3/15/2015

Capitalism and entrepreneurship



I have some great friends who are currently working extremely hard in a software startup business. Recently, we got to talking about their product and how it will be used, and by whom.  I couldn’t help but notice how many times the phrases “our customers”, “the feedback we got”, “the market this”, “the market that” were uttered.  We were talking about what life was like as entrepreneurs, and expressed how exciting it must be to create something valuable. He mentioned an instance that happened to him recently, where he was perceived as “greedy” because he and his partner have decided to make a living in this way. It never really occurred to me in this way before, but as I was thinking about it, that statement is almost exactly right AND exactly wrong.
Capitalism creates a group of people, like my buddies working on this startup, who have no choice but to concern themselves with the needs and desires of others.  These people are called customers. Responding to these customers wants is the very opposite of greed.

In an economic sense, greed could be interpreted as the immediate consumption of goods and services. I grab what I can without regard for others. Entrepreneurs survive longer by saving, or forgoing this immediate consumption, in order to achieve long-term goals. Often it takes months, sometimes many years to bring a new product or service to market.

Also, I have learned much about an entrepreneurs need to collaborate with others. They build teams and collaborate within them as they bring a product to market.  In designing the actual product, they are focusing not on their own needs, but the needs of others.  

So, what entrepreneurs do when they seek profit is far more than self-interest. You could say that profit is a measure of how well a company has served others. Under capitalism, a business prospers only if customers voluntarily pay for what you are offering. And it's only by improving its service to others that a business can thrive and grow. If an entrepreneur pursues his own interests first and his customers' interests second, their business will fail. And sooner or later an entrepreneur who does it the other way around will surpass him.

Of course, self-interest is involved. But the genius of capitalism is that it channels self-interest into altruism. Entrepreneurs can only help themselves by helping others. My buddies who are working hard and starting this business have made great sacrifices, both personally and financially. In many ways, what they are doing is much less glamorous than it is often thought to be.  I think entrepreneurs should be credited, thanked and held in high esteem because ultimately it is their selflessness that is the catalyst to bringing the best inventions and products to the market for everyone to enjoy.

1 comment:

Dave Tufte said...

Eddie: 94/100 (you need to have some link referencing content outside your post).

I'm sitting here smirking (in a good way) about this post. It's kind of like cheerleading: Yeah Economics! So I'm bemused by this.

So I'm a friendly audience for a post like this, but I think without that link to some outside content it is cheerleading. So I'll send you off to Adam Smith's Wealth of Nations, which makes the same points, and to Deirdre McCloskey's Bourgeois Dignity.