Even More Confusion About Entrepreneurship

After totally striking out with a first series of "problems" with risk-free entrepreneurs, The Napster is back with new "problems.
He writes:

There's something odd about an "entrepreneur" who doesn't risk his own capital in the context of the free market. If I understand what RW is saying, this type of "entrepreneur" cannot make a loss. But the reason that the free market is superior to any other economic arrangement is that those entrepreneurs who make losses will yield resources to those who make profits, and thus scarce resources tend to flow towards those entrepreneurs who are best satisfying customers' preferences. How does the "entrepreneur" who cannot make a loss fit into this picture?

It seems to me that what is always consistent with this concept of the free market is that the person who makes the decision to provide capital to the capital-less "entrepreneur" is really the entrepreneur, and the capital-less "entrepreneur" (the idea provider) is really an advisor, consultant, or management. If this capital provider keeps making bad decisions and losses, then his capital base will erode, and resources will flow away from him.

The reality is that smart capital providers will tend to insist that an idea provider has some "skin in the game," which would make this idea provider an "entrepreneur" in the sense I am talking about.

There is nothing "odd" about an entrepreneur who doesn't risk capital.  NAPster's problem is in understanding the essence entrepreneurship.

The Napster asks:

[T]he reason that the free market is superior to any other economic arrangement is that those entrepreneurs who make losses will yield resources to those who make profits, and thus scarce resources tend to flow towards those entrepreneurs who are best satisfying customers' preferences. How does the "entrepreneur" who cannot make a loss fit into this picture?

Well, first, entrepreneurs are very important to a free market system but there is much more to free markets than entrepreneurship.

But to get to the essence of the question, who says more money won't flow to a successful entrepreneur even if he doesn't put up any of his own money in any of his own ventures? I can think of, off the top of my head, of dozens of successful entrepreneurs who could raise money on their name without putting up any of their own money.

Again NAPster appears stuck in a theoretical world where he creates frameworks that don't consider all possibilities or the reality of the multiple ways deals can be done.

NAPsters next point:

 It seems to me that what is always consistent with this concept of the free market is that the person who makes the decision to provide capital to the capital-less "entrepreneur" is really the entrepreneur, and the capital-less "entrepreneur" (the idea provider) is really an advisor, consultant, or management. If this capital provider keeps making bad decisions and losses, then his capital base will erode, and resources will flow away from him.

I have already covered this. There is no reason that the capitalist has to share an entrepreneur's vision and may be providing capital for other reasons. (See response 2 at: More Confusion on Kirznerian Entrepreneurship) Further, whether a capitalist is successful at providing capital, in general, may have nothing to with the success of a given entrepreneur. I personally know a number of very successful entrepreneurs that borrow from total clowns (banks).

NAPster then adds:

The reality is that smart capital providers will tend to insist that an idea provider has some "skin in the game," which would make this idea provider an "entrepreneur" in the sense I am talking about.

Well, some capital providers may want an entrepreneur that has "skin in the game" but this is minor league side stuff. I want an entrepreneur who has superior vision and is driven and if for whatever reason he fails at executing on his vision, rather than counting on a deal with an entrepreneur who can't execute with "skin in the game," I will want a deal where I can replace the entrepreneur from his management role.

It depends on the situation but "skin in the game" in the game can be very overrated.

Just another example of  NAPster spouting out pop financial academic fad terms without understanding the way the game is really played.

BTW, I just love negotiating against people on the other side of the table who are focusing on whatever the latest pop financial fad is and not having a clue about what is really going down.

-RW