The Demographics of Entrepreneurship

Comments Off on The Demographics of Entrepreneurship
The Demographics of Entrepreneurship

Economic activity is described most simply by multiplying the labor productivity per hour times hours worked, which is a function of the number of people and the amount of times. Since every civilization has 24 hours in a day and 365 days in a year, the critical variables are the number of people and the amount of productivity.

As anyone who has ever compared the economic output of the continents of Africa and Australia knows, there is a great difference in their productivity per labor hour. That productivity difference has been created by generations of entrepreneurs who transformed innovations into economic value through the creation of business enterprises.

By our definition, innovation includes new business models, as well as new products, new business processes, and new marketing approaches.

Professional managers, on the other hand, tend to be guardians of the status quo, building on the foundations laid down by entrepreneurs. Why is this important?

Harvard's Clayton Christensen breaks innovation down into three categories:

  1. Performance-improving innovations replace old products with new and better models.
  2. Efficiency innovations help companies make and sell mature, established products or services to the same customers at lower prices.
  3. Market-creating innovations transform complicated or costly products so radically that they create a new class of consumers, or a new market.

Market-creating innovations have two critical ingredients. One is an enabling technology that drives down costs as volume grows. The other is a new business model allowing the innovator to reach people who have not been customers, often because they couldn't afford the original product.

Professionally managed, legacy companies tend to excel at the first two kinds of innovation, which lead to fewer jobs. Meanwhile, new enterprises created by entrepreneurs excel at market-creating innovations. That's why almost all of the new jobs created in our economy come from new companies.

Given the right incentives, entrepreneurs create new businesses and those businesses create new economic value. However, the question is not simply whether we have the capital, incentives, and fundamental research to make this happen. The equally important question is, "Do we have enough of the right kind of people, defined in terms of age, skills, and mindset to serve as entrepreneurs?"

become a paid subscriber for full access.
Already a Trends Magazine subscriber? Login for full access now.

Subscribe for as low as $195/year

  • Get 12 months of Trends that will impact your business and your life
  • Gain access to the entire Trends Research Library
  • Optional Trends monthly CDs in addition to your On-Line access
  • Receive our exclusive "Trends Investor Forecast 2015" as a free online gift
  • If you do not like what you see, you can cancel anytime and receive a 100% full refund