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Entrepreneurs play a crucial role in satisfying people’s needs and wants. This entrepreneur’s role extends far beyond simply offering products and services. In a broad sense, they contribute substantially to society and the economy by creating jobs and incomes, increasing production, and promoting innovation.
Entrepreneurs come with business ideas, take risks to start businesses, unite factors of production, and sell goods and services to us. Starting a business comes with risks. They may have to risk their savings to start a business. However, their business failed after operating.
Being an entrepreneur requires more than creativity and the courage to take risks. But it also requires confidence. Entrepreneurs are positive people who believe in their ideas and business. They also have strong determination and strive to operate the business even when things are not going well.
Back to the topic above, what are the entrepreneurs’ roles in society and the economy? The following is a summary:
- Meeting people’s needs and wants through their products
- Uniting resources and using them productively
- Creating jobs for people
- Growing the economy by encouraging production
- Increasing prosperity by creating income and fulfilling needs and wants
- Paying and expanding tax sources
- Contributing to foreign exchange reserves by selling products abroad
- Promoting innovation to stay competitive in the market
Meeting people’s needs and wants
Entrepreneurs strive to satisfy people’s needs and wants through their products. Their products make our lives more comfortable, easy, and productive. For example, computers make our work easier. Electric lights allow us to work at night. Transportation services will enable us to travel and vacation around the world.
Entrepreneurs hope consumers are satisfied and continue to buy their products. But, to satisfy consumers, they have to compete with each other. And if they can outperform their competitors, they can generate high revenues. Then, after deducting the costs incurred, they make a profit.
Resource utilization
Entrepreneurs pool resources – sometimes, we call them factors of production – and productively empower them to start a business. These resources include land or natural resources, labor, and capital.
Land. For example, entrepreneurs cultivate barren land to plant agricultural products, such as factories or other commercial building sites. In other cases, they mine metal minerals, process them, and turn them into various goods, from household appliances to industrial goods such as machinery.
Labor. Entrepreneurs empower the workforce by utilizing their skills and knowledge, both for physical and non-physical work. And workers can use their skills and knowledge to make money. Conversely, without working, their skills and knowledge are wasted.
In addition, employers also provide opportunities for workers to improve their skills and knowledge, for example, through training and learning by doing. Thus, those who were previously unskilled became skilled after training. Finally, combined with learning by doing, workers become more productive and become experts in their fields. As a result, they can also tap into their greatest potential.
Capital. Entrepreneurs use money as capital to make more money through their businesses. For example, they use it to buy production machinery and equipment. From these machines, they make products to sell. Then, they try to sell as much volume as possible to cover the purchase costs – as well as other operating costs – and as a profit.
Long story short, entrepreneurs play a vital role in utilizing resources to their best use. With them, resources will be addressed. Resources cannot be used themselves. Instead, they need entrepreneurs to make them productive.
Job creation
Entrepreneurs create jobs for society through their businesses. They recruit workers to run operations, from operating factories to doing administrative jobs. The more new businesses are established, the more jobs are created.
The effect on job creation is on a broader scale. This is because a new business will give rise to other related businesses, either directly or indirectly.
Direct effect. For example, the electric vehicle business requires other businesses along the value chain, from mining metal minerals for car frames to manufacturing batteries. Thus, other related businesses will also grow when the electric vehicle business develops.
Indirect effect. Other unrelated businesses will also appear. For example, retail, housing, and lodging businesses will develop in locations where electric vehicle factories are established.
Economic growth
In economics, economic growth takes place when output in the economy increases. To measure it, we use real GDP as an indicator. The percentage change in real GDP reflects an increase in the output quantity because it removes the effect of inflation.
Entrepreneurs contribute to economic growth in two ways:
- Establishing a new business
- Expanding existing business
A new business adds output to the economy. The more new businesses, the more significant the economic output increases.
In addition, entrepreneurs encourage economic growth by boosting their businesses to expand. For example, they increase production by increasing the capacity utilization rate. Or, they do so by investing in capital goods such as machinery or setting up new factories.
Economic growth creates more jobs and income. Entrepreneurs recruit new workers to work in their new businesses or operate new machines and factories. Thus, the more people work, the more income is created.
Increased income ultimately encourages people to spend more. They buy not only basic needs but also other needs. Finally, it increases demand and stimulates entrepreneurs to increase their production.
Promoting prosperity
Entrepreneurs contribute to prosperity and increase living standards. This works in several ways. First, an increase in living standards occurs when people can satisfy their needs and wants. In this case, the entrepreneur’s role is to fulfill this need through their product. They provide various products to meet various needs, including basic, secondary, and tertiary needs.
Second, entrepreneurs help people overcome various life problems. Again, that’s done through their product. Their products make us more comfortable and easier. For example, transportation services make it easier for us to travel to distant places. Otherwise, without their services, we might have to walk.
Third, entrepreneurs contribute to prosperity through the income they create. People work for them to earn money, which, in turn, is used to make ends meet. The large-scale employment opportunities they create ultimately contribute to increasing per capita income.
Fourth, entrepreneurs indirectly contribute to overcoming the poverty trap. They create jobs and income for people, which, in turn, helps them send their children to school.
Fifth, entrepreneurs help people improve their access to vital services. They operate businesses to provide vital services such as education, training, and health, in addition to those provided by the government. Improved access also works through the increased per capita income they create. Higher incomes allow people to access these vital services better.
Tax revenue
Taxes are vital for funding social programs and public investment. For example, the government provides health, education, infrastructure, and other public services for welfare. Improving access to these services requires the government to increase revenue collected from taxes.
In this case, the government can collect more taxes thanks to entrepreneurs. As individuals, entrepreneurs pay taxes on their income earnings. They also bear taxes on their property or wealth. What they consume is also taxed.
In addition, entrepreneurs contribute to taxes indirectly through the businesses they manage. Their company is taxed. Likewise, some items purchased by their company are also taxed.
Another indirect contribution also comes from the income entrepreneurs create for their employees. For example, employees pay taxes on the income they earn. Likewise, when they use their income to purchase products, they contribute indirectly to tax collections, such as sales and value-added taxes.
Foreign exchange reserves
Entrepreneurs contribute to foreign exchange reserves. When they sell products abroad, they receive foreign currency, such as US dollars, as payment. They then deposit the dollars they receive into the local bank and exchange them for local currency to pay for inputs. Long story short, their sale increased the available US dollars in the country, which is generally referred to as foreign exchange reserves.
Foreign exchange reserves contribute to the exchange rate and the domestic economy’s stability. When it has sizeable foreign exchange reserves, the central bank can exchange them for local currency to ensure the government or company can meet its foreign obligations, such as paying imports and debt.
Innovation and technological advancement
Entrepreneurs contribute to introducing and promoting innovation and technological progress. They come up with innovative ideas to start businesses and beat the competition. They develop new products and technologies to improve or replace existing ones.
While innovation can come from anyone, entrepreneurs play a role in disseminating it by commercializing innovative ideas. For example, an innovator might develop a new product or method. However, if he lacks entrepreneurship, he is unwilling to leverage it into a viable business concept.
On the other hand, entrepreneurs dare to take risks to start new businesses. They may also be innovators and turn their ideas into businesses. But, if they are not innovators, they can embrace or buy an idea by an innovator and commercialize it into a profitable business.
Social impact
Entrepreneurs aren’t just about building businesses; they can be powerful drivers of social good. Through their ventures, they can tackle pressing social issues and create a more sustainable and equitable world.
Here’s how entrepreneurs are making a social impact:
- Sustainable practices: Many entrepreneurs are revolutionizing industries by prioritizing eco-friendly practices. For instance, businesses might develop biodegradable packaging solutions or implement renewable energy sources in their operations.
- Social enterprises: Social enterprises are a unique business model that combines profit-making with social impact. These businesses address social issues like poverty, education, or healthcare while generating revenue to support their mission.
Examples of businesses making a social impact:
- TOMS Shoes: For every pair purchased, this company donates a pair of shoes to a child in need, promoting access to footwear in underprivileged communities.
- Beyond Meat: This company develops plant-based meat alternatives, addressing concerns about animal welfare and environmental sustainability in the food industry.
Risk-taking and resilience
The path of an entrepreneur is rarely smooth sailing. Taking risks and bouncing back from setbacks are essential qualities for success.
Why are risk-taking and resilience so important?
- Innovation requires calculated risks: Entrepreneurs often need to venture into uncharted territory with new ideas and business models. This inherently involves taking calculated risks to disrupt existing markets or fulfill unmet needs.
- Challenges are inevitable: Every business encounters obstacles along the way. Resilient entrepreneurs can navigate these challenges, learn from setbacks, and adapt their strategies to overcome them.
Entrepreneurs who embraced risk and overcame challenges:
- Oprah Winfrey: Oprah faced numerous rejections early in her career, but her perseverance led her to become a media mogul and one of the most influential personalities of our time.
- Steve Jobs: After being ousted from Apple, Steve Jobs co-founded Pixar and revolutionized the animation industry. He later returned to Apple and led the company to even greater heights.
Global entrepreneurship
The world is more interconnected than ever before, and entrepreneurship is taking center stage on a global scale. This trend presents exciting opportunities for businesses to expand their reach and impact but also introduces new challenges to navigate.
Opportunities in a globalized market:
- Reaching new customers: Entrepreneurs can tap into vast new customer bases in international markets, fostering economic growth and cultural exchange.
- Diversification and risk management: Global expansion allows businesses to diversify their revenue streams and mitigate risk by not relying solely on a single market.
- Access to resources and talent: The global landscape offers access to a wider pool of talent, resources, and potential partners for collaboration.
Challenges faced by global entrepreneurs:
- Cultural differences: Understanding and navigating cultural nuances in different markets is crucial for success. Marketing strategies, product offerings, and communication styles may need to be adapted to each region.
- Regulatory hurdles: Complexities in international trade regulations, legalities, and tax structures can pose significant challenges for new entrants.
- Logistics and supply chains: Managing global supply chains and logistics efficiently requires careful planning and robust infrastructure.
Entrepreneurial ecosystems
Entrepreneurs don’t operate in isolation. Entrepreneurial ecosystems refer to the interconnected network of people, organizations, and institutions that support and nurture startups and established businesses alike. These ecosystems play a critical role in fostering innovation and entrepreneurial success.
Key elements of a thriving entrepreneurial ecosystem:
- Access to funding: The availability of venture capital, angel investors, and other funding sources is essential for entrepreneurs to get their ideas off the ground.
- Mentorship and guidance: Experienced mentors can provide invaluable advice, share industry knowledge, and help entrepreneurs navigate challenges.
- Co-working spaces and networks: Collaborative workspaces foster a sense of community, offer opportunities for networking, and can spark valuable idea exchange.
