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Theories of Entrepreneurship
Introduction
For scientist theory means relationship between facts
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Various authors have developed various theories on entrepreneurship and popularized the
concept among the common people
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The theories of entrepreneurship can
be explained from economists‟, psychologists‟ and socialists‟ viewpoint, which are developed over a period of time
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Later in 1803, Jean Baptiste Say proposed “ that profits earned by the
entrepreneur are different from the profit earned by the capital owner and thus differentiated between both”
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In 1934, Joseph Schumpeter defines entrepreneur as an innovator and
later in 1964, Peter Drucker defined the entrepreneur as the one who maximizes opportunities
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Thus, entrepreneurship has taken new
meanings in this century and a lot more has to be added
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Theories of Entrepreneurship
Large number of the theories has been propounded till date
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Innovation Theory by Schumpeter
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Leibenstein’s X-Efficiency Theory
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Max Weber’s theory of entrepreneurial growth
6
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Thomas Cochran’s Theory of Cultural Values
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Economic theory of Entrepreneurship
10
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Political System Theory of Entrepreneurial Growth

1
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He
defines, Entrepreneurship as a “creative activity” and this creation may be in the form of Introduction of new product
with which customer is not familiar or introduction of new quality of the existing product ,use of new method of
production which is not yet tested ,opening of new market in which particular manufacturer of the country has not yet
entered, conquest of new source of supplying raw material, new form of organization
Theories of Entrepreneurship
2
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McClelland wanted to find the internal factors
that motivate people to take opportunity of the trade
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Three needs are
Need for Achievement: A drive to excel, advance and grow
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Need for Affiliation: A drive for friendly and close inter-personal relationships
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People
who have high need for achievement personally take the responsibility of solving problems and will always try to be
better than others
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The definite characteristics of a high achiever (entrepreneur) can be listed as follows:
They lay down moderate realistic and achievable goals for them
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They favor situations wherein they can get individual responsibility for solving problems
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Their need for achievement live not only for the sake of economic rewards or social recognition
rather personal achievement is essentially more satisfying to them
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Leibenstein’s X-Efficiency Theory

The thought of x-efficiency was introduced by Harvey Leibenstein in his paper Allocative efficiency v
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This theory was recently applied to entrepreneurship and otherwise was
developed for the firms in determining the degree of inefficiencies
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When the
input is not used efficiently then the difference between the actual output and the maximum attainable output is the Xefficiency
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Therefore, leibenstein identifies two roles for the entrepreneur: gap filler and an input completer
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The other role is of input completer, to make available the inputs required for the efficient outputs
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(i) Routine entrepreneurship – deals with normal business functions like coordinating the business activities
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It includes the activities
necessary to create an enterprise where not all the markets are well-established or clearly defined
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Risk bearing theory of Knight

According to Knight, the most important feature of entrepreneurship is Risk bearing
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More Risk more Gain: Entrepreneurs face different types of risks according to their ability
and interests
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Profit as Reward and cost: Profit is the reward of bearing risk
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Entrepreneur’s income is uncertain: According to knight, uncertainty is the important element of
entrepreneurship
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Entrepreneur earns profit because he bears non- insurable risk which is uncertain
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Max Weber’s theory of entrepreneurial growth

Max Weber believes that religion has a large impact on the entrepreneurial development of the country because
some religion has basic faith to earn more money whereas some has less
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It is the religious
beliefs that develop the sense of capitalism in the individual which generates the feeling of occupational chase and
the addition of assets
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6
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According to him, withdrawal of status respect
leads to the entrepreneurship
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He proposed four events which can lead to status withdrawal:
Displacement of a conventional best group from its earlier status by another conventional
supply physical force
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Acceptance of expected status on migration to a new society
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Ritualist : One who works as per the rules of the society but has no hope in the improvement in his status
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Hagen developed this theory from the case of samurai community of Japan who were deprived of the high status
they were enjoying and thus gave rise to many entrepreneurs as they want to gain their lost prestige
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Thomas Cochran’s Theory of Cultural Values
According to him, entrepreneurs are not super normal powers but are the role models of the society
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Entrepreneur’s performance is
influenced by the three factors:
own attitudes towards his occupation,
the role expectations held by sanctioning groups,
and the operational requirements of the job
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8
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He conducted a Thematic Appreciation Test (TAT) on group of
entrepreneurs
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Young’s theory is a theory of change based on society’s incorporation of reactive subgroups
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When deprived of access to important social networks
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Economic theory of Entrepreneurship:

This theory was propounded by Papanek and Harris
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Economists believe that entrepreneurship and economic growth exists
where economic conditions are favorable to the business environment
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Following are the factors:
(a) The availability of bank credit

(b)
(c)
(d)
(e)
(f)
(g)

High capital formation with a good flow of savings and investments
Supply for loanable funds with a lower rate of interest
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Efficient economic policies like fiscal and monetary policies
Communication and transportation facilities

It is further strengthened by the fact that Marwaris and Vaishyas are everywhere in the country but only Gujarati
Marwaris and Vaishyas leads in businesses because Gujarat has a more favorable economic conditions
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10
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An Individual’s education, cultural values, motivation, economic factors, need for achievement, religious
beliefs and risk bearing capacity helps in exposing him/her towards the new ideas and opportunities and thus leading
to innovation and creativity
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11
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Entrepreneurship
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Political System Theory
of Entrepreneurial Growth

Summary
Many theorists have propounded large number of theories over the period of time but every theorist has a different
view which explains the concept of entrepreneurship according to their own perception
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So, there is a need of a summarized and comprehensive theory which covers all the aspects of
entrepreneurship

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