[postintro]This is the first article in an occasional series from Professor Raushan Gross on The Institutions Of Entrepreneurship. Entrepreneurship is a powerful pathway to innovation, growth, prosperity, and a better life for all. Its emergence and thriving are not automatic; it requires enabling institutions. Professor Gross will analyze and explain the institutional supports required for entrepreneurship to play its role in elevating society to the highest levels of achievement.[/postintro]

The condition of the market economy is the most critical aspect of entrepreneurs’ success, not the entrepreneur’s age. Yet, who say the opposite; that there is a Golden Age of entrepreneurial success, and it is 45. The combination of the age of the entrepreneur and the right mindset is said to be the perfect formula for market success.

While I agree that everything takes time, I am not convinced that age and mindset are essential for successful entrepreneurial endeavors in the long run. Although age and mindset have a role in success, we cannot disregard the requisite market conditions that are more likely to produce favorable or unfavorable results regardless of age and mindset. Entrepreneurs need a favorable market that rewards their risk-taking. If would-be entrepreneurs who are not in their Golden Age today are advised to wait to see success when they enter their 40’s even under unfavorable market conditions, we are in danger of eliminating one of the economy’s critical functions – entrepreneurship itself.

Conventional thinking about entrepreneurship is changing before our very eyes. For example, there have been significant declines in small business ownership and new startups, and fewer unicorns decade over decade. Why? Let us say that Rome was not built overnight, and neither was the entrepreneur. Products take time to produce; it takes time to develop a network of customers; it takes time for the entrepreneur to develop awareness, it takes time to find the market error that can be turned into an opportunity, and finally, it takes time for the market to adjust to changes in consumers’ tastes, preferences, and perceptions. Entrepreneurs do not acquire human capital in just one day, nor were economic systems created in one day.

Entrepreneurship is a social phenomenon that manifests itself through the passing of time, and application of human energy and capital, and favorable market conditions. No group of persons sat around one day and created our market economy; it took vast amounts of experiences and knowledge to come together, creating a space for the entrepreneurial function to operate for us. If the Golden Age is 45, and there have been declines in new entrepreneurial births, who will the newcomers follow? How will the ranks fill with those who can imitate the paths of successful entrepreneurs or small business owners?

The favorable conditions of a market economy are essential so that an individual at any age can find and pursue meaning in life. The benefit of favorable market conditions is to allow would-be entrepreneurs to find meaningful ways of applying their human capital to serve society’s most urgent needs, making conditions better for both others and themselves. The market provides a means by which one entrepreneur pursuing their own aims can enable someone else with whom they have no direct contact to pursue their own goals. In other words, productivity begets productivity.  Another benefit of a favorable market economy is that it brings forth visible adjustments, errors, new knowledge, and information, against which entrepreneurs can weigh their subjective opportunity costs in assessing the risk of pursuing a possible opportunity.¹

In essence, individuals accumulate entrepreneurial skills and opportunity awareness, but they have to act to put them to practical use, and if they cannot, society pays the costs. The costs amount to a decrease in new entrepreneurship, innovations, and knowledge. People pursue endeavors when they are incentivized to do so, and if they are not it will leave a gap in one of the most critical market functions – entrepreneurship. Rome was built through the experiences and knowledge set in motion by many people over time. F. A. Hayek stated:

“the successful combination of knowledge and aptitude is not selected by common deliberation, by people seeking a solution to their problems through joint effort; it is the product of individuals imitating those who have been more successful and from their being guided by signs or symbols, such as prices offered for their products or expressions of moral or aesthetic esteem for their having observed standards of conduct –in short, of their using the results of the experiences of others.” ²

An open economic system, where individuals of all ages (younger, older, and in between) are encouraged to pursue their economic interest considering their subjective opportunity costs, ipso facto is likely to increase new entrepreneurial births. Therefore, the condition of the market economy is a necessary factor for entrepreneurs to maximize their range of choices and ideas, and to discover and innovate. A favorable economic system provides individuals in a society a way to use their human capital to achieve society’s needs, on behalf of people they will never know directly.

Certainly, age and experience play to the entrepreneur’s advantage, but what matters most is the market economy’s conditions.

How will people who are not at the Golden Age react to the current market conditions? They need a measurable market indicator – others’ success. Who will fill the shoes of the entrepreneurs and small business owners who have vanished? We must remember that Rome was not built overnight, and neither was the entrepreneur and the system in which they operate.

[1] Kirzner, I. M. (2015). Austrian Subjectivism & the Emergence of Entrepreneurship Theory. Liberty: Indianapolis, ID.

[2] Hayek, F. A. (2020). The Constitution of Liberty. Chicago, IL: The University of Chicago Press.

Raushan Gross, Ph.D. is Associate Professor of Business Management at Pfeiffer University.