Entrepreneurship has become increasingly important in today’s decentralized economic landscape. While the traditional definition focuses on developing and running a business for profit, entrepreneurs now see it as a means of creating value and driving change. By identifying market gaps and developing innovative solutions, entrepreneurs can drive industry and societal reform. As a result, the need for entrepreneurship has never been greater.
The need for and importance of entrepreneurs are crucial for economic growth. However, it might not affect the overall economic growth of a country across the sectors. And the positive effect of entrepreneurship on the economy might be overhyped. For instance, India has one of the biggest and fastest-growing start-up ecosystems. Yet it is more focused on the EdTech and FinTech industries as compared to agriculture or other such industries. However, the need for entrepreneurs will remain important for economic growth. We should not consider it the sole or biggest factor of economic growth.
Well, the answer to this question might be controversial for some folks. But the answer is the growing trend of entrepreneurship may necessarily not be an indicator of economic growth. Instead, it may be a sign of slow economic growth. The experts state two entrepreneurship scenarios- necessity entrepreneurship and opportunity entrepreneurship.
If the economy isn’t creating enough jobs or wage opportunities, people have to eventually go for starting a venture (whether big or small) for earning their bread and butter. Such entrepreneurship is a “necessity entrepreneurship” that is a sign of not-so-good and slow economic growth. On the other hand, “opportunity entrepreneurship” is driven by an apparent business opportunity created by a gap in the market. The opportunity entrepreneurship may and may not be a factor in economic growth. It depends on other factors.
According to the economist Zoltan Acs, the model of entrepreneurship isn’t beneficial for all kinds of economies. On the contrary, entrepreneurs negatively affect the economic growth of early and middle stage economies. On the other hand, developed economies were able to bear a great advantage from entrepreneurs in their economic growth.
Whether entrepreneurship will contribute to economic growth very much depends on the factors of an economy. For example, developed countries were able to make a good impact out of entrepreneurship in their economic growth because of their strong financial system, large domestic market, stable government policies, high per capita income and other factors.
On the other hand, early and middle stage economies are unable to create a supportive environment for entrepreneurship. Therefore, it struggles to get traction and usually ends up wasting the resources of economies. A study over 74 such economies for six years suggests that these economies should not base their economic growth on generic entrepreneurship. Instead, they should focus on developing the fundamentals of economic growth like developing human capital, taking advantage of economies of scale, creating a competitive domestic market etc.
We have figured out so far that the need for and importance of entrepreneurship may fit differently than our expectations. We have figured out that the trend of entrepreneurship may necessarily not be a sign of economic growth, and entrepreneurship doesn’t usually help underdeveloped nations in economic growth. Economies, even less developed, may benefit from entrepreneurship greatly if they provide sufficient support to the new-age entrepreneurs.
Despite all the facts and studies, entrepreneurship is an instrument of social change and economic growth. Whether entrepreneurship is decentralized or focused on some particular industries, it brings change anyway. Successful entrepreneurs firmly believe that it’s entrepreneurship that will overtake and change the market with new-age technologies, not the former players. Whether EV, AI, ML, Blockchain or Crypto, we can see that happening already. Following are the factors that define why the importance of entrepreneurship in economic growth.
Apart from the linguistic definition of entrepreneurship, innovation is the primary element of entrepreneurship. New-age entrepreneurs tend to be passionate about innovations in technology and business models. Some primary examples of it are Airbnb, Innova8, Ola, Zinerr etc. These companies didn’t only make innovations in technology but also created unique business models that never existed before.
Policymakers of an economy consider innovation while forming the route map of a nation’s economic growth. Innovation creates ease and new opportunities in the market and encourages consumption. Therefore, entrepreneurship is important because it motivates innovation.
Employment is a crucial factor for any economy’s growth. A low employment rate indicates the poor health of an economy. An economy needs to create more jobs and wage opportunities to fasten growth. Entrepreneurship plays a significant role in generating employment. The bigger the entrepreneurship becomes, the more opportunities for jobs and salaries it creates. Hence, the need for entrepreneurship becomes significant for economic growth.
Standard of living, in a way, is directly proportionate to employment. Because employment earns people remuneration, they spend their money on purchasing goods and services. It improves their standard of living. Hence, the consumption rate in an economy goes up, and so does the production rate. It eventually increases basic salaries, and people become able to consume higher quality goods and services. If entrepreneurship in an economy is sector agnostic, it would greatly help level up the standard of living of people. Therefore, the need for entrepreneurship becomes vital for overall economic growth.
Social entrepreneurship is a modern term that encourages entrepreneurs to make a difference in society while starting and running a business. They look after delivering a positive impact on society through their venture. For instance, crowdfunding companies are usually involved in the practices of social causes like raising funds for NGOs, injured or deceased people or orphaned children. Their businesses cause a positive change in society. They do not only help the needy but also spread social awareness.
Social welfare and economic growth are interdependent. A prosperous society eases the path to economic growth. So, the need for entrepreneurs is important because it brings social reform and economic growth alongside.
Research and Development are the advancements of innovation. When an entrepreneur comes up with an innovative idea and creates a business out of it, they need to make continuous developments to their innovation to keep up with the market and improve the user experience. As the venture grows, they spend more resources on research and development, which leads to technological advancements.
Technological advancement doesn’t only support that particular company but also the whole nation. It contributes to the development of Science and Technology. The economy further uses these developments to implement in various areas to make progress. Hence, the need for entrepreneurs is necessary for the progress of Science and Technology.
There are major impacts of entrepreneurship on the economy that are visible. Some indirect impacts go behind the curtain. These indirect impacts are not so visible, yet they are equally important for economic growth. They add a feather to the need for and importance of entrepreneurs in a country. Following are the indirect impacts of entrepreneurs on the economy.
The flow of money in an economy is as crucial as the flow of blood in the human body. The more sufficiently it flows, the healthier the economy grows. Entrepreneurial undertakings help money flow in the market by creating employment and increasing production and consumption. Therefore, entrepreneurs’ work boosts the economy.
Start-ups grow in ecosystems. When there is an ecosystem made in a particular city, the infrastructure of the city or particular area enhances. For instance, Silicon Valley in USA, Bangalore, Hyderabad or Mumbai in India. These cities and their particular areas were developed strategically to create a better environment to support start-ups so that the need for entrepreneurship can be fulfilled.
Direct employment is the employment created by entrepreneurship within the business. But this is not the sole employment. Entrepreneurship also creates indirect employment in abundance. For example, infrastructural development in an area like Powai in Mumbai creates the need for hotels, restaurants, transportation etc. It makes entrepreneurship important.
When entrepreneurs increase and expand their operations, it requires numerous services. These services may belong outside of their core expertise. For instance, an ed-tech startup will require numerous services other than teaching like human resources, marketing, consulting, legal services etc. So, when the number of entrepreneurs increases, it also expands the demands for related services and, therefore, these businesses also grow. Hence, entrepreneurship is also important for related services and other businesses.
Big multinational companies outsource their work to small relevant companies so that they can concentrate on their core business. MNCs outsource their work to these new companies with specific expertise. For instance, India has been emerging as a VFX hub for big foreign countries. Many MNCs outsource their VFX work to Indian companies. Therefore, entrepreneurship is crucial for acquiring international projects and attracting foreign currencies.
When start-ups produce enough goods and services, a country can export them to outside countries and increase its foreign reserves. Simultaneously, it can also decrease their imports and stop their money flow to foreign countries. A trade deficit is a big problem for any economy. Entrepreneurship can solve or at least eliminate this problem to the minimum. A positive foreign trade is a healthy sign of an economy’s growth.
Conclusively, we can see various practical, direct and indirect factors that come into effect because of entrepreneurship. And why entrepreneurship is necessary for an economy. However, we should not overestimate the impact of entrepreneurship on an economy. A centralized and industry-specific startup growth might not help grow the economy as a whole. Also, generic entrepreneurship may not be a good fit for early or middle stage economies. There would be a positive impact of entrepreneurship on an economy anyway.
Entrepreneurship contributes to national profits and adds to the economic growth of the nation. Entrepreneurship in India is creating new markets, jobs opportunities, infrastructural development, the progress of related services and a positive flow of money in the market. Therefore, the need for and importance of entrepreneurship in India are quite understandable.
Entrepreneurship plays an important part in the overall development of the economy. Because it facilitates innovation, research and development and technological advancement, it also creates employment and levels up the standard of living in an economy. It also brings social changes and impacts society with good outcomes.
Although there are numerous points of importance of entrepreneurship, the three major importance that covers all those points:
1. Entrepreneurship contributes to the economic growth of a country by creating employment, innovation, R&D and exploring new markets. It also enhances the quality of consumption.
2. Entrepreneurship brings societal reforms and makes a good impact on society. Social entrepreneurship has been proving itself to be more than just a means of commercial activity for profit.
3. A good environment for entrepreneurship indicates the good health of an economy’s financial policies, political stability, competitive domestic market and government support.
Although there is no hard and fast rule for defining what is the most important thing in entrepreneurship, certain qualities are meant to be a rule of thumb in entrepreneurship. Those qualities include the ability to communicate precisely and effectively, leadership skills, the ability to sell products and ideas, having a vision for the future, being flexible, persistent and collaborating.
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