Entrepreneurship is more accurately measured with statistics on self-made business people.

Do Real Entrepreneurs Have to be Rich?

Jun 26, 2014 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Economic Thinkers, Government, Thinking Economically • 145 Views    No Comments

When you think of an entrepreneur, doesn’t a person who has started a business come to mind? In the United States, that could take us to industries where the self-employed predominate like construction and restaurants, auto repair shops and beauty salons.

But, if we associate entrepreneurs with innovation and growth, are the industries with the most new small business firms really entrepreneurial?

Discussions of entrepreneurs typically refer to innovative people who want to grow a business. However data about entrepreneurs focus on startup numbers. Consequently, I wonder if we have a bit of a problem because typical startups are not innovative and most of their owners tend not to demonstrate a growth commitment.

Trying to identify entrepreneurs, one academic study reports that only 10-20% of all US startups had founders who cared about innovation. As for growth, the same researchers said that 75% of their respondents said, “I want a size I can manage myself or with a few employees.”

No innovation. No growth. Maybe we should use a different metric for measuring entrepreneurship?

In “Small Business Activity Does Not Measure Entrepreneurship,” researchers hypothesize that instead we should focus on society’s most affluent individuals. Looking from 1996-2010 at Forbes’s ranking, in 50 countries they found 996 self-made billionaires whom they called high-impact entrepreneurs. Their purpose was to display that an emphasis on small business startups can be misleading when talking about the growth or contraction of meaningful entrepreneurship. Instead, we can judge the prevalence of entrepreneurship in a country by looking the proportion of very successful business people.

Using billionaire statistics, they identified the world’s most entrepreneurial countries:

Using billionaires to measure entrepreneurship

From: “Small Business Activity Does Not Measure Entrepreneurship”

Our bottom line? Because entrepreneurship is tough to pin down, we should be sure to recognize whether our data directly relate to our definition. Consequently, if we want to emphasize innovation and growth, small business startups might not be appropriate statistics. Instead, to recognize countries that encourage entrepreneurship, we can focus on the proliferation of firms like Wal-Mart, Amazon, Ikea and H&M and the people who propelled their ascent.

Your opinion of ignoring small startups when discussing entrepreneurship? Please let us know in a comment.

Sources and more...Two sources were ideal: This Schumpeter column in The Economist and the academic paper,  "Small Business Activity Does Not Measure Entrepreneurship." Also, because our discussion emphasizes Joseph Schumpeter"s definition of entrepreneur, you might want to look at a brief biography.  

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