Chapter 1: The History of Entrepreneurship

The aims of this chapter are to:

 Introduce the term entrepreneurship and its origin

 consider the evolution of trade and entrepreneurship
 understand why money was created and how it accelerated trade
 clear up common misconceptions around entrepreneurship
 answer the question 'when is the perfect age to become an
entrepreneur?'
 understand  the key motivation to become an entrepreneur.

Learning outcomes

By the end of this chapter, and having completed the essential reading and activities
you should be able to:

 Define the concept of entrepreneurship

 demonstrate understanding of the history of trade
 explain why money was invented
 describe the underlying motivation to become an entrepreneur
 evaluate some of the individual success factors of entrepreneurship.
Essential Reading

Drucker, P. Innovation and Entrepreneurship: Practice and Principles. (New York:

Harper, 1985) [ISBN: 978-0-06-085113-2] Pages 20-27

Koltai, S. and Muspratt, M. Peace through Entrepreneurship: Investing in a Startup

Culture for Security and Development. (Washington D.C.: Brookings Institute Press,
2016) [ISBN: 9780815729235] Pages 2-4

References cited (click to show)

Kates, S. Origin and Evolution of the Term "Entrepreneur" in English. (beepress,
2015, https://works.bepress.com/stevenkates/4/, Viewed 5 March 2019)
Theocarakis, N. (York: University of York Archives of the Societies for the History of
Economics: https://listserv.yorku.ca/cgi-bin/wa?A2=ind1309c&L=shoe&T=0&P=1206,
2013, Viewed 10 March 2019)

Menudo, J. (York: University of York Archives of the Societies for the History of
Economics: https://listserv.yorku.ca/cgi-bin/wa?A2=ind1309c&L=shoe&T=0&P=1322,
2013, Viewed 10 March 2019)

Mill, J. Principles of political economy with some of their applications to social

philosophy. 7th edition (London: Longmans, Green, and Co.,
1921, https://oll.libertyfund.org/titles/mill-principles-of-political-economy-ashley-ed,
Viewed 7 March 2019)

Schumpeter, J. Capitalism, Socialism and Democracy (New York: Harper & Brothers,
1942)

Koltai, S World Peace Through Entrepreneurship: Steven Koltai at TEDxDirigo. (Maine:

TEDxDirigo, 2012, https://www.youtube.com/watch?v=SpH7cBEK0So, Viewed 3 March
2019)

Allis, R. The history of entrepreneurship from ancient trade to the industrial age. (Berlin,
Lisbon, Copenhagen: Startup Guide, 2018, https://startupguide.com/history-of-
entrepreneurship-from-ancient-trade-to-the-industrial-age, Viewed 3 March 2019)

Rhodes, C. Commons Briefing papers SN06152. (London: The House of Commons

Library, 2018, https://researchbriefings.parliament.uk/ResearchBriefing/Summary/
SN06152#fullreport, Viewed 5 March 2019)

UNESCO Countries alongside the Silk Road Routes: Republic of Korea. (Paris:
UNESCO, 2016, https://en.unesco.org/silkroad/countries-alongside-silk-road-routes/
republic-korea, Viewed 30 January 2019
Fuxi, G. Brill, R. and Shouyun, T. Ancient Glass Research along the Silk Road (Japan:
World Scientific Publishing Company c/o Science Press Tokyo, 2009) [ISBN 978-981-
283-356-3]

Bentley, Jerry H., 1949-. Old World encounters: cross-cultural contacts and exchanges
in pre-modern times. (New York : Oxford University Press,
1993. http://hdl.handle.net/2027/heb.30958.0001.001.)

Dugmore, A., McGovern, A., Vésteinsson, O., Arneborg, J., Streeter, R., Keller, C.
Cultural adaptation, compounding vulnerabilities and conjunctures in Norse Greenland.
(Washington: PNAS March 6, 2012 109 (10) 3658-
3663; https://doi.org/10.1073/pnas.1115292109)

Heilbroner, R. The Worldly Philosophers: The Lives, Times, and Ideas of the Great
Economic Thinkers. 7Rev Ed edition. (London: Penguin, 2000) [ISBN: 0140290060]

Mintz, S. Was slavery the engine of economic growth? (University of Houston:

2012, https://web.archive.org/web/20120513025327/http://www.digitalhistory.uh.edu/
historyonline/con_economic.cfm, Visited 5 March 2019)

Lowther, E. A short history of the pound. (London: BBC News,

2014, https://www.bbc.co.uk/news/uk-politics-26169070, Visited March 5 2019)

Guinness World Records. Oldest hotel.

(London, http://www.guinnessworldrecords.com/world-records/oldest-hotel, Visited 5
March 2019)

Staffelter Hof. More than 1155 Years... (Kröv:

2016, https://www.staffelter-hof.de/en/stories, Visited 5 March 2019)

PayScale. Average Small Business Owner Salary. (Seattle:

2019, https://www.payscale.com/research/US/Job=Small_Business_Owner/Salary,
Visited 5 March 2019)

U.S. Bureau of Labor Statistics. USUAL WEEKLY EARNINGS OF WAGE AND

SALARY WORKERS FIRST QUARTER 2019. (Washington:
2019, https://www.bls.gov/news.release/pdf/wkyeng.pdf, Visited 5 March 2019)

Fritsch, M., Sorgner, A., Wyrwich, M. Entrepreneurship and Job Satisfaction: The Role
of Age. (Jena: JENA ECONOMIC RESEARCH PAPERS,
2018, https://www.researchgate.net/publication/327542368_Entrepreneurship_and_Job
_Satisfaction_The_Role_of_Age, Visited March 5 2019)

Knowledge@Wharton. "Why MBA Entrepreneurs Are Happier Than Their Peers."

(Pennsylvania: Wharton School, University of Pennsylvania,
2012, https://knowledge.wharton.upenn.edu/article/why-mba-entrepreneurs-are-
happier-than-their-peers/#, Visited 5 March 2019)

Somers, M. The 20-year-old entrepreneur is a lie. (Cambridge: MIT Sloan School of

Management, 2018, https://mitsloan.mit.edu/ideas-made-to-matter/20-year-old-
entrepreneur-a-lie, Visited 5 March 2019)
Introduction
Welcome to the first chapter of the course MGT403: Entrepreneurship.

In a very abstract sense, entrepreneurship is the concept of organising various

processes in a planned and strategic way in order to create value. This topic has
enjoyed great popularity over the past three decades. In particular, the dot-com boom,
which occurred roughly between 1994 and 2000 (the period in which the internet was
widely adopted), contributed greatly to the popular image of the sneakers-wearing tech
billionaire. Having said that, there is much more to entrepreneurship than this, and we
will look into its many elements in this course.

To begin, this chapter will provide you with a top-level view of the concept of
entrepreneurship and its historical context. This will include the origin of the term
entrepreneurship and when it entered the English language, and how trade and
entrepreneurship came about, historically speaking. We will touch upon how trade
spread across the world as a backdrop for entrepreneurship and why money was
invented in the context of trade. In order to understand the key motivations behind
entrepreneurship, we will also clear up the most common myths and look into the
‘perfect age’ to become an entrepreneur.

Whether you are looking to start a business upon graduation or are just taking a general
interest in the topic of entrepreneurship, you have come to the right place. We will start
off with the theoretical background and work our way through more practical elements
as the course progresses.

Entrepreneurship cannot be taught, but it can be trained, so make sure that you engage
actively with your peers to maximise the value of this course.

In this block we will consider the origin of the term entrepreneurship and its definition;
give an overview of the history of trade and entrepreneurship; look at the invention of
money as a store of value; consider how markets came into being; analyse
misconceptions about entrepreneurship; and learn about two of the oldest companies in
the world.

It could be argued that there are as many definitions of entrepreneurship as there are
entrepreneurs in the world. Just as with many other activities that don’t fit conventional
job descriptions, the definition of what constitutes an entrepreneur varies greatly. In
order to agree a definition for the purpose of this course, we will look back at the origins
of the term ‘entrepreneurship’ and when it entered the English language.

French economist Jean-Baptiste Say in his famous work Traité d'économie politique (in

English, A treatise on political economy) in 1803.Say, who lived in the 17th and 18th
centuries, used the term to describe the general concept of using intelligence to
organise production into outputs and to decide what to produce, in what quantities, how
production should take place and finally how to organise the process economically in
order to generate a profit. Say later went on to become an entrepreneur himself by
starting a cotton-spinning mill which employed about 400–500 people.

Of course, the general concept of organising various processes in order to make a profit
is much older than Say’s work. Before the term entrepreneurship was used in the
English language, Adam Smith used the term ‘undertaker’ (which directly translates to
the French term entrepreneur) instead, in his work Inquiry into the nature and causes of
the wealth of nations (1776). In this work Smith uses the term as a noun (‘the
undertaker’) with verbal overtones (‘to undertake’) to describe the same concept (Kates,
2015 p.2). Despite the existence of the concept in both the English and French
languages, it is believed by Nicholas Theocarakis (2013) and José Manuel Menudo
(2013) that the term entrepreneur was used for the first time in an English text by John
Stuart Mill in his Principles of political economy from 1848. Here, Mill contemplates in a
footnote the thought that the English term undertaker is less accurate than the French
term entrepreneur in relation to the overall economic function it describes:

“[..] It is to be regretted that this word, in this sense, is not familiar to an English ear.
French political economists enjoy a great advantage in being able to speak currently of
les profits de l’entrepreneur.” (Mill 1921 pp. 406-407)

It was some time before the French term entrepreneur became a naturalised English
word and found its way into the vocabulary of English-speaking economists. Results
from a Google Books analysis of printed sources from between 1500 and 2008
suggests that usage of this term does not occur in significant numbers until around 1880
(try this yourself on Google’s Ngram viewer).

In 1911, Schumpeter published The theory of economic development, which was

eventually translated into English in 1934. In this work, Schumpeter takes the concept of
the entrepreneur from being someone who undertakes or manages a business to
someone who is also an innovator. Further to this, in his 1942 work Capitalism,
socialism and democracy Schumpeter introduces the concept of ‘creative destruction’
as the process through which entrepreneurially-led innovation occurs (Schumpeter,
2010, pp.81–86). Schumpeter thereby not only linked the concept of running a business
with that of innovation but also finally introduced the term entrepreneurship to
mainstream English language. The work of both Schumpeter and Say is referenced by
Peter Drucker in his Innovation and entrepreneurship: practice and principles, originally
published in 1985:

“[...] Entrepreneurship rests on a theory of economy and society. The theory sees
change as normal and indeed as healthy. And it sees the major task in society - and
especially in the economy - as doing something different rather than doing better what is
already being done. That is basically what Say, two hundred years ago, meant when he
coined the term entrepreneur. It was intended as a manifesto and as a declaration of
dissent: the entrepreneur upsets and disorganizes. As Joseph Schumpeter formulated
it, his task is "creative destruction. [...]” (Drucker p. 26)
Drucker makes the point that, in his view, while entrepreneurs are not only managers
but that they also cause the ‘creative destruction’ of existing ways (by doing something
different to what is already being done) he considers innovation as a tool of the
entrepreneur. This implies that an entrepreneur is not innovative per se but utilises
innovation as a means to an end:

“[...] Innovation is the specific tool of entrepreneurs, the means by which they exploit
change as an opportunity for a different business or a different service. [...] ” (Drucker
2015 p. 20)

Finally, he offers his definition of entrepreneurship an entrepreneur is, in his view:

“[...] Entrepreneurs see change as the norm and as healthy. Usually, they do not bring
about the change themselves. But – and this defines entrepreneur and
entrepreneurship – the entrepreneur always searches for change, responds to it, and
exploit it as an opportunity. [...]” (Drucker 2015 p.27)

As we have seen, the concept and definition of an entrepreneur have changed since the
term entered the English language, from denoting someone who launches and
manages a business (an undertaker) to someone who uses innovation to bring about
change in a certain field and exploits that change commercially. Steven Koltai, an expert
on international entrepreneurship ecosystem development who served as a Senior
Advisor for Entrepreneurship at the US Department of State where he created and
managed the Global Entrepreneurship Program (GEP) offers his definition of
entrepreneurship, and especially what entrepreneurship is not. In his book Peace
through entrepreneurship, he explains:

“[...] Who is an entrepreneur? Let's get this straight. We're not talking about rural
microfinance. We are not talking about lemonade stands. We're talking the staff of
Silicon Valley and Sam Wharton, the stuff of Walt Disney and Thomas Edison. This is
my definition of an entrepreneur: an entrepreneur is a person with the Vision to see a
new product or process and the ability to make it happen. Not every small business
owner on Main Street or in Marrakech market is an entrepreneur according to this
definition. [...] In this book, when I talk about entrepreneurship, I'm talking about new
products and processes. It's about innovation. And innovation isn't the same thing as
technology, although they often go hand in hand. (Koltai 2016 p. 3-4)

In the age of large-scale technology and globalization, the term entrepreneur is

intrinsically linked with global technology companies such as Hewlett-Packard,
Microsoft, and Facebook. The success story of Silicon Valley has been exported around
the world. Famous entrepreneurs such as Steve Jobs, Bill Gates, and Mark Zuckerberg
are the poster boys of the Silicon Valley culture. Beyond this, John Pierpont Morgan, the
founder of J.P. Morgan Chase & Co. in the USA, Jamsetji Tata, the founder of the Tata
group in India, or Ferdinand Porsche, the founder of the German car manufacturer
Porsche are attributed with tremendous entrepreneurial success. These success stories
define our present-day understanding of entrepreneurship. Having said that, all
businesses start small. Most businesses start with one or two founders, and many don’t
grow into global companies with thousands of employees turning over hundreds of
millions of dollars in revenues. Many grow into small or medium-sized enterprises
(SMEs) providing a stable income for 50 or perhaps 100 employees. In the United
Kingdom the official definition of an SME is any business with no more than 250
employees. In 2018, there were 5.7 million SMEs in the UK, which equals 99% of all
businesses in the country (Rhodes, 2018). Will they ever grow into global businesses?
Perhaps not. An entrepreneur doesn’t necessarily have to end up being a billionaire. But
if one does that’s okay too.

Watch “World Peace Through Entrepreneurship: Steven Koltai at TEDxDirigo”

below then answer the following question:
1. What are the differences between no-tech, low-tech, and high-tech
entrepreneurship?
2. Think about a business you want to set up.
3. Evaluate the above categories and come up with an idea.
4. How many SMEs do exist in your country?
`

The evolution of trade and entrepreneurship

1. Introduction

In his famous article The history of entrepreneurship from ancient trade to the industrial
age, Allis (2018) summarises the history of entrepreneurship. Allis explains that the first
people we know of who conducted business were traders and merchants in New
Guinea at around 17,000 BCE. Although we have no details of how trade was organised
back then it can be concluded that these merchants were early entrepreneurs. They
exchanged a black volcanic glass called obsidian, which was used to make arrowheads,
for other goods that they needed. Later, people started to domesticate animals and to
cultivate plants (agriculture) and began trading animals, grains, vegetables, and fruits.

2. From settlements to towns

Eventually, some tribes moved on from living a nomadic to a settled lifestyle.

Communities grew and with that came the increased need for goods and trade. Labour
was now divided now into various integrated tasks such as farming, hunting, gathering,
fishing, cooking, tool-making, shelter-building or clothes-making. This allowed for the
exchange of goods and services which enhanced the economic leverage of the
individual offering them to the community. 

The basic principle of supply and demand was born. During this period, people became
territorial and developed more organised societies. Systems of social stratification were
established and institutionalised, comprising classes, religions, and professions. The
differentiation that defined one’s status within society was largely based on power,
wealth, territory ownership, religion, family membership, and gender..

3. Trade systems

Trade was the key driver of growth in those days and new, institutionalised forms of
trade and organising social life such as marketplaces, associations, courts, legal
systems, and religious centres flourished. Villages developed into towns and trade
routes between them were established. By developing towns, people became more
efficient in building systems of production and trade and organising their communities. 

People formalised the educational processes of skills acquisition, trade, and business
interests, and passed on skills over many generations in the form of guilds,
monasteries, associations, and literature. Specialisation allowed people to become
more competitive and to improve their standard of living as many families specialised on
the production processes of only a few goods.

4. Intercontinental trade routes

During the Han dynasty (207 BCE–220 CE) in ancient China people started trading silk
and other goods along what therefore became known as the Silk Road. The Silk Road
was a large network of trade routes connecting Asia with the Arabian Peninsula, Africa,
and Europe. Over the following centuries, the Silk Road contributed significantly to the
development of civilizations in China, Korea, Japan, the Indian subcontinent, Persia,
Europe, South Africa, and the cultures of the Arabian Peninsula (Fuxi et al., 2009;
Bentley, 1993). In the Middle East, the civilisations of the rivers of Euphrates and Tigris,
for example the Sumer, formed at around 3,000 BCE in what is now modern day Iraq.
During this time, the Sumerian city of Uruk was home to about 50,000 people who
conducted trade up and down the rivers, using boats to carry goods. Coastlines and
rivers were like the ‘motorways’ of the time before mechanised transport. 

Over a long period of history and various civilisations, rivers such as the Nile, Indus,
Yellow and Yangtze, Tigris and Euphrates, Rhine and Danube, Hudson and Thames
became busy trade routes and led to settlements, which turned into towns and
eventually ports and cities. There is some evidence that in the 10th century CE the
Norse peoples (also called the Vikings) began to trade with people living on the North
American continent. This established the first trade routes between Europe and America
and although there is no evidence that the Norse settled for long periods in North
America, there is evidence that they established trade with the local tribes such as the
Beothuk (related to the Algonquin) and the Thule people, the ancestors of the Inuit.
Items such as comb fragments, pieces of iron cooking utensils, chess pieces, and a
statue representing a European have been found far beyond the traditional range of
Norse colonisation (Dugmore et al., 2012).
5. The creation of money

Before money was invented, people used to rely on the barter system. The barter
system was based on the so-called ‘coincidence of wants’. For example, if one person
wanted to exchange eggs for tomatoes and another wanted to exchange tomatoes for
eggs, a deal could be made. This system of bartering, also called commodity money,
was highly inefficient and caused a lot of friction in the market. Most food or other goods
could not be stored for long periods and there was no common basis on which to base
value. In one village, three eggs might cost two tomatoes and in another village, three
eggs might cost six tomatoes. So people came up with a non-perishable and universal
medium of exchange that allowed for the measuring and storing value at the same time.

For example, in ancient China during the during the Zhou dynasty about 1000 BC,
money in the form of bronze spades and small knives was used. They replaced cast
bronze replicas of cowrie shells which were in use before this.This medium of exchange
had no significance in itself other than the trust that was placed in it. The concept of
money was born. The very first coins to be manufactured appeared separately in India,
China, and the cities around the Aegean Sea between 700 and 500 BCE. The oldest
currency still in use is the British pound (Lowther, 2012). The pound derives its name
from the Latin term ‘Libra pondo’, which means a pound weight, referring to the fact that
its value originally equated to a pound of silver. The Anglo-Saxon King Offa of Mercia
(who ruled from 757 CE until his death in July 796 CE) introduced this monetary system
in the South of what is now England and, although it has changed since then, it still
exists today. While the word Libra has been dropped, the £ sign still resembles the L
that was used to represent it.

6. Markets and money

Around 1470 CE the global population grew and with it the volume of trade increased.
This led to greater demand for a more organised system to govern the many mediums
of exchange. People used money on a daily basis and therefore new financial services
were needed, which lay the foundation for the modern banking industry. Although
banking has been practised since the Ancient Mesopotamian period, the financial
services sector became more complex in the 15th century. A variety of new financial
instruments such as credit, loans, and interests were developed. Providing liquidity and
storing and managing money on behalf of other people became a viable business
model and modern banking systems emerged. In addition, the concept of a business as
a legal and impersonal entity that is separate from its owner or owners (who are
personal entities) became standardised.

During the expansion of global trade, an Italian mathematician named Luca Pacioli
published a piece of work about the double-entry system of bookkeeping, which is still in
use today. Thus, he is referred to ‘the Father of Accounting and Book-. (Galassi, 1996)
The double-entry or double-ledger systemof the 15th century is fundamental to the
Blockchain technology of the 21st century. The only difference is that on a Blockchain
the ledgers are stored in a decentralised way on many nodes and updated across all
nodes at the same time. Similar to the new efficiency-driven approach in accounting,
many other technology-based innovations also took a more efficiency-driven approach.
As Robert L. Heilbroner puts it in The Worldly Philosophers:

“The pre capitalist era saw the birth of the printing press, the paper mill, the windmill, the
mechanical clock, the map, and a host of other inventions. The idea of invention itself
took hold; experimentation and innovation were looked upon for the first time with a
friendly eye.” (Heilbroner 2012)

The Portuguese, Spanish and English/British empires began to increase their overseas
trade during the 15th to 17th centuries. Early European entrepreneurs, called explorers
and merchants, began to establish trade routes from Europe to other continents and
began to raise capital for their so-called ‘ventures’ and explorations. Thus, capital
designated to fund risky projects is called ‘venture capital’. This stimulated economic
growth in Europe and capitalism as we know it began.

It has to be mentioned that alongside all the goods traded another form of trade became
very popular among the three leading empires: the slave trade. Conducted by multiple
European nations, the exploration of the African coast displaced millions of people and
generated immense wealth for the empires. In particular, the Atlantic slave trade
organised during the rule of the British Empire became a very profitable industry,
especially after 1640. During the pre-Civil War era in the USA, enslaved people
contributed greatly to the economic development of the cotton industry. Over 50 per
cent of all cotton export earnings was generated by enslaved people. By 1840, the
Southern States in the USA grew 60 per cent of the world's cotton and provided around
70 per cent of the cotton consumed by the textile industry of Britain. Enslaved people
paid for a substantial share of the capital, iron, and manufactured goods that laid the
foundation for the growth of the American economy of its day (Mintz, 2012).

It goes without saying that the slave trade represented an extreme form of violation of
human rights on a global scale. The United Kingdom’s Slave Trade Act of 1807 and the
Slavery Abolition Act in 1833 eventually led to the end of the European empires’ slave
trade.

7. Industrialisation

Industrialisation began in 1712 with the invention of Thomas Newcomen’s steam engine
in Devon, United Kingdom. This served as a precursor to James Watt’s steam engine of
1763, which started transforming how work was done. Until then, most manual labour
was done by the movement of muscle. The steam engine allowed work to be scaled up
as physical energy was derived through the movement of pistons. The Industrial
Revolution therefore introduced the concepts of the mass production of goods and
marketing and sales to larger audiences. Economies of scale developed, many
industrial standards were harmonised and vertical integration was one major driver of
wealth creation for many industrialists.
Industrial protagonists of their time were men like Andrew Carnegie and J. P. Morgan in
steel, John D. Rockefeller and Frank Kenan in oil, and Henry Ford in automobiles. All
these industrialists were also innovators in their respective fields as they found new
ways to build businesses, exploit resources commercially, and make them available to a
large market. Further inventions such as the telegraph, telephone, electricity, radio, TV,
the internet and Blockchain technology connected humanity around the globe and with
each of these developments came new business opportunities at global scale. The
global market system and capitalism in itself have been among the most significant
innovations of humankind.

TWO OF THE OLDEST COMPANIES OF THE WORLD

Starting a company is always a risky undertaking as the outcome is relatively uncertain
and its success depends on a large number of factors. Some companies fail after a few
months and others survive for centuries. The world’s oldest hotel is the Nishiyama
Onsen Keiunkan Hotel ( 西山温泉慶雲館 ) based in Hayakawa, Yamanashi Prefecture,
Japan. The business was established in 705 CE by Fujiwara Mahito and has been
operated continuously by 52 generations of the same family. The hotel is officially
recognised as the oldest hotel in the world by the Guinness World Book of Records.
One of the world’s oldest wineries and distilleries is the Stain Kröv in Germany. The
company is officially recognised as the oldest company still in operation in Germany.
The property used to be the former wine court of the wine-producing monastery
Stavelot. From pre-medieval times, monasteries in Europe owned granges, which
provided food for the monastic community but also generated an additional revenue
stream alongside the financial support from the church. The first written documentation
of the Staffelter Hof abbey dates back to 862 CE. The original document, now located in
the city archives of Liège, Belgium, represents a deed of endowment by which King
Lothar II gifts the winery to the monastery because of its wine producing capacities. The
Staffelter Hof underwent many changes in ownership over the centuries and now enjoys
its status as one of the oldest wineries in the world with a history spanning more than
1150 years (Staffelter Hof, 2016).

As this brief history demonstrates, entrepreneurs have been around for thousands of
years and (although a rarity) some of their businesses are still in operation after over a
thousand years.
Common misconceptions: Entrepreneurship

1. Introduction

There are plenty of misconceptions around entrepreneurship. The most common

misconceptions arise in contrast to classic employment. Let’s start looking into the most
common misconceptions to clarify a couple of things.

2. Starting a business leads to great fortunes

This assumption is neither right nor wrong. Starting a business is a highly risky
undertaking and can potentially lead to bankruptcy and, in the worst case, the loss of all
personal assets. On the other hand, starting a business can potentially lead to wealth
and fortune much more quickly than through classic employment. The outcome of
starting a business depends on multiple factors which we will discuss throughout this
course.

3. Entrepreneurs make more money than employees

This depends on the revenue the business generates and how much the owner is able
to draw down as a salary. The first goal when starting a business should be self-
sustainability. The next milestone should be to draw down a salary at market value in
financial terms. Of course, this can vary greatly depending on the former profession and
the level of education of the entrepreneur, and on cultural or geographic factors. For
example, a former investment banker in New York with a PhD in Econometrics from
Harvard may have a different market value in financial terms than a former bus driver in
Bangladesh with a high school education. According to PayScale (2019), a US-based
labour market research firm, a small business owner in the United States of America
makes about $72,072 per annum on average, ranging from $30,104 to $182,229.
According to the U.S. Bureau of Labor Statistics (2019), the median annual earnings of
full-time, traditionally-employed workers were $46,800 per annum in the fourth quarter
of 2018. This ranges from people employed full time in management, professional, and
similar occupations, with the highest median annual earnings of $78,260 for men and
$57,304 for women, to people employed in service jobs with an annual income ranging
from $35,100 for men to $26,624 for women. Based on these figures, we can see that
an entrepreneur does not necessarily make significantly more than an employee, which
leads us to the next misconception.

4. Entrepreneurs are only in it for the money

Based on the findings above, this does not hold true unless one is lucky enough to sell
the business for a fortune or is able to generate large revenues which allow for drawing
down a significantly above-average salary plus dividends. But if money alone is not the
main driver to start a business, what is it? There is some evidence that the main driver
for people starting a business is job satisfaction and happiness. Fritsch et al. (2018)
found that there are higher levels of job satisfaction in self-employment compared to
paid employment across all age ranges. In contrast, the study shows that the level of
job satisfaction of paid employees varies significantly with age and is highest only at the
final stage of their working life, as shown in Figure 1.3.

Figure 1.4
Job satisfaction is an important metric when it comes to assessing overall happiness in
life. However, there are other reasons to start a business. Another study conducted by
the University of Pennsylvania's Wharton School of Business (2012) revealed a strong
correlation between happiness and entrepreneurship, even when not controlling for
money or start-up success. When controlling for other factors such as age and money,
the study revealed that the more money people make and the older they are the higher
they scored for happiness. When controlling for income, entrepreneurs scored highest
for happiness. However, when not controlling for income, people working for non-profits,
the government and educational organisations turned out to be the happiest. One can
therefore theorise that people who do not work for non-profits, the government or
educational organisations and who are not entrepreneurs are the least happy people.
Does that mean one should become an entrepreneur from early on? This brings us to
the next misconception around entrepreneurship. The question of age.

5. Entrepreneurship is only for young people

The image of the young tech entrepreneur and overnight billionaire sporting a t-shirt is
an all-too familiar one. Of course, for people in their twenties, there is generally much
less at stake when starting a business compared to more mature people. At a younger
age, one can pretty much try anything as the world will almost always be forgiving when
projects do not work. Society will generously consider a failed venture by a younger
person as a misstep by someone still trying to find their place in the world. For people in
the middle of their career, say in their 30s and 40s, however, there is often much more
at stake. A carefully-crafted career spanning a decade or two, perhaps a family to
support, mortgage payments, life insurances, and perhaps elderly parents to look after.
Leaving a job with a stable income after having built a career, perhaps when you are
still recouping the investment into higher education, or having moved your family to
another area or country, is a massive risk.

So is there a perfect age to start a business? According to a working paper by MIT

Sloan professor Pierre Azoulay and PhD candidate Daniel Kim (cited in Somers, 2018),
the average age of people who started a company and hired at least one employee is
42. Azoulay and his team looked at data of 2.7 million people who founded businesses
between 2007 and 2014. They also found that those new ventures with the highest
growth had an average founder age of 45. The researchers further discovered that
entrepreneurs were 125 per cent more successful if they had been previously employed
the sector they started a business in.

Figure 1.5
This is not to make the case that young people are not suited to start a business, but it
can be argued that mature people bring a lot to the table right from the outset. Someone
with long-standing professional experience has accomplished more complex tasks,
takes more calculated risks, and is likely to have a larger support network of friends and
colleagues. They have the funds to support the business initially. In the case of
someone who is approaching the age of retirement the expertise of a lifetime in one or
more industries will be very useful.
5.1. Activity 1.4
Read the research paper Entrepreneurship and Job Satisfaction: The Role of Age by
Fritsch et al and answer the following questions:

 Does age play a role when it comes to job satisfaction as an employee?

 At which stage of life stage is job satisfaction higher in self-employed people
versus paid-employed individuals?