12 Main Theories of Entrepreneurship (Explained)

We have already studied that the entrepreneurship development depends upon various factors. Various theories or models have been prepared for this purpose. Various thinkers have propounded various theories of entrepreneurship development or development models of entrepreneurial class.

The supply and motivation of entrepreneurship are affected by various factors. 

Different Theories of Entrepreneurship

Following are the different theories of entrepreneurship:

1. Innovation Theory

Joseph A. Schumpeter is the propounder of innovation theory. The assumptions are:

1. The entrepreneur is born with the desire to establish his own industry, also
2. He desires to do something new.
3. Takes pleasure of creativity and earning experiences of skills for doing various tasks.

However, the main objective behind the arms is to earn profits, by way of search of new raw materials, new sources, new machinery, production of new products, new methods of production, new workers and providing consumer satisfaction.

2. Theory of Need of Achievement

The need for achievement theory was propounded by McClelland. His assumption is that the Desire of high achievements obtaining specific achievements, making the best performance, touching the heights of excellence, developed Entrepreneurial tendencies in the individuals.

But, for that, the entrepreneur should have adequate capacity of imaginations, thinking and developing new combinations.

For that, the feelings for achievements are inculcated in him, from the very beginning and thereafter it is especially attempted that he may become a successful entrepreneur.

McClelland has recognized the desire to achieve the major factor in entrepreneurship development.

He has suggested conducting motivational training programmes for development of the entrepreneurs.

Related: 19 Key Factors Influencing Entrepreneurship Development.

3. Theory of Recover The Withdrawal of Status

This theory was propounded by Everet Hegen. His assumption is that creativity of any suffering minority group in the society is the main source of entrepreneurship.

In this regard, he is of the opinion that if any community has to lose its reputation, due to some reasons, that group becomes quite active and strong to regain it.

As a result, many entrepreneurs are born. Hence it may be said that withdrawal of status of any social group is the root cause of its personality development and Entrepreneurial development also.

According to Hagen, withdrawal of status or reputation is caused by the following conditions:

1. When a reputed group is forcefully displaced by another group.
2. When a better group changes its views about its subordinate group.
3. When a group starts living in some new society. The persons or the group tend to do creativity behavior to regain the status and reputation, after withdrawal of status, etc. Which will result in entrepreneurship development?

4. Behaviour Theory

This theory was propounded by John Kunkel. He assumes that the entrepreneurial development of any society depends upon its past and exiting economic social aspirations.

He feels that following four types of compositions are essential for entrepreneurial development:

• The behavior of the individuals may be made entrepreneurial by influencing the major factors of demand composition.
• The behavior of the individual may be made Entrepreneurial by influencing the major factors of demand composition.
• Opportunity competition is decided by various factors, like labour and labour market, production methods, training opportunities, skills, etc.
• Labour composition is operated by various factors, like sources of livelihood, traditional approach, and aspirations of life, etc.

Hence, it may be said that the supply and development of the Entrepreneurs depend upon aforesaid composition methods, assumptions, and their scope.

Hence, The Entrepreneurship depends upon the particular combination of circumstances, whose creation is difficult, but their destruction is easy.

In aforesaid physiological theories of entrepreneurship development, Thomes Beagle and David P. Bayad have stated five dimensions of entrepreneurial development:

1. Need for high achievement.
2. The Entrepreneur is controlled by self, rather than by luck.
3. The entrepreneur always remains ready to take the risk in anticipation of returns and assets.
4. The entrepreneur also remains ready to take the uncertainties and ambiguities, because he knows that the work which is done for the first time involves some uncertainties and ambiguities.
5. The behavior of the Entrepreneur may include making hurry in almost all activities and feeling the pressure of time and sometimes getting hyperactive and aggressive.

Related: 21 Role and Importance of Entrepreneur (With Examples).

5. Entrepreneurial Group Theory

This theory was propounded by Frank W. Young. The theory is based on the assumption that expansion of entrepreneurial activities is possible only by entrepreneurial groups.

Because they have specialties is in the groups, and capacity to react.

However, this reactiveness is possible, when three conditions prevail simultaneously in society.

• When the group feels of low status.
• When the group is not successful in reaching to important social machinery.
• When the group has better institutional resources as compared to other groups.

Thus, it is evident that when any subgroup in a big society realizes low status and position, then its capacity to react gives birth to Entrepreneurial behavior.

6. Social Change Theory

This theory of entrepreneurship development has been propounded by Max Weber.

For the first time, he stated that the emergence and development of the entrepreneurs depend upon ethical values system of society.

He is of the view that religion in which a person survives and the religious values and faiths which he accepts, substantially affect his business life, occupation, Entrepreneurial enthusiasm, and energy.

He had linked entrepreneurship development with protein (that sect of Christianity who does not accept the total authority of pope) and with various religious communities.

His observes that those religious communities which lay emphasis on capitalism, materialism, and currency rationalization have been successful in the emergence of entrepreneurs, wealth, technology, capital formation, and economic development.

It is evident that the Protestant society has been able to achieve rapid economic progress.

7. Cultural Theory

This theory of entrepreneurial development was propounded by B.F. Hauslin.

He is of view that industrial entrepreneurial development is possible only that society, where social procedures are unstable, alternatives of employment to persons are widely available and the society which encourages personality development of enterprising persons.

He explained that the culturally marginal groups have special importance in encouraging economic development of any Nation, the reason being that the marginal individuals are more capable of Creative adjustments of the conditions of the circumstances and during the process of this adjustment they make efforts to bring about real innovation social behavior.

In addition, he also laid the stress of developing individual qualities for entrepreneurial development.

Related: 15 Major Role of Entrepreneur in Economic Development.

8. Cultural Value Theory

Cultural value theory has developed by Kroken. He emphasized cultural values, expected rules, and social approvals have specific importance in entrepreneur development.

So, the Entrepreneur is an ideal personality for The society.

In addition, Kroken also explained that the success of the entrepreneur and his performance are influenced by the following 3 factors:

1. Entrepreneurs own inclination towards his work and profession.
2. Expectations of acceptance groups regarding the role of the entrepreneur.
3. Functional requirements of the work.

Thus, it may be said the Entrepreneurial development is significantly linked with the environment.

9. Socio-Cultural Value Theory

This theory of entrepreneurship development was propounded by Stokes.

He is of the view that during the period of economic transition, socio-cultural values play a very important role.

The physiological factors encourage economic development by stimulating entrepreneurship.

According to him, ‘Mental thinking’ do create the directions of entrepreneurial development, but group generated value Matrix has significant contribution in attracting the entrepreneurship.

10. Economic Theory

This theory has been propounded by Pepuek and Hassis.

Their assumption is that physiological motivation for economic gains or increase in real income exists in every society.

In addition, he has also stated that economic motivations are sufficient conditions for individual industrial entrepreneurship.

But, if in spite of that, entrepreneurial response lacks in the individuals, it is the result of various types of market imperfections and propositions of policy determination.

This theory is based on the assumption that entrepreneurial development is the result of various economic motivations.

Hence, the individuals enter into the industrial field with the aim of maximum utilization of economic opportunities available within the economy and the market.

Related: 9 Importance of Planning in Business Management (Explain).

11. Entrepreneurial Disposition Theory

Entrepreneurial disposition theory of entrepreneurship development has been propounded by T.V.S. Rao.

His assumption is courageous Entrepreneurial disposition is very important for entrepreneurial development.

Besides, for entrepreneurial establishments, individual, physical, and orienting factors are also essential.

According to Rao, Entrepreneurial disposition includes factors like dynamic motivation, long-term devotion, individual, social and physical sources and political system.

These factors influence the Entrepreneurial development and also promote industrial activities.

12. Process of Stage Theory

Within accepted theory, process or stage theory has been developed by Venkat Rao.

His assumption is that entrepreneurship development a process of five following stages:

(1). Simulation

In this stage, the environment is built for development of entrepreneurs, by way of providing them various simulation.

Various policy announcements are made in the country, specific plans are prepared for development, wide publicity is done, support institutions are established, entrepreneurial development programmes are organized.

All these help in stimulating entrepreneurship.

(2). Identification of Entrepreneurial Abilities and Capacities in the Society

At this stage identification of entrepreneur is carried out and advanced systems are adopted.

The entrepreneurs are directed toward constructive activities.

The prospective Entrepreneur in various fields is identified.

(3). Development and Expansion of Entrepreneurs

At this stage, various programmes are organized for the development of entrepreneurs, which include vocational guidance programmes, management Training, and Technical training.

In addition, various policies and programmes are organized for the expansion of industrial activities.

(4). Promotion

At this stage, various support organizations, like Central labour organizations, state-level organizations, and Research, testing and Standards organizations, etc. are established for the expansion of economic activities and entrepreneurial promotion.

These organizations provide various types of motivation, assistance, facilities, and services to entrepreneurs.

(5). Follow Up

At the last stage, follow-up of government programmes and policies formulated for entrepreneurial development is undertaken.

The system of feedback is introduced for entrepreneurial expansion and development.

Thus, now you know the various different theories of entrepreneurship.

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