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To learn about various theories of

entrepreneurship.
Critical evaluation of theories.
What is Theory?
Concept of Entrepreneurship
Theories of Entrepreneurship
Economic Theory of Entrepreneurship
Sociological Theory of Entrepreneurship
Entrepreneurship Innovation Theory
Psychological Theory of Entrepreneurship
Theory of Achievement Motivation
Status Withdrawal Theory
Theory of Social Change
Theory of Social Behaviour
Theory of Leadership
Theory of Model Personality
Theory of Systematic Innovation
Conclusion
A well-substantiated explanation acquired
through the scientific method and repeatedly
tested and confirmed through observation
and experimentation.
Entrepreneurship is defined as:
- The act of being an entrepreneur.
That is, an Entrepreneur is one
- who undertakes innovations, finance and
business activities
- in an effort to transform innovations into
economic goods or services.
The Economic Theory
The Sociological Theory
Entrepreneurship Innovation Theory
Psychological Theory
Theory of Achievement
Motivation/Achievement Theory
- The Kakinada Experiment.
Status Withdrawal Theory
Theory of Social Change
Theory of Social Behaviour
Theory of Leadership
Theory of Model Personality
Theory of Systematic Innovation
Entrepreneurship and economic growth takes
place when economic conditions are
favourable.
Economic incentives are the main
motivators.
Economic incentives include:
- The taxation policy
- Industrial policy
- Sources of Finance and Raw Material
- Infrastructure Availability
- Investment and Marketing Opportunities
- Access to Information
a. Market Conditions
b. Technology etc.

Richard Cantillon, an Irish French


Economist viewed
- Entrepreneurs as an agent who buys
factors of production at certain prices in
order to combine them with a view to selling
it at uncertain prices in future.
He illustrated farmer as an entrepreneur,
who pays out contractual incomes to the
landlords and labourers, which are certain
while sells his crops at a price, which is
uncertain.
Entrepreneur as a Risk Taker.
According to William J. Baumol, the
economic theory has failed to provide a
satisfactory analysis of either the role of
entrepreneurship or its supply.
Traditional model treat the entrepreneurial
function like a managerial function.
Entrepreneurship is likely to get a boost in a
particular social culture.
The (entrepreneurial) behaviour of
individuals in a society is influenced by:
- Society’s values,
- Religious beliefs,
- Customs,
- Taboos, etc.
The entrepreneur merely performs a role as
per the expectations of the society.
As per Jean Baptiste say, an aristocratic
Industrialist
- Entrepreneur combines land of one,
labour of another and the capital of yet
another to produce a product.
- By selling the product he pays interest on
the capital, rent on land and wages to
labourers and what remains is profit.
First time distinction between the capitalist
as the financer and the entrepreneur as the
organiser.
Theory was promoted by Joseph Schumpeter.
Entrepreneurship is Innovation.
This theory ignores earlier two abilities,
which were till then considered key for an
entrepreneur:
- Organising Abilities
- Risk Taking Abilities
According to Joseph Schumpeter, a 20th
century Austrian Economist
- An entrepreneur is a person who is willing
and able to convert a new idea or invention
into a successful innovation.
Entrepreneurship resulted in new industries,
even though it entailed combining the
existing inputs in a new way.
Schumpeter’s example of innovation was the
combination of a steam engine with wagon-
cart, to produce the horseless carriage.
In this case the Innovation, the car, was
transformational. But it did not require the
development of a new technology.
Merely the application of existing
technologies in a novel manner was
entrepreneurial.
Entrepreneurship and Innovation
An entrepreneur innovates when
- Introduces a new product
example: Virgin Galactic
- Introduces a new production method
example: Line production system in food
by MacDonald’s
- Open up a new market
example: The Blue Ocean Strategy
- Finding new source of raw material
supply
example: moving from coal to petroleum
to nuclear energy sources.
- Introduces a new organisation in any
industry.
Distinction between innovator and inventor.
Entrepreneurs – economic development.
Development requires basic changes –
entrepreneurs do the changes.
Limitations :
- innovative functions required, ignores risk
taking, organising aspect.
- most vigorous type of enterprise
- excludes individuals operating established
business
- assumes entrepreneurs as large scale business
man.
Entrepreneurship gets boost when society has
sufficient supply of individuals with
necessary psychological characteristics.
These psychological characteristics include:
- Need for Achievement,
- A vision Foresight,
- Ability to face opposition.
These characteristics are formed
- during the individual’s upbringing
- by high standards of excellence
- self reliance and
- low father dominance
David McClelland identified:
- Need for Achievement
- Need for Affiliation
- Need for Power
As the basis of entrepreneurial personality,
he emphasized
- The importance of achievement
motivation
- Through which, entrepreneur fulfills:
a. Economic and Social Development
The Need for Achievement was found highest
among Entrepreneurs through an experiment.

The Kakinada Experiment


Conducted by McClelland in America, Mexico
and India (Kakinada)
Young adults were selected and put through
a 3 months training to induce achievement
motivation.
In the course content:
- Trainees asked to control their thinking
and be positive
- Trainees imagined themselves in need of
challenges and success and to set achievable
goals.
- imitate their role models
Positive impact on performance
Traditional beliefs do not inhibit
McClelland identified two characteristics of
entreprenurship:
- Doing things in a new and better way
- Decision making under uncertainty
Stressed that people with High Achievement
Orientation (Need to Succeed) are more
likely to become entrepreneurs.
- People are not influenced by money or
external incentives.
- Profits are only a measure of success and
competency.
High achievement orientation ensures the
success of entrepreneurs.
It is necessary to create a climate to enable
children to grow to become individuals with
high n-achievement.
It is possible to improve the performance of
existing entrepreneurs through imparting
proper training and education.
E. Hagen
This theory provides that a class which lost
its previous prestige or a minority group
tends to show aggressive entrepreneurial
drive.
If a group feels that their values and status
are not respected by society, they turn to
innovation to get respect of society.
Entrepreneurship is a function of status
withdrawal.
Four events which can produce status
withdrawal :
- Displacement of a traditional elite group
by physical force.
- Denigration of values, symbols due to
change in attitude of superior class
- Inconsistency of static symbol due to
change in economic power
- Non-acceptance of expected status on
migration to a new society
Entrepreneur as a creative problem shooter.
Hagen visualized an innovative personality.
- Retreatist
- Ritualist
- Reformist
- Innovator
Innovation requires creativity and such
creative individuals cause economic growth.
Distinguish between entrepreneurship and
intra-preneurship.
There are various factors which motivate
executives and professionals to do innovative
behaviour not governed by status
withdrawal.
Presupposes long term perspective for
entrepreneurial growth, but it does not
happen in India.
Max Weber – Ethical value system
Protestant ethic and the spirit of capitalism
Religion and its impact on entrepreneurial culture.
Weber opined that spirit of rapid industrial growth
depends upon
- Rationalized technology
- acquisition of money
- rational use of money for productivity
- Multiplication of money
These elements depend upon specific value
orientation of individuals generated by ethical
values.
Invalid assumptions :
-single system of hindu value.
-indian community internalised those values
and translated them in day to day behaviour.
-these values remained immune to and
insulated against external pressures and
change.
Further studies show that hinduism is not
averse to the spirit of capitalism and to
adventurous spirit.
Kunkel presents a behavioral model
Supply of entrepreneurs is a function of
social, political and economic structure.
Individuals perform various activities of
which some are accepted by society while
others are not.
Four structures in society :
- Limitation Structure
- Demand Structure
- Opportunity Structure
- Labour Structure
Theory assumes ideal structures for supply of
entrepreneurs.
There is discrepancy between objectives,
structures and actual incidence of
entrepreneurs.
Entrepreneurship is also governed by specific
combinations of circumstances which are
generally not available in the environment.
Hoselitz – entrepreneurship is a function of
managerial skill and leadership.
Ability to lead and manage.
Social conditions should ensure the
development of enterprise-oriented
personalities.
Hoselitz emphasized on the role of culturally
marginal groups.
Marginal men or women enjoying an
ambiguous cultural and social position having
no bondage of tradition to inhibit them from
entrepreneurial development.
But there are certain economic and political
factors also which encourage the people to
initiate entrepreneurial behaviour.
The theory of Cocharn is a sociological
theory of entrepreneurial supply.
Cocharn emphasises cultural values, role
expectation and social sanctions as the key
element .
Entrepreneurs performance is influenced by :
- his attitude towards his occupation
- role expectation held by sanctioning
groups
- operational requirements of the job
Society’s values – most important for attitude
and role expectation.
The theory deals with only social factors.
Profit is an important factor for encouraging
entrepreneurs to assume risky behaviour.
Need for achievement starts from profit
making process.
Entrepreneur is expected to perform
managerial functions.
But theory fails to incorporate all these
requirements.
Prof. Drucker – developed the theory.
“Systematic innovation consists in the
purposeful and organised search for changes
and in the systematic analysis of the
opportunities such changes might offer for
economic or social innovation.”
Systematic innovation means seven sources
for innovative opportunity.
The first four sources lie within the
enterprise.
These four source areas are :
1.The unexpected – the unexpected
success, the unexpected failure, the
unexpected outside event ;
2.The incongruity – between reality as it
actually is and reality as it is assumed to be
or ought to be ;
3. Innovation based on process need ;
4.Changes in industry structure or market
structure that catch every one unaware.
The second set of sources for innovative
opportunity, a set of three involves changes
outside the enterprise of industry :
- Demographics (Population changes) ;
- Changes in perception, mood and
meaning ;
- New knowledge, both scientific and non-
scientific.
Lines between these seven source areas of
innovative opportunities are blurred, and
considerable overlap between them.
Quite comprehensive theory.
Entrepreneur is required to identify different
sources of change.
Coordinate these changes with opportunities
available in environment.
Reliability and predictability of seven
sources.
Entrepreneurship is a multidisciplinary area.
Governed by human factors – ever changing
society pursuing simultaneously
- economic objectives
- social objectives
- psychological objectives
Theory of Entrepreneurship is woven into :
- sociological, cultural, psychological,
political and managerial fiber.
With them it forms a economic web.

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