“Theories of
Entrepreneurship”

The theories of entrepreneurship development
are divided into three theories:
1. Psychological theory – entrepreneurship is a psychological process and concept.
According to this concept, psychological factors are primary source of entrepreneurship
development. When there are sufficient number of person’s having the same
psychological characteristics in the society, then there are bright chances of development
of entrepreneurship.
2. Sociological theory – entrepreneurship is a sociological concept and process according to
this concept, the sociological factors are the secondary source of entrepreneurship
development. As such , the social factors like social attitudes, values and institutions
significantly influences the entrepreneurial supply in society.
3. Economic Theory – according to this theory, an entrepreneur executes all activities due to
economic incentives . The main aim of this theory is profit motive.

#1.Psychological theory
 The entrepreneurship is termed as psychological concept and process. According to this
theory psychological factors are the primary source of entrepreneurship development. Few
authors like Schumpeter, McClelland, Hagen and John Kunkell have expressed their opinion
about psychological factors affecting entrepreneurship.
 The main psychological theories are as follows:
i. Joseph A. Schumpeter Theory
ii. David C. McClelland Theory
iii. Everett E. Hagen’s Theory
iv. John Kunkell Theory

John A. Schumpeter theory:
 In this theory, the main theme is the innovation. He makes a distinction between an
innovator and inventor. According to him, an inventor discovers new methods and new
materials. But an innovator is one who applies in order to make new combination.
 With the help of new combination he produces newer and better goods which yields
satisfaction as well as a profits. Schumpeters concept of entrepreneurship is quite broad
based. It includes not only the independent businessmen but also executives and managers
who actually undertake innovative functions.

David C. McClelland’s Theory
 According to McClelland, “burning desire of need for achievement attracts an entrepreneur
for activities”.
 The primary basis of the development of an entrepreneurship is achievement orientation.
The capacity of becoming n entrepreneur develops due to desire of reaching heights of
excellence and specific performance.
 For achieving heights of excellence and specific performances, an entrepreneur needs
rational thinking, new combinations, power.,etc
 The psychological roots of entrepreneurship reveal that high achievement ensures the
success of entrepreneurship.

Everett E. Hagen’s Theory
 Everett Hagen has also given a particular concept about an entrepreneurship he has
developed the theory of withdrawal of status. Hagen says “ Entrepreneurship is a function of
status withdrawal”.
 Hagen opined that creative innovation or change is the basic feature of economic growth. He
describes an entrepreneur as a creative problem shooter interested in things in the practical
and technological realm. Such type of individuals feels a sense of increased pleasure when
facing a problem and tolerates disorder without discomfort. In traditional societies, position
of authority are granted on the basis of status, rather than individual ability.
 Innovations requires creative and such individuals cause economic growth. Whenever there
is a withdrawal of status respect, it would give rise to birth of innovation of a creative
individual who is likely to be an entrepreneur.

John H. Kunkell’s Theory
 John H. Kunkell has also given a particular concept about entrepreneurship. He has
presented a theory of entrepreneurial behavior in connection to the development of
entrepreneurship. Kunkell’s theory is concerned with the expressed activities of individuals
and their relations to the previous and present sorroundings, social structures, physical
conditions and behavioral patterns determined by reinforcing and opposing present in the
context.
 He has given stress on the following four types of structure for the development of
entrepreneurship.

 Demand Structure – the demand structure is of economic nature. This structure is changing day by day
according to economic progtress and government policies. The behavior of individual can be made
enterprising by affecting the main elements of demand structure.
 Opportunity Structure – the opportunity structure is formed by combination of supply of capital,
managerial and technical skill production methods, labour market, training opportunity establishment
of an enterprise and conducting different activities.
 Labour structure – the labour structure is directed by several factors such as source of livelihood,
traditional outlook and life ambitions. The quality of labour influences the emergence and growth of
entrepreneurship. Rather than capital intensive, labour intensive will serve our interest in a better
manner.
 Limitation Structure – We can say that the limitation structure is social and cultural. This structure
affect the development of an entrepreneur.

 Schumpeter’s theory is one of the most important concepts of entrepreneurship which is richer
and relevant. He has laid emphasis on innovativeness or creativity of an individual which makes
him an entrepreneur.
 McClelland theory has numerous practical implications. The person with high need achievement
needs great concern for exercising influence and control.
 Hagen’s theory laid more stress on technological changes which is the result as individuals
creativity. His concept depended upon withdrawal of status.
 John H. Kunkell theory laid more stress on types of structure i.e., demand opportunity, labour
and limitation. All the structure effects development of an entrepreneur.

#2. Sociological Theory
 The supporters of sociological theory says that the entrepreneurial activities is effected from
social status hierarchy and values. Individuals position, tradition, cultural values, mobility
and social status etc., are thoroughly effected to entrepreneurship development . The
sociological theories depend on this concept.
 The main sociological theories are as follows:
i. Frank W. Young Theory
ii. B.F Hoselitz Theory
iii. Max Weber Theory
iv. Cochran Theory

Frank W. Young
 Frank W. Young is not the supporter of role of individual in entrepreneurship development .
They think that the only group entrepreneurs hip development. They think that only group
entrepreneurs have the capacity of extension of entrepreneurial activities due to the character
of capacity to react. He believes on the concept of changeable society.
 A group comes in reactive status when the following circumstances happen at one attempt:
a. When group do not make approach up to effective social machinery.
b. When group do not make approach up to effective social machinery.
c. When group is having sound and more institutional resources rather than other groups.

B.F Hoselitz
 According to Hozelitz, “ the development of industrial entrepreneur is based only which
type of society are there”.
 Hoselitz says, “Culturally marginal groups plays an important role in encouraging the
economic development of any nation”.
 According to Hoselitz, “ managerial skill and leadership qualities are important factors for
entrepreneurship. Besides this, education, training, social values, behavior and social
behavior/institutions play a crucial role in personality and development.

Max Weber Theory
 According to Weber, “ a person who lives in which community religion and follows the
conventions and religious values”.
 All these things completely affect by their professional life, energy, livelihood and
enthusiasm.
 According to him, non-convents groups are those groups who gives pressure on capitalism,
money rationality and thinking. They were almost successful in creating entrepreneurs,
capital formation and economic development.

Cochran Theory
 According to Cochran, “cultural values, role expectation and social acceptance plays
prominent role in entrepreneurship development and entrepreneur is a model of personality”.
 The success of an entrepreneur is basically affected from the following factors:
1. The social attitude of the person towards his occupation.
2. The role expectation of the sanctioning group.
3. The operational requirements of the job.

 Frank Young’s theory says about the concept of changeable society. Reactive status
transforms the group into an entrepreneur.
 B.F Hoselitz has given the importance to social factor. Under this theory, the marginal
persons are more able in making creative adjustments in changed situations.
 Max Weber theory says that those person’s who are related with the religious, community
etc., follow the rules and regulations of that community only.
 Cochran theory says that the entrepreneur is the model personality of the society.

#3. Economic Theory
 According to this theory, an entrepreneur executes all activities due to economic incentives.
The supporters of this theory, profit motive is the prime driving change an individual into
an entrepreneur. As such an entrepreneur emerges due to incentives and economic profit.
 According to J.R Harris and G.F Paganek, “ the inner drive of man is associated with
economic gains, which drive him into economic gains as a pre-condition for the supply of
entrepreneurs”.
 According to Kirzner, “A typical entrepreneur is the arbitras, the person who discovers
opportunities, the person who discovers opportunities at low prices and sells the same at
high prices because of intertemporary and interpartial demand”.

Thank you for
Listening !
Prepared by:
Lipanglipang, Leah A. Beed II