive. Fortunately for pizzeria owners, there’s a reward for preparing that pizza for you. But if your local pizzeria owners do not make a profit, they will no longer exist in your community to serve pizza. End of story.

Therefore, we must ask: are good entrepreneurs, motivated not by profit but by nonmarket issues, likely to be successful and stay in business? Why is there an expectation that entrepreneurs run a business without a profit motive? They can’t. The good entrepreneurs are nonmarket oriented and put profits into nonmarket endeavors aside from producing value for their customer; these nonmarket motives are placed before the profitability of the business and a value-added process for customers.

Having a motive other than profit poses a critical problem. Mises asked, “How can a conscientious entrepreneur persuade a banker or a capitalist to lend him money if he himself cannot see any prospect of a profitable return on his investment?”3 The good entrepreneur, in fact, must ignore customers and forgo profit for nonmarket activity, in which the entrepreneur has a great chance of failing due to financial instability and loss of customers.

What Is the Good Entrepreneur to Do?

When the profit motive is taken off the table as a primary objective, there are several consequences. There ceases to be a way to reward the entrepreneur over and above the costs of doing business. Someone must bear the consequence if the business isn’t profitable and struggles financially. Customers leave.

Good or bad entrepreneurs, if they wish, can be motivated by other things than profit. But the question remains: what cost are they willing to pay to keep the business from failing? Surely, there are other motives that can come into play, but does the entrepreneur who decides not to do what’s in vogue become a bad entrepreneur? Survival of the business comes first; serving consumers comes next. If good entrepreneurs fail, who subsidizes them? If bad entrepreneurs survive and continue to provide value, are they not doing what they are rewarded to do? Bad entrepreneurs can choose what they want to do with their profits, as long as it does not interfere with market exchanges and customer satisfaction.

There is nothing better than to support one’s community and do good deeds for others. However, we must examine a simple fact. If an entrepreneur is not driven by profit first, then a profit-driven entrepreneur will come along, do things better at a better price, and obtain a greater market share. This is a fact of the market process. The problem comes when the good entrepreneur is asked to be guided by nonmarket activities, as Mises stated. He said that entrepreneurs are viewed as “hard and selfish” if they are guided by a market position instead of a nonmarket position and asked, “What is the good entrepreneur supposed to do?”4

Market Consequences

How soon we forget that, as Mises noted, it is “consumers and not the entrepreneurs that determine the direction and scope of production”? In order to serve customers, entrepreneurs must maintain a profitable operation—this is what a good entrepreneur does. If the entrepreneur chooses to disregard the profit motive, customers will not be served. If they are served, at what cost?

Some expect to interfere with an entrepreneur’s business endeavor to pressure them to provide nonmarket outcomes. Basically, they expect the entrepreneur to run a business without a profit. But the same people demand products and services from the entrepreneur. The nonmarket profit motive does not work.

The entrepreneur operates in a market economy, where consumer signals regulate the production or service offerings of businesses. Is it feasible to ask that entrepreneurs use their privately-held resources for nonmarket endeavors notwithstanding the profit motive? Should I ask my favorite pizzeria owner to not be motivated by profit, yet demand he keep making those hot, yummy pizzas? Whatever motive the entrepreneur decides to assume, there surely will be a market consequence.

Nonmarket pressure groups demand that good entrepreneurs only be motivated by what they think is important or the latest nonmarket trend. The fact is, as individuals, entrepreneurs can decide what motivates them and pursue the means to that end. The main concern should not be whether the entrepreneur is primarily motivated by profit or not, but the diffuse effects on customers. Further examination is needed as to the costs in the market.

How do motives that are not based on profits bring results in a market economy? Does a secondary motivation other than profit negatively affect the survival of the good entrepreneur and/or consumers? If so, then we can assume that “the wishes of customers can be safely ignored because there’s no bottom-line discipline of profits.”5

Are you the good entrepreneur?

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  • 1.Walter E. Williams, More Liberty Means Less Government: Our Founders Knew This Well (Stanford, CA: Hoover Institution Press, 1999).
  • 2.Ludwig von Mises, Interventionism: An Economic Analysis, ed. Bettina Bien Greaves (Irving-on-Hudson, NY: Foundation for Economic Education, 1940).
  • 3.Mises, Interventionism.
  • 4.Mises, Interventionism.
  • 5.Williams, More Liberty Means Less Government.

Photo by Brooke Cagle on Unsplash

We Need More Entrepreneurs To Encourage More Entrepreneurship And A More Dynamic Economy.

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Most of the market activities in which entrepreneurs are engaged are readily seen. People buy and sell things or provide services at locations to paying customers. But if we examine the unseen activities, we will learn how entrepreneurship is a perpetuating market process. More entrepreneurs tend to create more entrepreneurship, both among themselves and by setting the stage for the creation of new entrepreneurs. That is, a population with few entrepreneurs produces few entrepreneurs. A population with more entrepreneurs produces even more entrepreneurs.

Real-world experience matters. Becoming an entrepreneur requires the knowledge and insight that come from being aware of previous market errors—the errors made in the trial and error of entrepreneurs who came before. Errors and missed opportunities generate market knowledge and information for future entrepreneurs. This is good news! If past entrepreneurs had not served their customers, made mistakes, combined inventions, transformed innovations into usable products, and finally become a success, then others would probably not consider pursuing entrepreneurship. There would be no such path to self-ownership.

It takes entrepreneurs to produce entrepreneurs. We cannot imagine a world without them. Therefore, it is not just the immediate consequences of hampering markets which makes self-ownership difficult for entrepreneurs. We must also examine the secondary effects on potential entrepreneurs of eliminating paths to entrepreneurship in the long run. Up-and-coming entrepreneurs must do three things: (a) choose an entrepreneurial path that already exists, (b) be mindful that there are market errors waiting to be made, and (c) find insights made by previous entrepreneurs.

Choose an Entrepreneurial Path That Already Exists

Where there is an economic climate for entrepreneurship, where one can “hit the ground running,” entrepreneurship naturally flourishes and prospers. A rise in propensity for entrepreneurship and self-ownership results in more business model imitation and makes the market ripe for one to follow in others’ footsteps. The saying “the greatest form of flattery is imitation” rings true for aspiring entrepreneurs who may hesitate in pursuing profitable market opportunities due to a lack of insight.

In a recent article, Alexander Hammonds discussed this topic. In many cases entrepreneurship has been suppressed or smothered by interventionist and antimarket policies, which makes it extremely difficult for many would-be entrepreneurs to identify a starting point to enter the market. This creates disincentives for new entrepreneurs to enter the market and pick up where others have left off. Thus, innovation and self-ownership are more likely to prosper in an environment where there is a history of entrepreneurship.

The market economy will always possess one relationship—the one between entrepreneurs and consumers. One will serve the other—the entrepreneur will serve the customer. The consumer will look for the entrepreneur who does it better. Just because it’s been done before does not mean you can’t do it over again or imitate it. Don’t just think outside the box, make the box bigger! The pizza restaurant has been replicated for centuries, but because of previous entrepreneurs’ mistakes, others have started pizza restaurants with their own spin. The restaurants down the street from you saw someone else do it and decided to do it differently.

Be Mindful That There Are Market Errors Waiting to Be Made

Randall Holcombe said, “The connection between entrepreneurship and economic growth is that these previously unnoticed profit opportunities must come from somewhere.” There will always be entrepreneurs who make errors in the market that produce insights for others to discover. The beauty of a free market system is that it creates opportunity for others. When a business misses an opportunity, another one can close the gap by making the product or service better. The critical question is: will there ever be a time when the market produces no errors? No.

Find Insights Made By Previous Entrepreneurs

Holcombe explained the critical role of entrepreneurial insights—insights that manifest themselves in the actions and thoughts of future entrepreneurs. F.A. Hayek advised that entrepreneurs must be able to act on these insights to continue in entrepreneurship. Entrepreneurs pick up market insights and pursue improvement through awareness, discovery, and knowledge. Future entrepreneurs must understand that even though it has been done before, it can be done again. I hear it all the time from people who say, “I had a good business idea. But it’s already been done.” Don’t let this stop you. Market insights provide other entrepreneurs the opportunity to close the market gap by creating a product or performing a service better than the entrepreneur before them. Insights are learned and market gaps are closed because of a favorable economic climate and a long history of entrepreneurial insights scattered like bits of pieces across populations.

If you are thinking about becoming an entrepreneur, know that your entrepreneurial predecessors have left behind insights that are waiting for you to notice and grasp them. Glean from the errors, mistakes, and missed market opportunities of others to create a better product or service for the consumer.

The Entrepreneurial Advantages of Building Human Capital While Young.

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While you were young, did you gain knowledge and learn skills that gave you the human capital necessary to become an entrepreneur or a small business owner? Human capital consists of the knowledge and habits developed as a youngster that form skillsets that later in life can be used in the business world. These skills are developed either through the family unit, culture, or regional location and determine the success or failure of entrepreneurial pursuits and performance. In the young, the development of skills and knowledge are applicable to future ventures in entrepreneurship or small business ownership.

Everything you learned from family dinner conversations and your culture served to build your human capital. Across the globe, the people of various regions cultivate certain skills that enable individuals to consider entrepreneurship as a viable choice of work. Some of you never had the social or family setting that gave you entrepreneurial insights. Some people get this while they are young, and some do not. Acquiring human capital at a certain age bolsters the chance of entering entrepreneurship or small business ownership. If human capital or business insights are not embedded culturally or acquired at a certain point, some individuals will never consider entrepreneurship or be successful at it.

We cannot all become successful entrepreneurs, especially if only a few of us come from a cultural background that rewards an ethic of hard work and related values versus a cultural background in which achieving entrepreneurial success is never even thought of.1 What is valued in the family unit and what is rewarded or praised contributes to our future entrepreneurial skills. Ludwig von Mises noted, “the inequality of men, which is due to differences both in their inborn qualities and in the vicissitudes of their lives, manifests itself.”2 The region of the world in which one lives and the context of the acquired human capital skills are equally vital to having an entrepreneurial skillset.

We hear from many entrepreneurs, and those who are not entrepreneurs per se, that much of their education occurred around the family dinner table, or that they lived in a place where small business activity was plentiful.3 Human capital that is based on family, culture, and regional differences has consequential effects for many considering entrepreneurship.

Cultural factors are critical in developing entrepreneurship. Often these cultural factors are overshadowed by the technical aspects of operating a business—the seen versus the unseen. Parents and the elderly pass on their values to their children, values such as taking risks, being independent, challenging uncertainty, etc. Children who are rewarded or not rewarded will either be encouraged or discouraged to pursue entrepreneurial activities in the marketplace. If a child is never taught to be independent, how is he or she able to systemically think of and identify potential profit opportunities and bring opportunities to fruition?

Habits form over time, and many are culturally based. In some cultures, some children spend up to twelve hours a day playing videogames and entertaining themselves on social media. In other cultures, children are expected to work long hours helping mom and dad with their business or studying to earn the best grade. These youths may work at an uncle’s garage learning all about vehicles or attend college to gain business knowledge. In either situation, these youths are learning about private property, e-commerce, revenues, profit and loss, bookkeeping, and so on—gaining skillsets and knowledge in order to run a business of their own in the future.

Generally, whatever is cultivated in the family unit and culture will manifest and have consequences in the marketplace. Children who acquire a work ethic and values related to entrepreneurial success will have an advantage over their peers who have not had the same experience. The children who have not learned these things will have a much later start or never acquire the skills and the know-how needed to pursue entrepreneurship or small business ownership.

Not everyone has an equal opportunity to become an entrepreneur, as some must acquire a collection of basic skills, knowledge, and habits that may take decades to develop. Taking risks, working longer hours, and making critical decisions require a certain upbringing. Entrepreneurs are not created overnight but over time. However, ten years of working with mom, dad, or an uncle as a youth, gaining practical knowledge, surely provides advantages later in life.

We cannot disregard the location and region in which we lived during the time of our early human capital acquisition. Being located in one region of the earth versus another can surely impact our ability to develop a predisposition or entrepreneurial insights needed for entrepreneurial behavior. Perhaps we live in an area where several industries exist. Being surrounded by these industries allows us to either work for or start a business in a vein that is familiar to us.

As with any location or local market, our human capital can be stymied in a region or location where a product or service is not valued or not supported although it might be highly valued in another market (i.e., if one has to take their product knowledge to another region where the consumers have higher subjective valuations of their productive goods or services).

Unfortunately, the opportunity to attain the same human capital at the same time and place that leads to entrepreneurship is not equally available to everyone. Without the requisite human capital, one can only dream of becoming a successful entrepreneur or business owner. Families and family cultures vary among peoples across the globe, and so does the dissemination of knowledge at the family dinner table. We all come from backgrounds that either reward or punish certain behaviors that later transform into predispositions and values that underpin our ability to, at a minimum, think like and be an entrepreneur. Ludwig von Mises said that entrepreneurs “owe their position exclusively to the fact that they are a better fit for the performance of the functions incumbent upon them than other people are.”4 An interpretation of Mises on this point is that the skills and knowledge develop over time that enable entrepreneurs to uniquely perform the production of products and services for the consumer.

  • 1.See Thomas Sowell’s The Quest for Cosmic Justice. In the section titled “Freedom versus Equality,” he discusses equal performance and social barriers.
  • 2.See Ludwig von Mises’ Planning for Freedom.
  • 3.See Ryan McMaken’s article “Three Economics Lessons I Learned from My Dad.” For example, three lessons that he learned were: lower the cost of doing business, politicians drive up the cost, and the world is always changing.
  • 4.See Ludwig von Mises’s Human Action on the Entrepreneurial Function.
Author:

Raushan Gross

Raushan Gross is an Associate Professor of Business Management at Pfeiffer University