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12 Theories of Entrepreneurship (Explained

with Examples)
Updated on: November 19, 2018 — Leave a Comment

We have already studied that the entrepreneurship development depends upon various factors. Various
theories or models have been prepared for this purpose. The supply and motivation of entrepreneurship
are affected by various factors. Various thinkers have propounded various theories of entrepreneurship
development or development models of entrepreneurial class.

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Theories of Entrepreneurship

Theories of Entrepreneurship
Following are important 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.

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McClelland has recognized the desire to achieve the major factor in entrepreneurship development. He
hasHOME
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conducting PRIVACY POLICY
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training programmes for development of the entrepreneurs. 8
Meaning of Entrepreneurship by Different Scholars.

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.

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Hence, Kunkel has observed that “The Entrepreneurship depends upon the particular combination of
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but their destruction is easy.”

20 Types of Entrepreneurs (Informative Explained).

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.

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. 21 Importance and Role of Entrepreneur.

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.

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Theories of Entrepreneurship

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.

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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

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adjustments of the conditions of the circumstances and during the process of this adjustment they make
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social behavior. ABOUT US

In addition, he also laid the stress of developing individual qualities for entrepreneurial 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. 10
difference between entrepreneur and capitalist.

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. 4 Differences
Between Sectional and Self-balancing system.

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.

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Theories of
Entrepreneurship

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. Macroeconomics: Definitions, Features,
Scope, Importance (Step-by-Step).

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.

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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

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

12 Theories of Entrepreneurship

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10 Concept of Entrepreneurship (Updated)

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Top 8 Difference between Entrepreneur and Manager

18 Nature and Characteristics of Entrepreneurship

15 Factors that Affecting Market Segmentation

5 Main Types of Disequilibrium in Balance of Payments (BOP)

21 Importance and Role of Entrepreneur.

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12 Factors Affecting Entrepreneurship Development

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