July 30, 2011 1 Comment
I recently attended a conference session on entrepreneurship research in which one of the presenters started out formulating a composite entrepreneurship index consisting of 24 variables that “commonly” are used to “measure entrepreneurship.” The term entrepreneurship as used in this presentation, however, remained undefined.
That is, until someone asked what was meant by entrepreneurship. This followed upon showing a circle diagram showing “firm births” (i.e., firm creation) within which a smaller circle showed “entrepreneurship” as a sub category (not the picture to the right). The conclusion in the paper that these circles were supposed to illustrate was that states were shown to do a better job of creating firms than entrepreneurs. All according to the composite index.
This statement almost made me fall out of the chair. But looking at my notes again I realize that the presenter meant that states are, at least according to this composite index, better at creating firms than they are at creating entrepreneurship. This should not be very surprising, since entrepreneurship is hardly something that we can get more of from regulation or taxation (unless we measure political entrepreneurship).
Following the question from the audience, the presenter attempted to define entrepreneurship as opposed to firm creation: “All entrepreneurs start firms, but all firm births are not by entrepreneurs,” he stated. Not a very clarifying attempt at a clarification, upon which the following illustration was given. Imagine somebody starting a restaurant, and this restaurant in time reaches its market climax and at that time has maybe 10 employees. The business does well. Is this entrepreneurship? No, not if the owner is satisfied with his firm’s size and does not aim for it to grow. Because entrepreneurship, we learned, is characterized by quickly growing one’s business – especially if one turns to sell it off for billions of dollars to then move on to start new projects. Then starting a firm is entrepreneurial.
I am not convinced by this definition. It seems unclear and arbitrary – and it is hard to see how this type of entrepreneurship is different from venture capitalism. But perhaps this is the kind of confusion we must accept if we see entrepreneurship as only firm creation. Especially if we try to “fix” the definition by excluding startups that are not all that entrepreneurial, such as franchises.