Theories of Entrepreneurship

The main theories of entrepreneurship are:
1)Innovation Entrepreneurship theory.
2) Economic Entrepreneurship theory.
3) Sociological Entrepreneurship theory.
4) Psychological Entrepreneurship theory.
5)Opportunity based Entrepreneurship theory.
6) Resource-based Entrepreneurship theory.
7) Anthropological Entrepreneurship theory.

1. Chapter 4
Theories of Entrepreneurship
By
Dr Nazrul Islam
Entrepreneurship
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2. Different theories regarding development of
entrepreneurship have been introduced in
different time.
All of which have emphasized the importance
of entrepreneurship development.
These theories also tried to keep pace with
the emergence of new entrepreneurs and made
the readers think how important entrepreneurs
are for the social and economic development of
a country.
Theories of Entrepreneurship
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3. 1.Psychological or personal theory
2.Sociological-Anthropological-Cultural
theory
3.General theory or Background factors
theory
Types of Entrepreneurship Theories
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4. Psychological or Personal Theory
The essence of this theory is the difference in
individuals’ attitude
According to this theory -The internal attitude
and ability to judge and forecast the situation
lead a man to become a successful
entrepreneur.
Some special types of attitude, personality
and conceptual ability create entrepreneur and
entrepreneurship.
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5. Types of Psychological or Personal
Theory
Achievement motivation theory
Motive-acquisition theory
Risk taking theory
Internal-external locus of control theory
Autonomy or independence motivation
theory
Creativity or innovation theory
Power motivation theory.
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6. Achievement Motivation Theory
It is the inner drive of individuals that
propels them to work more and to achieve
something for their own interest.
Such people show a tendency to take
personal risk for social establishment.
They like to take moderate risks.
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7. Achievement Motivation Theory,
Contd.,
David C McClelland further stated that a
desire to do well, not so much for the sake
of social recognition or prestige, but for an
inner feeling of personal accomplish,
induces people to be an entrepreneur.
Those who can make room for them by
competing with standard of excellence are
also denoted as entrepreneurs.
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8. Achievement Motivation Theory,
Contd.,
David C McClelland viewed that people
who devoted themselves to attain success
or to engage in creative activities (except
businessmen) are also entrepreneurs.
In light of McClelland’s view entrepreneurs
are two types:
(i) Owner entrepreneur
(ii) Employed entrepreneur
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9. Achievement Motivation Theory,
Contd.,
Owner entrepreneur
Quite independent as they are owners of
their businesses and they bear a high
extent of nAch motivation.
Employed entrepreneur
They posses the nAch nut less than those
of the owner entrepreneurs.
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10. Achievement Motivation Theory,
Contd.,
Individuals with strong motivation for
achievement are entrepreneurs having
following characteristics:
Take personal responsibility
Moderate risk
Seek feedback
Sacrifice small interest for the sake of big
one
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11. Motive-Acquisition Theory
This theory is a revised version of David C
McClelland’s achievement motivation theory.
The essence of this theory is:
The mentality and personality of people are
not in-born, but they are flexible and changes
with situation.
An individual can be influenced and
motivated towards a goal by changing his/her
thinking, mentality, attitude etc. e.g., training
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12. Motive-Acquisition Theory, Contd.,
Froyed is against this view of changing
personality of people.
However, McClelland viewed that a high
degree of achievement motivation could be
created in an individual by providing frequent
training and motivation.
McClelland conducted an study in India to test
this opinion in some owners of grocery shops.
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13. Risk Taking Theory
Richard Cantillon and John Stuart Mill,
introduced risk-taking theory, which was later
rectified by Economist Alfred Marshal in 1890.
The essence of this theory is:
The entrepreneurs should have the inclination
to take moderate risk and the ability to bear
that risk.
Every society possesses some people who are
willing to take risks and challenges.
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14. Risk Taking Theory, Contd.,
These people have the chance to be the
entrepreneurs
Knight also stated this view in his Risk
Bearing Theory. Degree of risk taking
propensity is shown below.
Not Entrepreneur Entrepreneur Gambler
0
Low Risk Medium Risk
1
High Risk
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15. Internal-External Locus of Control
Theory
Professor J.D. Rotter of Ohaio University
is the originator of this theory.
The essence of this theory is:
Human being is the product of the
society, and social situation determines
whether a person will be externally or
internally oriented or not.
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16. Internal-External Locus of Control
Theory, Contd.,
Internal Locus of Control
It could be defined as self-confidence,
extreme belief over one’s ability and power.
External Locus of Control
If an individual thinks that everything is out
of his/her control, then the person’s locus of
control is external.e.g., Values, beliefs,
traditions etc. fall under external locus of
control
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17. Internal-External Locus of Control
Theory, Contd.,
Entrepreneurs who have a high quality of self-
confidence want to be controlled by
himself/herself.
The most entrepreneurs emphasize on their
activities and their luck equally for the success
and failure of their work. The range of locus of
control is shown below.
0 10 20 30 40 50 60 70 80 90 100
No
Contr
ol
………………
Entrepreneurs
Full
Cont
rol
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18. Autonomy or Independence Theory
This theory is similar to the theory of locus of
control.
The essence of this theory is:
The independent thinking of entrepreneurs.
Self confidence, self controlling ability and ability to think
independently are said to be psychological characteristics of
entrepreneurs.
People who have these characteristics, are able to adapt
themselves with the changing situations and can avoid social
condemnation can be successful entrepreneurs.
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19. Creativity or Innovation Theory
Creativity is concerned with the origin of
new and fundamental ideas or views.
The physical performance is the
determinant to evaluate whether an
individual is creative or not.
This type of creativity is always
constructive in nature.
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20. Creativity or Innovation Theory,
Contd.,
Types of Creativity
1.Creating something new which has
never done by others
2.Presenting an old idea in a new form,
i.e., to invent some new use of an old
thing or idea.
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21. Power Motivation Theory
Power generally refers to the authority
to do a certain task properly.
Power is an inherent right of people.
The desire of one to have control over
others is power.
Power influences people and that
influence makes a man powerful.
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22. Power Motivation Theory,
Contd.,
Types of Power
1.Personal power
2.Social power
Entrepreneurs usually seek personal power.
Leadership power is democratic while the power
of entrepreneur is always autocratic in nature.
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23. Sociological-Anthropological-
Cultural Theory
Sociological theory is concerned with social
condition, while anthropological theory is
concerned with culture.
The socio-cultural factors have a
substantial influence in creating
entrepreneurs as well as entrepreneurship.
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24. Sociological-Anthropological-
Cultural Theory, Contd.,
There are some socio-cultural motives or factors
that act in creating entrepreneurs. The factors
are as:
1.Traditional values and modern values
2.Religious values
3.Urban orientation theory
4.Marginality and tension theory
5.Social cohesion theory
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25. Sociological-Anthropological-
Cultural Theory, Contd.,
Traditional Values and Modern Values
Modern values discard all traditional values
and energize people to be entrepreneurs.
Modern values explain that business is the
only way to earn independently and the
entrepreneurs can dominate economic
development of a country by doing business
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26. Sociological-Anthropological-
Cultural Theory, Contd.,
Religious Values
Max Weber write in his book “The Protestant
Ethic and the Spirit of Capitalism” that religious
values are great hindrances for creating
entrepreneurs.
Duisenbery said that except in some selected
cases, religious values facilitate the creation of
entrepreneurs.
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27. Sociological-Anthropological-
Cultural Theory, Contd.,
Anthropological Theories
Urban orientation
Marginal and tension theory
Social cohesion theory
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28. Sociological-Anthropological-
Cultural Theory, Contd.,
Urban Orientation
Hagen mentioned in his book “The Theory of
Social Change” that:
The key determinant for the status of rural
people is family tradition, while financial
conditionis the element to evaluate the status
of the urban people.
A number of entrepreneurs are developed from
the urban areas.
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29. Sociological-Anthropological-
Cultural Theory, Contd.,
Marginal and Tension Theory
Robert Park mentioned in his famous book “Marginal
Man” that:
A marginal man is one whose fate has condemn him
to live in two societies.
Glovanasky described that a person is a marginal man
who keeps himself aloof from his culture.
Entrepreneurs may emerge from these marginal
group.
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30. Sociological-Anthropological-
Cultural Theory, Contd.,
Social Cohesion Theory
Froyed introduced Social Cohesion Theory in 1948.
A high extent of social cohesion prevails n those
people who are living outside their society and culture.
Inter-group conflict increases intra-group cohesion
This theory has great influence in creating
entrepreneurs.
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31. Background Factors Theory or
General Theory
The background factors which have influence in
creating entrepreneurs. The factors are:
Age (e.g., Age 25 to 35 years)
Education (e.g., most entrepreneurs are created from
the technically educated person)
Family background (e.g., business family)
Community (e.g., close association in a particular
community)
Peer group help or reference group
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32. Background Factors Theory or
General Theory
The background factors which have influence in
creating entrepreneurs. The factors are:
Ethics and honesty
Birth order
Child rearing practice
Experience of working in business
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