1. Creative Destruction, Entrepreneurship, & Discovery
Russell S. Sobel, Ph.D.
Professor of Economics and Entrepreneurship
Baker School of Business
The Citadel

2. What is Entrepreneurship?
Harder than you might think….
An inventor in an existing company?
A Subway franchise owner?
What about non-business cases like..

3. Military Entrepreneurship?
To This:
From This:

4. Social Entrepreneurship?

5. Political or Legal Entrepreneurship?
Gerrymandering – Gov. Elbridge Gerry (1812)
Illinois NC

6. Possible Definitions? Traditional (narrow) definition:
An entrepreneur is someone who organizes, manages, and assumes the risks of a business or enterprise.
Broader definition:
An entrepreneur is an agent of change.

7. Allocation of Entrepreneurial Talent
Entrepreneurial people are everywhere
The relative “rates of return” allocates this talent across industries and between “productive” and “unproductive” activities

8. Israel Kirzner Joseph Schumpeter F.A. Hayek

9. Kirzner: Discovery & Profit
An entrepreneur is someone who discovers previously overlooked or unknown profit opportunities
Discovery is incentivized by profit

12. Joseph Schumpeter’s Entrepreneur
Aspects He Stressed:
Innovation
New Combinations of Resources
Profit & Loss Directed
‘Creative Destruction’

13. Invention vs. Innovation

14. New Combinations of Resources
How many ways to make a pizza?

15. New Combinations of Resources
If you had 20 ingredients to choose from, and could only pick three…
1,140 different possible pizzas!
From 50 ingredients (pick 3) there are 19,600 possible different pizzas!

16. New Combinations of Resources
The Hawaiian Pizza
Sam Panopoulos, 1962 Ontario, Canada
Named it Hawaiian pizza after the brand of canned pineapple used

17. Profits & Losses Not all combinations are ‘good’
Capitalism critically relies on the profit and loss system to direct this process
Losses and going out of business frees up resources for others to experiment

18. Joseph Schumpeter’s Creative Destruction
Capitalism...is by nature a method of economic change... the new goods, the new methods of production or transportation ... that revolutionize the economic structure from within, incessantly destroying the old one, incessantly creating a new one.
This process of Creative Destruction is the essential fact about capitalism.
From Capitalism, Socialism and Democracy (1942)

23. Creative Destruction An economy undergoes continuous change
– some industries fail, others are born
According to Shumpeter this creative destruction is our main form of progress
Creative Destruction CREATES entrepreneurial opportunities
Complements to new things
Redeploy unemployed resources

24. Why No Union Pacific Airlines?
The Innovator’s Dilemma (Clayton Christensen)
incremental vs disruptive innovation
New small firms vs large existing firms

25. Why No Union Pacific Airlines?
Royal Sims a concrete producer from Utah (Terex)

26. Josh Springer, college student invented this

29. Creative Destruction’s Opponents

30. Hayek: Competition, Prices, Knowledge
Competition as a discovery procedure
Knowledge
Prices

31. F.A. Hayek’s Discovery (Quote)
… wherever we make use of competition, this can only be justified by our not knowing the essential circumstances….
In sporting events, examinations, the awarding of government contracts, or the bestowal of prizes for poems, not to mention science, it would be patently absurd to sponsor a contest if we knew in advance who the winner would be.
I wish now to consider competition systematically as a procedure for discovering facts which, if the procedure did not exist, would remain unknown or at least would not be used.

32. My friend Bubba…..

33. Ideas matter… but sometimes prices matter more
Eggs at Easter
P ↑ 20¢ / doz
Q ↑ +50m / doz

34. The Mysterious McRib

35. The McRib & Prices

36. Thank You / Q&A Russell S. Sobel, Ph.D.
Professor of Economics and Entrepreneurship
Baker School of Business
The Citadel