APPROACH
Applied Economic Approach to Entrepreneurship
The applied economic theories of entrepreneurship draw on three branches of economic theory and have proven that innovation-originated market power can provide better results than the invisible hand and price competition.
-
Labor economics theories of occupational choice
-
Microeconomic theories of innovation
-
Macroeconomic theories of innovation, economic growth, and business cycles
Applied economics practitioners have identified innovation as the critical dimension of economic change and creating wealth. They argue that the essence of the capitalist society economic change revolves around innovation, entrepreneurial activities, and data driven analytic strategies.
The real world should not ignore applied economics role in entrepreneurship because its impact is very genuine. In a study of 76 countries find that on average small and medium businesses constitutes 64% of the economy while the informal economy on average accounts for 26% of GDP in their sample of developed and developing countries.
Entrepreneurship is one of the resources economists categorize as integral to innovation and having the largest impact on broader financial market growth. From an economically focused perspective leading thinkers that were central to the development of models that could be measured for entrepreneurs were based theories on:
-
Entrepreneurs—not just companies—were responsible for the creation of new things in the search for profit.
-
Entrepreneurs are the bearers of uncertainty and believed they were responsible for risk premiums in financial markets.
-
Entrepreneurship as a process that led to the discovery.
Jean-Baptiste Say, a French economist who first coined the word entrepreneur in about 1800, said:
“ The entrepreneur shifts economic resources out of an area of
lower and into an area of higher productivity and greater yield. ”
Entrepreneurs contribute to society by:
-
Introducing new products/services that often are contradictory to institutional norms.
-
Finding ways round business difficulties that include a propensity to take risks over and above the normal, and focused on wealth creation
-
Seek profit that transforms the static equilibrium into a dynamic process of economic development which in turn revolutionize the patterns of the norm
In the context of increasing global competition, the importance of innovations by entrepreneurs is becoming more important as we have discussed. The challenge though is how do entrepreneurs gain a competitive advantage to ensure that their innovations and have a greater chance of success? The answer lies in the third component of the applied economics approach, which is data driven strategies.
Data interpretation and critical thinking are necessary for any business to be successful. The effective implementation of data driven strategies and decision-making and tying the organizations accountable back to data properly creates a number of competitive advantage and benefits for the organization. It enables organization to do such things as:
- Be more proactive in decision-making, therefore more timely
- More cost effective, thereby able to be more capital conscious
- Provide continual learning opportunities
- Improve the user/customer experience
- Create more sustainability
- Generate more revenue
- Predict future trends
- Optimize current operational efforts
- Create new business opportunities
- Produce actionable insights
Our team has practiced applied economics in entrepreneurship for decades, and our goal is to introduce this concept and its benefits to impact investing via our funds and portfolio companies.