Entrepreneurs are individuals who introduce new, innovative products or services that help society become more productive, reduce cost and improve the general quality of life. Because they know their offerings much better than anyone else, and also how these solve the problems of customers, entrepreneurs can charge a high price for their innovations. This high premium in turn translates into big rewards for them, and helps to cover the costs of production as well as the huge risks taken while the products were still in development.
What About Competitors?
Smart entrepreneurs usually consider competitors in their plan, after all, these ones are interested in driving them out of business! So, what a shrewd entrepreneur does is to ensure that competitors are not able to build and introduce similar products or services in a short span of time – this is called unique selling proposition or USP for short – the product then becomes a monopoly for the entrepreneur, and he or she can expect very high profits from being the sole manufacturer or sole provider of the service.
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Even if competitors find it easy to replicate and introduce similar products quickly, the entrepreneur can seek safety and protection for their innovation through patents, copyrights or royalties. Though these channels offer protection to the original inventor and safeguards his/her venture, it should be noted that patents expire and copyright laws do vary across different countries.
What Is the Importance of Competition?
The reason these protective channels are not allowed to continue indefinitely is because should it happen, economic and social stagnation will set in. While these protective channels allow entrepreneurs reap the fruits of their hard work and risk-taking as mentioned above, allowing them have expiry dates also allows the market become more open and more competitive for further innovations to come up.
Smart entrepreneurs usually keep a close eye on such developments, and develop successive plans that will allow them maintain their market lead even when their patents expire. In the case of patents, protection is available for a certain amount of time which can span a few months to a few years depending on the product and the country.
This encourages healthy competition among entrepreneurs, and forces them to either start work on something new or be replaced! That’s fair for everyone, wouldn’t you agree?
Hope this helped you understand how entrepreneurship works and also how entrepreneurs make their money? Have some thoughts? Feel free to leave them in the Comments.
This piece was adapted from an article that appeared on investopedia.com