What is Entrepreneurship

Does opening a restaurant count as entrepreneurship? From a personal perspective, being your own boss and facing market information directly counts as entrepreneurship. But what is the essential difference in economic theory between opening a small restaurant and Elon Musk making reusable rockets? Is it merely a difference in scale and technological content? Is higher technological content synonymous with more entrepreneurship? In recent years, with the wave of unemployment among programmers in China, more and more people have started engaging in "independent development," mostly using shell LLMs. So, does AI-based independent development count as entrepreneurship?

Since the establishment of my first company in December 2014, excluding a three-year gap, I have been an entrepreneur for seven years. I have been involved in entrepreneurship for a long time, far exceeding ten thousand hours. I want to discuss what I believe constitutes entrepreneurship.

Schumpeter and Innovation

The first time I read about Austrian economist Joseph Schumpeter in annotations of other books, I immediately became interested. You see, my surname is 熊 (Xiong), which is quite rare outside my home province in China; people often ask how I have the surname Xiong. I was surprised to find that there is also a foreigner with the surname Xiong. Later, I discovered that his name is not Xiong but Schumpeter, with the first name Joseph. Regardless, this translation-related familiarity piqued my interest in his theories. Schumpeter won the Nobel Prize in Economics for his innovation theory. He proposed the concept of "creative destruction." What does innovation destroy? It destroys old markets, products, and industrial structures. In the short term, it causes a reorganization of profit distribution and creates turmoil; in the long term, it is the source of economic growth. I believe that only those who create destructive innovations can be considered entrepreneurs.

Creating Something That Did Not Exist Before

The author of the Tesla biography evaluates Tesla through the lens of Schumpeter's theory. He believes that some entrepreneurs respond to external market information and adjust their products, while others look inward and seek to transform society according to their own desires. Tesla clearly belongs to the latter category, and I also believe that only the latter can be considered true entrepreneurship. The risks of entrepreneurship are significant, and Tesla is undoubtedly a commendable failure. Today, when people talk about Tesla, they refer to an electric vehicle brand, but without Tesla's alternating current motor, there would be no Tesla electric vehicle.

Maintaining and Growing the Economy

A business that merely responds to market information can only maintain the economic level because opening a store on one street may affect the income of another street, leading to the prosperity of one area at the expense of another's decline. Many Chinese companies like to engage in price wars, which represent a prisoner's dilemma. Once a price war begins, there won't be just one company lowering prices; the result is that sales increase for the companies involved, but gross profits decrease, total sales remain unchanged, and market shares do not change. However, if a company's sales have costs, its final profits decrease. Each participant in the game makes choices that best serve their interests, but the result is a lose-lose situation, which is a prisoner's dilemma. Where do the lost profits go? Ultimately, they are transferred to consumers. However, the overall level of economic development does not increase. Since consumer income is limited, an increase in sales of one type of product leads to a decline in sales of other categories. Long-term economic growth comes from the aforementioned destructive innovation or, in economic terms, an increase in unit productivity. This requires companies not only to respond to market information but also to create surprises and generate new information. Entrepreneurship is not about satisfying demand but about creating demand.

The Price of Non-Existent Goods

Before Apple launched the iPhone, was the price of smartphones zero? No, it was infinite. Entrepreneurship is about bringing the price of a product down from infinity to affordability. The difference in price is the entrepreneur's profit, the wealth of society, and the wind that lifts the pig into the sky. Entrepreneurship uses new supply to stimulate new demand.

Conclusion

• Entrepreneurship is destructive innovation that changes the existing industry landscape.
• Entrepreneurship brings economic growth rather than merely maintaining the current economic level.
• Ordinary operators respond passively to market demand, while entrepreneurs look inward to transform society according to their inner desires.
• Entrepreneurship uses new supply to stimulate new demand, not just to satisfy existing demand.
• Entrepreneurship brings the price of a product down from infinity to affordability.