Entrepreneurship and a Few Secrets

Didn't have much time today so after seeing it up at RealClearMarkets.com, I decided to post on James Altucher's recent column on entrepreneurship.  About halfway through, I realized Robert Wenzel's covered it a few days ago.  So now I once again look like an unoriginal fool but never the matter:

LvMIC:

When discussing the process of the market, Austrian economists often emphasize the importance of entrepreneurship and why it aids in the allocation of scarce resources.  In Man, Economy, and State, Murray Rothbard wrote this in regard to entrepreneurs:

The essence of production for the market, therefore, is entrepreneurship.  The key consideration is demand schedules, and consequently the future prices, are not and can never be definitely and automatically known known to the producers.  They must estimate the future state of demand as best they can.
Entrepreneurship is also the dominant characteristic of buyers and sellers who act speculatively, who specialize in anticipating higher or lower prices in the future.

When John M. Keynes wrote The General Theory, he criticized the classical school of economic thought for supposing that free, uninhibited markets were always at perfect equilibrium.  Of course this was wrong as the type of knowledge problems that are ever present due to unpredictable human behavior prevent such equilibrium from ever being reached.  Free and fluid markets only have the tendency toward a true equilibrium.  Mises and Rothbard both referred to this fictional state of perfect equilibrium as the "evenly rotating economy" (ERE) and both acknowledged it could never truly exist.  Since prices act as signals for entrepreneurs to meet demand, Austrians recognize the importance of allowing them to remain undistorted by government regulation and intervention.

Perhaps the most famous Austrian economists who wrote heavily on entrepreneurship was Israel M. Kirzner.  Not only did Kirzner warn about government perversion of market signals but also emphasized the importance of “awareness” that entrepreneurs must posses in order to be successful.  In summarizing Kirzner’s work, Richard Ebeling writes:

What guides entrepreneurs in this task is the anticipation of profits — revenues in excess of the expenses to bring goods to market — and the avoidance of losses. But one of the insights that Kirzner has highlighted is that while entrepreneurship is crucial to the workings of the market, it cannot be bought and sold like other goods or resources for a certain price. The reason is that the essence of entrepreneurial activity is “alertness,” an attention to scanning the market horizon for opportunities and innovations that can result in making better goods, or new goods, or bringing less-expensively manufactured goods to the market place.But to be “alert” is to notice something that others have neither seen nor thought of before. Alertness means thinking and seeing “outside the box” of the known set of opportunities and routine ways of doing things. It is the process of discovering new knowledge and possibilities that no one has either previously imagined or noticed.

In Israel Kirzner’s view, one of the most important reasons for open, competitive markets is for individuals to have the profit incentives and the chance to benefit from alertness.

Investor James Altucher’s recent Tech Crunch column lists some unorthodox tips one must consider in regards to being an entrepreneur.  While Altucher isn’t a follower of the Austrian school, his insights are in line with Kirzner’s concept of awareness.  Here are a few:

• The economy doesn’t matter. Groupon started in November, 2008. The news media is always going to say the economy is in the crapper. For once in your life, and for the rest of your entrepreneurship, turn the TV off.
• You are constantly going to be gripped with thoughts that your competitors are all better than you. And guess what, they are. So now you have to lie to all of your investors who are constantly calling you before their “Monday morning meetings” asking you, “can you tell me one more time why you’re better than so-and-so?”
• Calling your buddy and saying, “I hate this stupid company already. I wish I can sell it and start the other five ideas I have.” And, by the way, you might be right. Time to transform your crappy company into one of those five ideas. My first company made websites for Fortune 500 companies. At different points we almost became a record label, a tea company, a TV production company, and a half-dozen other things. Maybe one of those would’ve worked out even better. I’m not smart enough to know. But always be writing down the next ideas and see how your company can transform. If you aren’t writing down ten ideas a day then you’re failing.
• And note: Its ok to fail. We all make mistakes. We all crush the hope and spirit out of our friends, investors, and loved ones. It’s ok if you do it also. But be ready to start again and do it again. Avoid the shame. Crush them again and again. Until finally you squeeze juice out of them. Then it’s all worth it. Did that analogy just work? If so, then congratulations. You’re an entrepreneur.

Altucher is a great writer and his column, as well as his blog, are both entertaining and informative.  His story telling ability is top notch.  Though Altucher is correct in that the role of the entrepreneur can be incredibly stressful, it is necessary for an economy driven by subjective demand.  The individual methodology that dominates the Austrian school comes to the same conclusion.  Scarcity is, and forever will be, a fact of life.  Entrepreneurs ultimately look to use this reality as a means to sell a product or service at a profit.  Back in Man, Economy, and State, Rothbard resolves that every man, in essence, displays entrepreneurship when engaged in acting:

Thus, to some extent at least, every man is an entrepreneur.  Every actor makes his estimate of the uncertainty situation with regard to his forthcoming action.

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By the way, I can never get over how similar Altucher's writing style is to Charles Bukowski, one of my favorite authors.  I guess Steve Jobs was right, great artists really don't imitate, they steal.