An entrepreneur is a person who starts, organizes and takes responsibility for a new business or venture, combining labor, money and ideas and accepting the risk that it may fail in return for the chance of profit. Some economics textbooks list entrepreneurship as a fourth factor of production next to land, labor and capital. The word comes from the French entreprendre, "to undertake". The Irish-French banker Richard Cantillon used it in his Essai sur la nature du commerce en général, written around 1730 and published in 1755, for someone who buys at a known price in order to sell at an unknown one.
Entrepreneurs range from street traders and family shops, many of them in the informal economy, to founders of technology firms backed by venture capital. They are distinct from managers, who run firms on someone else's behalf, from inventors, who may never sell anything, and from passive investors. Economists, business schools and statistics offices study them through business registration data and surveys such as the Global Entrepreneurship Monitor.
Entrepreneur in plain terms
Think of someone who decides to run a food stall at a town festival. They rent a pitch, buy ingredients, ask a cousin to help and print a menu. Nobody promises them a wage. If the weather is good and the food is popular, they keep whatever is left after paying for everything. If it rains all weekend, they absorb the loss.
That is the core of entrepreneurship: spotting a chance, putting resources together and carrying the risk. A large technology startup works the same way, only with more money, more people and much longer odds.
How economists have defined the entrepreneur
- Cantillon: the bearer of uncertainty. Merchants, farmers and craftsmen pay fixed costs now and sell later at prices they cannot know in advance.
- Jean-Baptiste Say: the coordinator. In the early 1800s Say described the entrepreneur as the person who brings together the factors of production and directs them.
- Frank Knight: reward for true uncertainty. In Risk, Uncertainty and Profit (1921) Knight separated insurable risk from uncertainty that cannot be measured, and argued that profit is the return to bearing the latter.
- Joseph Schumpeter: the innovator. Schumpeter cast the entrepreneur as the person who carries out "new combinations": new products, methods, markets, supplies or forms of organization. That drives creative destruction.
- Israel Kirzner: alertness. Working in the Austrian school, Kirzner (1973) saw entrepreneurs as people alert to price gaps and unused opportunities that others miss, nudging markets toward balance.
- William Baumol: rules decide the payoff. In a 1990 paper Baumol argued that the supply of entrepreneurs is fairly stable across societies, but institutions decide whether their energy goes into productive ventures or into rent-seeking, lawsuits and crime.
Types of entrepreneurship
Researchers separate necessity entrepreneurs, who start a business because they lack other work, from opportunity entrepreneurs, who pursue a gap they have spotted. Most new businesses are small and medium-sized enterprises that aim for a steady living, while a small minority are high-growth ventures chasing hockey-stick growth once they find product-market fit. Other categories include social entrepreneurs, who pursue a social mission with business methods, serial entrepreneurs who start several firms, and "intrapreneurs" who launch new ventures inside established companies.
Financing a new venture
Most entrepreneurs start with their own savings, family money or a bank loan secured on personal assets. Lenders are cautious with new firms because of asymmetric information: the founder knows more about the venture's prospects than the bank does, and there is no track record. High-growth ventures may raise equity from angel investors and then venture capital in successive rounds, giving up ownership each time, and look for an exit through a sale or an initial public offering. Limited liability and forgiving bankruptcy laws reduce the personal cost of failure and are widely seen as encouraging new firms. In regulated sectors such as fintech, founders must also obtain licences before they can serve customers.
Entrepreneurship and the wider economy
New firms bring innovation to market, challenge incumbents and push up productivity when better businesses replace weaker ones. Work by John Haltiwanger, Ron Jarmin and Javier Miranda (2013) found that young firms, rather than small firms as such, account for an outsized share of job creation in the United States. Entrepreneurs often gather in business clusters where talent, suppliers and investors are close at hand. Growth theorists, especially those working on endogenous growth theory, treat the incentive to start and invest in new ventures as a key driver of long-run growth. In the United States, Census Bureau data show that applications to form new businesses rose sharply from mid-2020 and stayed above pre-pandemic levels in the following years.
Criticism and debates
Popular accounts focus on famous founders and ignore the many ventures that fail, a form of survivorship bias. Erik Hurst and Benjamin Pugsley (2011) found that most new US small businesses do not intend to grow or innovate, so "entrepreneurship" covers very different activities. Some self-employment reflects a lack of secure jobs rather than ambition, a point raised in debates about the precariat and gig work. Gaps in access to finance by gender, region and background are well documented. Supporters of small-business subsidies and critics who say they mainly reward firms that would have started anyway continue to disagree about how much policy can raise the rate of productive entrepreneurship.