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Theories of Entrepreneurship & Entrepreneurship Motivation

Motivation
Motivation is defined as a drive that cause a person to take some goal oriented action.
Inner state of disequilibrium/ need expectancies

Behaviour

Incentive or goal

Feedback

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Basic Motivations for Entrepreneur

Passion Creating Value Changing the World Independence Money

Motivating Factors
R. A. Sharma

Internal Factors
Motivations Education background Experience

External factors
Government assistance and support Availability of factors of production Social Encouragement / suppression Encouragement from big business Promising demand for the product

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Maslows Need Hierarchy or ERG

Higher order needs- esteem and self actualization
Self-development Accomplishing new things Achievement of target and new standards. Desire for reputation and recognition Desire for a top position in the industry Desire for social status.

In some cases maybe physiological or security needs

Manifest Needs Theory

Murray & McClelland

Need for Power

Sensitive to perceive when things can be done better (Logical? More efficiently?) Has a strong sense of order within the hierarchy or system Is good at organizing things and people Desires to influence others...Likes to give advice and guidance Desires to be in-control of the situation Desires to be his/her own boss Wants to do things their way Desire for independence Desire to be involved in decisions affecting oneself Desire to know the results of ones actions.

Need for Autonomy

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Manifest Needs Theory

Murray & McClelland

Need for Affiliation

The extent to which an individual is concerned about establishing and maintaining good interpersonal relations, being liked, and having other people get along. Desire to fulfill family obligations Desire to belong to a group

Manifest Needs Theory

Murray & McClelland

Need for Achievement

The extent to which an individual has a strong desire to perform challenging tasks well and meet personal standards for excellence. Drive to achieve targets, persist in adversity, sense problems and opportunity the desire to do something better, faster, more efficiently, with less effort. likes situations in which he/she takes personal responsibility for finding solutions to problems. has a tendency to set oneself challenging but realistic achievement goals and to take calculated risks. also wants concrete feedback as to how well he/she is doing.

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Factors for Entrepreneurship

These factors are commonly grouped under 4 schools of thought
1. Traits Approach: entrepreneurs are shaped by their character internal attributes 2. Environmental Approach: entrepreneurs are a product of their environment external factors 3. Behavioural/Managerial Approach : it is neither internal nor external factors but actions & behaviors that lead to entrepreneurship 4. Contingency Approach

Environmental Approach
Choice of Entrepreneurship is related to external factors beyond the individuals control,
Culture
Entrepreneurs are products of their culture Some cultural groups see Entrepreneurship as a more desirable career opportunity

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Environmental Approach
Family Background- Entrepreneurial traits are impacted by birth order, role models and experience of rejection in childhood
First born: self confidence, independence and internal locus of control correlation exists with reception of special attention & care Role models: entrepreneurial environments foster the development of entrepreneurial traits risk-taking, independence, creativity and achievement Rejection: rejection from family relations can lead to the development of independence (to avoid authority figures)

Environmental Approach
Education and Experience
Level of education: more and more entrepreneurs are educated Experience: managerial and industry experience A large percentage of entrepreneurs start businesses in industries they are familiar with

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Environmental Approach
Push-Pull Theory: New venture creation results from positive and negative external factors
Pushed into Entrepreneurship by negative elements such as job dissatisfaction or job loss Pulled into Entrepreneurship by the observation of an opportunity, idea (e.g. dotcom mania)

Environmental Approach
Marginal/Displacement Approach: Some studies show that marginal individuals are more likely to become Entrepreneurs
Misfits that cannot fit into the business mainstream
Dislike 9am to 5pm routine Problem with acceptance of authority Difficulty in coping with bureaucracy

Minorities who feel discriminated against Women experiencing the glass ceiling often start own business out of necessity

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Entrepreneurial Traits Approach

Entrepreneurs generally possess the following characteristics: High need for achievement need to always achieve new bold goals Risk taking propensity willingness to take financial risks Tolerance for ambiguity no fear of the unknown Innovation ability to create new or modify existing business concepts Intuition make decisions based on gut feelings High need for independence & autonomy make own decisions Internal locus of control belief that the future is determined by their own actions Low need for conformity unhappy in environment with strict rules Proactive plans for events before they occur

Behavioral/Managerial Approach
Based on the entrepreneurs ability to achieve goals
Success depends on the entrepreneurs ability to obtain resources, implement an appropriate strategy and develop an appropriate structure to exploit the opportunity Actions are the key criteria to determining whether or not an individual fits the profile of an entrepreneur Strategic thinking, goal setting, and planning, are all part of defining the characteristics of an entrepreneur under this theory

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Contingency Approach
Combination of ALL factors The ability to sense the opportunity (result of E traits)

The ability/willingness to exploit (management skill)

Schumpeters view
The entrepreneur-innovators motivation includes such aspects as
the dream to found a private kingdom, the will to conquer and to succeed for the sake of success itself, and the joy of creating and getting things done.

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Entrepreneurship Innovation theory

Theory by Joseph Schumpeter who believes that entrepreneur helps the process of development in an economy He says that an entrepreneur is the one who is innovative, creative and has a foresight According to him, innovation occurs when the entrepreneur
Introduces a new product Introduces a new production method Opens up a new market Finds out a new source of raw material supply Introduces new organisation in any industry

The theory emphasises on innovation, ignoring the risk taking and organising abilities of an entrepreneur Schumpeters entrepreneur is a large scale businessman, who is rarely found in developing countries, where entrepreneurs are small scale businessmen who need to imitate rather than innovate

Economic Theory
Entrepreneurship and economic growth take place when the economic conditions are favourable

Economic incentives are the main motivators for entrepreneurial activities

Economic incentives include taxation policy, industrial policy, sources of finance and raw material, infrastructure availability, investment and marketing opportunities, access to information about market conditions, technology etc

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Sociological Theory
Entrepreneurship is likely to get a boost in a particular social culture Societys values, religious beliefs, customs, taboos influence the behaviour of individuals in a society The entrepreneur is a role performer according to the role expectations by the society

Psychological Theory
Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary psychological characteristics The psychological characteristics include need for high achievement, a vision or foresight, ability to face opposition These characteristics are formed during the individuals upbringing which stress on standards of excellence, self reliance and low father dominance

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Competence motivation
A drive to do high quality work. Competence motivated entrepreneur
seek mastery in job or tasks that they are undertaking, develop problem solving skill and strive to be innovative

Tend to perform good work because the inner satisfaction they feel and respect they gain from others due to their competence.

Leibensteins Theory of X-efficiency

Harvey Leibenstein

popularly called Gap Filling Theory. Entrepreneurial functions are determined by the X-efficiency which means the degree of inefficiency on the use of resources within the firm.
Eg. Lalu Prasad Yadav as an entreprenaur for Indian Railways. Turned around the Indian Railways by improving efficiency and innovation.

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Mark Cassons Theory

Deals with the functional behavior of entrepreneur and his qualities which are crucial for his success. Casson defines and Entrepreneur as someone who specializes in taking judgmental decisions about coordination of scarce resources Demand Supply Relationship Identification of qualities Theory reveals that in development of successful entrepreneurship the following things are not to be followed:
The demand for entrepreneurship need to be adjusted as per the changing needs of time. The deficient qualities of the entrepreneur should be made good by personal care.

Mark Cassons Theory

Example
Narayan Murthy Identified the demand supply relationship and his qualities and then established Infosys Used his and his companys qualities to become one of the best I.T. Firms in the world.

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Papanek and Harris Theory

According to Papanek and Harris, economic incentives are the integral factors that have induced entrepreneurial initiatives. Main Features of this theory are as under:
Economic incentives Link between economic gains and the inner urge Economic gain sufficient condition

Harvard School Theory

Internal Forces: These forces refer to the internal qualities of the individual such as intelligence, skill, knowledge experience, intuition, exposure, etc. These forces influence the entrepreneurial activities of an individual to a great extent. External Forces: These forces refer to the economic , political, social, cultural and legal factors which influence origin and growth of entrepreneurship in an economy.

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M.Kirzners Theory of Adjustment

Adjustment of Price: The chief role of entrepreneur is based upon the adjustment of price in the market. The buyer may pay higher price or seller may accept a lower price, which gives rise to opportunities for profit. Further if different prices prevail in the same market, there in an opportunity for profitable arbitrage between two segments. Alertness to disequilibrium: Alertness to disequilibrium enables the entrpreneur to intervene in the market by changing the price. Thus, economy in purchase and profitable selling results in economic gains

Knights Theory of Profit

Knight points out that entrepreneurs are specialized group of persons who bears risk and deals with uncertainty. Main features of this theory are:
Pure Profit Situation of Uncertainty Risk Bearing Capability Guarantee of Specified Sum Identification of Socio Economic and Psychological Factors Use of consolidation techniques to reduce business uncertainty Self Confidence

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Theory of religious belief- Max Weber

According to Max Weber, entrepreneurism is a function of religious belief and the impact of religion shapes the entrepreneurial culture. He emphasized that the entrepreneurial energies are exogenous supplied by means of religious belief.

Elements of Webers theory

Spirit of capitalism
Spirit of capitalism is the guiding factor which guides the entrepreneur to get engaged in activities that can bring about more and more profit.

Adventurous spirit
Spirit of capitalism is influenced by strict discipline, where as, adventure spirit is affected by the force of impulse.

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Elements of Webers theory

Protestant ethic: According to Weber, attitude can be provided by protestant ethic irrespective of cultural background, personality type and experiences in the society. He also adds that, Hinduism lacks this sort of mental attitude which acts as a stumbling block in their way to entrepreneurship Inducement of profit: The principle of low prices and large turnovers was the mechanism of the entrepreneurs to reap profits. This motive of profit guided protestant ethic to become entrepreneurial which was not found among Hindus

limitations
Diverse cultures in India

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Theory of Entrepreneurial supplyThomas Cochran Beginning with the premise that fundamental problems of economic development are noneconomic, he emphasizes on the cultural values, role expectation and social sanctions as the key elements that determine the supply of entrepreneurs The type of childrearing and schooling and its influence on intrinsic character

Theory of Social Change

E.E. Hagen

The theory exhorts certain elements which presumes the entrepreneurs creativity as the key element of social transformation and economic growth. interrelationship among physical environment, social culture, personality and culture. entrepreneur as a creative problem-shooter who brings about economic development which is mingled with political and social changes.

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Theory of Social Change

E.E. Hagen
Rejection of followers syndrome: rejecting the idea that the solution to economic development lies in imitating western technologies, Hagen insisted that the followers syndrome on the part of the entrepreneur, is discouraged. This is because technology is an integral part of socio cultural-complex, and super-imposition of the same into different sociocultural set-up may not deliver the goods. Historic shift as a factor of initiating change: Historic shift is the crucial force which has brought about the social change and technological progress thereby leading to the emergence of entrepreneurial class from different castes and communities.

Theory of Social Change

E.E. Hagen

Withdrawal of status respects as the mechanism for rigorous entrepreneurial activity: When withdrawal of status respect occurs, it leads to four different responses and creation of four different personality types, namely:
Retreatist: One who constantly does his work in the society but remain indifferent to his own position. Ritualist: One who adopts a kind of defensive personality Reformist: One who initiates rebellion and attempts to establish a new order in the society Innovator: A creative individual who converts all odds into opportunities and is likely to become an entrepreneur

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Theory of Group Level Pattern

F. Young
Solidarity Groups: Young regarded the solidarity groups as the main agencies for building entrepreneurship. He mentions that entrepreneurship characteristics are found in clusters, ethnic communities, occupational groups or politically oriented factions. Disregarding single-handed concept of entrepreneurship: Entrepreneurship is the product of family background, experience and exposure of the individual as a member of the group and as a reflection of general values. Thus, entrepreneur doesnt work alone.

Theory of Group Level Pattern

F. Young
Reduction of complex economic problems: The effort of solidarity group is likely to reduce the economic problems through the recombination of factors related to production, higher standards of labor, new technology and markets and more effective management of time and money Incorporation of reactive subgroups: According to Young, a group becomes reactive when three important conditions coincide. These conditions are:
a) When low status recognition is found in a group b) When access to important social networks is denied c) When the group has better institutional resources than other groups in the society at the same level

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