In the era of automation and data-driven decision-making, entrepreneurial success increasingly depends on an individual's ability to understand, communicate, and ethically manage artificial intelligence (AI). This paper explores the concept of AI literacy as a critical entrepreneurial skill that goes beyond technical proficiency to include interpretive, ethical, and communicative capabilities. Drawing on mixed-method interviews with 847 small and medium-sized business owners across the United States, the study investigates how entrepreneurs use AI tools for product development, marketing automation, and customer engagement. Findings reveal a widening gap between operational use and strategic understanding of AI, suggesting that literacy not mere access determines innovation readiness. The paper introduces a Model of Entrepreneurial AI Literacy (EAIL) that integrates data interpretation, ethical awareness, and narrative framing as drivers of sustainable innovation in the digital economy. Results demonstrate that entrepreneurs with higher AI literacy scores achieve 43% greater revenue growth, 67% faster product development cycles, and 52% higher customer retention rates compared to those with limited AI understanding. The study identifies four distinct entrepreneurial AI literacy profiles: Strategic Integrators (23%), Tactical Adopters (34%), Cautious Observers (28%), and Digital Natives (15%). These findings suggest that AI literacy education programs specifically designed for entrepreneurs could significantly enhance U.S. competitiveness in the global knowledge economy, with implications for educational policy, business development programs, and innovation ecosystems.