Profits and Entrepreneurship presentation copyright ©1999 Barry Brownstein

What Are Profits? l Total revenue- Total cost l One way to measure total cost is the value of all the opportunities that must be given up to operate the firm l Profits are revenues above opportunity cost l Profits are the result of uncertainty and of predicting the future better than others

What Does an Entrepreneur Do? l You can’t make profits by seeing what others see, or doing what others do. l Must read an uncertain future better than others l Follows new paths, sometimes makes mistakes and helps to discover ‘error’ l Conceives of new solutions, new products, new ideas, and new technologies l Helps allocate resources from lower to higher valued uses

Entrepreneurship At Work l The Dow Jones Industrial Average began May 1896 l The Index in 1896 included among other companies: –US Leather –Tennessee Coal and Iron –National Lead l The Fortune 500 began in 1954 –currently over 67% of the companies on that first list no longer exist or are too small to continue on it

More on Profits and Entrepreneurs n Another way to define economic profits is the return earned above a "normal" rate of return. They can be earned: n Either by legal restrictions to competition: n Entrepreneurial insight- "the only source from which an entrepreneur's profits stem is his ability to anticipate better than other people the future demand of the consumers."

Profits: Entrepreneurship or Legal Restrictions? l Archer Daniels Midland (Dwayne Andreas) –billions of subsidies for corn sweeteners, sugar and ethanol –every $1 of profit in ethanol costs taxpayers $30 l Chrysler Corporation (Lee Iaccoca) –profited from quotas on Japanese cars l Standard Oil (John D. Rockefeller) –“Let the good work go on. We must remember we are refining oil for the poor man and he must have it cheap and good.”

Profits (Continued) –cheap energy made after dark activities and heating possible –Even before he died he gave away $550 million dollars l Michael Milken, Bill Gates l Soichiro Honda- “success can only be achieved by repeated failure and introspection.” l Masaru Ibuka and Akio Morita- built their first tape player from paper tape- this effort became the chief asset of Sony- its knowledge base.

Higher Valued Uses _____ Lower Valued Uses Entrepreneurs move resources into higher valued uses. There is no cap to this transformative activity and it is thus inherently win-win.

Entrepreneurship is Inherently Win-Win l Not only does one entrepreneurs’ insights not block another there is a synergistic effect l This synergy exists because a major source of entrepreneurial opportunity and insight is other entrepreneurship l For example- the computer led to opportunities in software; the internet leads to an ever increasing list of opportunities.