Systematic Entrepreneurship 
by Peter Drucker

“The entrepreneur,” said the French economist J. B. Say around 1800, “shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.” But Say’s definition does not tell us who this “entrepreneur” is. And since Say coined the term almost two hundred years ago, there has been total confusion over the definitions of “entrepreneur” and “entrepreneurship.”

In the United States, for instance, the entrepreneur is often defined as one who starts his own, new and small business. Indeed, the courses in “Entrepreneurship” that have become popular of late in American business schools are the linear descendants of the course in starting one’s own small business that was offered thirty years ago, and in many cases, not very different.

But not every new small business is entrepreneurial or represents entrepreneurship.

The husband and wife who open another delicatessen store or another Mexican restaurant in the American suburb surely take a risk. But are they entrepreneurs? All they do is what has been done many times before. They gamble on the increasing popularity of eating out in their area, but create neither a new satisfaction nor new consumer demand. Seen under this perspective they are surely not entrepreneurs even though theirs is a new venture.

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Admittedly, all new small businesses have many factors in common. But to be entrepreneurial, an enterprise has to have special characteristics over and above being new and small. Indeed, entrepreneurs are a minority among new businesses. They create something new, something different; they change or transmute values.

An enterprise also does not need to be small and new to be an entrepreneur. Indeed, entrepreneurship is being practiced by large and often old enterprises. The General Electric Company (G.E.), one of the world’s biggest businesses and more than a hundred years old, has a long history of starting new entrepreneurial businesses from scratch and raising them into sizable industries. And G.E. has not confined itself to entrepreneurship in manufacturing. Its financing arm, G.E. Credit Corporation, in large measure triggered the upheaval that is transforming the American financial system and is now spreading rapidly to Great Britain and western Europe as well. G.E. Credit in the sixties ran around the Maginot Line of the financial world when it discovered that commercial paper could be used to finance industry. This broke the banks’ traditional monopoly on commercial loans.

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Again, G.E. and Marks and Spencer have many things in common with large and established businesses that are totally unentrepreneurial. What makes them “entrepreneurial” are specific characteristics other than size or growth.

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Finally, entrepreneurship is by no means confined solely to economic institutions.

No better text for a History of Entrepreneurship could be found than the creation and development of the modern university, and especially the modern American university. The modern university as we know it started out as the invention of a German diplomat and civil servant, Wilhelm von Humboldt, who in 1809 conceived and founded the University of Berlin with two clear objectives: to take intellectual and scientific leadership away from the French and give it to the Germans; and to capture the energies released by the French Revolution and turn them against the French themselves, especially Napoleon.

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Whereas English speakers identify entrepreneurship with the new, small business, the Germans identify it with power and property, which is even more misleading. The Unternehmer—the literal translation into German of Say’s entrepreneur—is the person who both owns and runs a business (the English term would be “owner-manager”). And the word is used primarily to distinguish the “boss,” who also owns the business, from the “professional manager” and from “hired hands” altogether.

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But the first attempts to create systematic entrepreneurship—the entrepreneurial bank founded in France in 1857 by the Brothers Pereire in their Credit Mobilier, then perfected in 1870 across the Rhine by Georg Siemens in his Deutsche Bank, and brought across the Atlantic to New York at about the same time by the young J. P. Morgan did not aim at ownership. The task of the banker as entrepreneur was to mobilize other people’s money for allocation to areas of higher productivity and greater yield. The earlier bankers, the Rothschilds, for example, became owners. Whenever they built a railroad, they financed it with their own money. The entrepreneurial banker, by contrast, never wanted to be an owner. He made his money by selling to the general public the shares of the enterprises he had financed in their infancy. And he got the money for his ventures by borrowing from the general public.

Nor are entrepreneurs capitalists, although of course they need capital as do all economic (and most noneconomic) activities. They are not investors, either. They take risks, of course, but so does anyone engaged in any kind of economic activity. The essence of economic activity is the commitment of present resources to future expectations, and that means to uncertainty and risk. The entrepreneur is also not an employer, but can be, and often is, an employee—or someone who works alone and entirely by himself or herself.

Entrepreneurship is thus a distinct feature whether of an individual or of an institution. It is not a personality trait; in thirty years I have seen people of the most diverse personalities and temperaments perform well in entrepreneurial challenges. To be sure, people who need certainty are unlikely to make good entrepreneurs. But such people are unlikely to do well in a host of other activities as well in politics, for instance, or in command positions in a military service, or as the captain of an ocean liner. In all such pursuits decisions have to be made, and the essence of any decision is uncertainty.

But everyone who can face up to decision making can learn to be an entrepreneur and to behave entrepreneurially. Entrepreneurship, then, is behavior rather than personality trait. And its foundation lies in concept and theory rather than in intuition.

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Entrepreneurship is “risky” mainly because so few of the so-called entrepreneurs know what they are doing. They lack the methodology. They violate elementary and well-known rules. This is particularly true of high-tech entrepreneurs. To be sure (as will be discussed in Chapter 9), high-tech entrepreneurship and innovation are intrinsically more difficult and more risky than innovation based on economics and market structure, on demographics, or even on, something as seemingly nebulous and intangible as Weltanschauung—perceptions and moods. But even high-tech entrepreneurship need not be “high-risk,” as Bell Lab and IBM prove. It does need, however, to be systematic. It needs to be managed. Above all, it needs to be based on purposeful innovation.

Thanks for reading

To Your Continued Success ;-)

Michael.