Concept and theories of Entrepreneurship

1. CHAPTER-1
Concept and Theories of
entrepreneurship

2. Meaning And Definition Of
Entrepreneur
 An entrepreneur is someone who has
idea and who works to create a
product or service that people will buy,
as well as an organization to support
that effort.
 An entrepreneur takes on most of the
risk and initiative for their new
business.

3. Importance
 Creation of job opportunities
 Creation of new businesses
 Innovation
 Leads to better standards of living
 Supports research and development
 Creation of national wealth

4. Characteristics of successful
entrepreneur
 Creativity
 Risk taking
 Passion
 Planning
 Knowledge
 Social skills
 Leadership

5. Types of Entrepreneur
1) According to functional
Characteristics
 Innovative Entrepreneur
 Adoptive Entrepreneur
 Fabian Entrepreneur
 Drone Entrepreneur

6. 2) According to the types of business
 Business Entrepreneur
 Trading Entrepreneur
 Industrial Entrepreneur
 Corporate Entrepreneur
 Agriculture Entrepreneur
 Retail Entrepreneur
 Service Entrepreneur

7. 3) According to technology used
 Technical Entrepreneur
 Non-Technical Entrepreneur
 Professional Entrepreneur
4) According to Growth
 Growth Entrepreneur
 Super Growth Entrepreneur
5) According to Area
 Urban Area
 Rural Area

8. 6) According to Gender
 Men Entrepreneur
 Women Entrepreneur
7) According to level of Motivation
 Pure Entrepreneur
 Induced Entrepreneur
8) According to capital Ownership
 Private Entrepreneur
 State Entrepreneur
 Joint Entrepreneur

9. 9) According to the Entrepreneurial
Activity
 Novice Entrepreneur
 Serial Entrepreneur
 Portfolio Entrepreneur

10. Skill Requirement of an
Entrepreneur
1)Administration skills
2)Financial knowhow
3)Vision and leadership skills
4)Conflict and consensus management skills
 i)Emotional conflict/Affective conflict
 ii) Cognitive conflict
5)Interpersonal skills
6)Communication skills
 i)Writing skills
 ii) Speaking skills
 iii) Listening skills
7)Problem solving skills
8) Technical skills

11. Problem faced by
Entrepreneur
 Unethical and unsupportive business
environment
 Lack of business opportunities
 Lack of entrepreneurial capacity
 Inadequate entrepreneurship training
 Lack of business experience
 Fear of failure
 Risk avoidance

12. Points of
comparison
Entrepreneur Manager
Meaning A person who creates an
enterprise, by taking
financial risk in order to
get profit.
An individual who takes
the responsibility of
controlling and
administering the
organization.
Focus Business start up Ongoing operation
Primary
motivation
Achievement Power
Approach to
task
Informal Formal
Status Owner Employee
Reward Profit Salary
Management
style
One man show Management team
Dependency Independent Depend on entrepreneur
Thinking Free thinker Within scope of business

13. Concept of Entrepreneurship
“Entrepreneurship is the
process of developing,
organizing and running a new
business.”
Entrepreneurship is the act
of creating a business or
bearing all the risks with the
hope of making a profit.

14.  The more modern entrepreneurship
definition is also about transforming
the world by solving big problems like
bringing about social change or
creating an innovative product that
challenges the existing condition of
how we live our lives on a daily basis.

15. Myth of Entrepreneurship
1. Entrepreneurs Don’t Have A Personal Life
2. Business People Don’t Have A Boss
3. Entrepreneurs Are Rich
4. Entrepreneurs Take Extreme Risks
5. Entrepreneurs Think Only About Money
6. There Is No Business Without A Unique Idea
7. Entrepreneurs Should Always Trust Their Guts
8. Entrepreneurs Are Born, Not Made

17. Role of Entrepreneurship
 Wealth creation and sharing
 Create Jobs
 Balanced regional development
 GDP and per capita income
 Standard of living
 Export
 Community development

18. THEORIES OF ENTREPRENEURSHIP
1) Sociological Theories
2) Economical Theories
3) Cultural Theories
4) Psychological Theories

19. (1) Sociological Theories
 Max Weber's theory of religious
belief
 Thomas Cochran's theory of
entrepreneurial supply
 E.E Hagen’s theory of social
change
 Frank young’s theory of group
level pattern

20. Max Weber's theory of
religious belief
 Max Weber advocated a sociological
explanation for the growth of
entrepreneurship in his theory of social
change.
 He belief that entrepreneurial cultures
are influenced by religion.
 The religious belief and ethical value
associated with the society plays a
important role in determining the
entrepreneurial culture.

21.  In this theory spirit of capitalism is a
fundamental concept.
 Capitalism refers to the economic
system where market forces of
demand and supply are allowed to
play freely.
 As economic freedom and privet
enterprises are promoted in
capitalism.
 Spirit of capitalism promotes the
entrepreneur to engage in
entrepreneurial activity and earn more

22.  Another associated concept was that of
adventurous spirit which refers to
influence and promotes entrepreneurism.
 Weber felt that the belief system of
Hinduism didn’t encourage
entrepreneurship.
 The Hinduism didn’t belief the spirit of
capitalism and was obstacle in the
promotion of entrepreneurship.
 Weber was of the opinion that protestant
ethic provided the mental attitude in a
society that promotes spirit of capitalism
and favors entrepreneurship.

23.  (protestant ethic : a person whose
duty to achieve success through hard
work.)
 The rate of industrial growth depends
upon the values belief by the religion
of the society.
 The protestants has advanced at a
faster rate in establishing capitalism in
Europe owning to the value system
accept by protestant ethic.

24. This theory has been challenged criticized
by researches:
The theory is based on unrealistic and invalid
assumption.
The theory has been found empirically
invalid.
Max weber has been criticized by many
sociologists on his view on Hinduism and
entrepreneurship. The rapid expansion of
entrepreneurship in India in the post
independence period disproves that
Hinduism is averse to the spirit of capitalism.
The view on protestant ethics were also not
completely correct. capitalism has flourished
in regions where protestant ethics is not
present.

25. Thomas Cochran's theory of
entrepreneurial supply
 The theory advocated by Thomas
Cochran.
 The main focus of this theory is on the
sociological aspect of entrepreneurial
supply.
 Sociological aspect means that it
focuses on the society in which we are
living.
 According to him the problem of
economic development is non-economic

26.  That non economic factor are, factors
which are related to cultural value, role
expectation and social approval.
They are the key elements
that determine that supply of
entrepreneur.
 Following are the basic element of
Thomas Cochran’s theory:
Entrepreneur as a society’s model
personality.
Social conditioning as a basis of model
personality.
Role expectation and entrepreneurial
role.
The way of raising and schooling.

27. E.E Hagen’s theory of social
change
 This theory was given by E.E Hegan.
 So, this theory states that a continuing
technical progress can transform the
traditional society.
 The theory attention on entrepreneur
creativity as the key element of social
transformation and economic change.

28. The features of these theories
are:
 Presentation of the general model of
the society.
 Economic growth as a product of
social change and political change.
 Rejection of follower’s problems.
 Historical shift as a factor of a initiating
change.

29. Frank young’s theory of
group level pattern
 Frank young defines entrepreneurs as
that the entrepreneur characteristics are
found in small groups where in
individuals develop as entrepreneur.
 Every group has an individual who has
that kind of qualities.
 Frank young arrived at the group level
pattern behavior entrepreneur based on
his studies knows as Thematic
Appreciation Test (TAT) on groups of
entrepreneurs.

30. (2) Economic theories
 Schumpeter’s theory of innovation
 Leibenstein’s theory X efficiency
 Mark casson’s theory
 Papanek and Haris theory
 Harvard school theory
 M. kirzner’s theory
 David McClenlland ’s theory of
achievement
 Knight theory of profit

31. Schumpeter’s theory of
innovation
 Joseph Schumpeter propounded the
well known innovation theory of
entrepreneurship.
 He believed that entrepreneurs by
introducing an innovation and takes
the economy to a new level of
development.
 Innovation of entrepreneurs are
responsible for the rapid economic
development of any country.

32.  Taking about innovation, he referred to
new combinations of the factors of
production, Schumpeter had assigned
the role of innovator to the entrepreneur,
who is not a man of ordinary managerial
ability, but one who introduce something
entirely new.
 Innovation could involve any of the
following:
Innovation of new product
Innovation in novel method or process
The opening up of a new market
Find new sources of supply of raw
material

33.  Schumpeter had differentiated
between invention and innovation.
 Invention refers to creation of new
material and innovation refers to
application of new material into
practical use in industry.
 They enjoy creating and getting things
done.
 These “ innovating entrepreneur ” has
played an important role in the rise of
modern capitalism.

34. Criticism:
 The theory over highlighted on
innovative functions of entrepreneur. It
ignored the organizing aspect of
entrepreneur.
 Schumpeter had completely ignored
the risk-taking function of the
entrepreneur , which cannot be
ignored. Whenever an entrepreneur
develops a new combination of factor
of production, there is enough risk
involved.

35.  The theory is more applicable in
developed countries only. In
developing countries there is a lack of
innovative entrepreneurs.
 The theory does not provide the
explanation as to why few countries
have more entrepreneurship talent
than others.

36. Leibenstein’s theory X
efficiency
 Harvey Leibenstein propounded the
theory of X-efficiency which is
popularly called Gap Filling theory.
 X-efficiency theory states that a
greater amount of product market
competition will pressure firm member
to produce with more effort so that firm
is producing closer to their frontiers.

37.  X- efficiency means that it is possible for
a firm to increase their output without
any change in input or decrease costs
without any change in output.
 X-efficiency can be increased through:
Better management
Better organization
A moderate amount of pressure from the
market to increase effort

38. Mark Casson’s theory
 Mark Casson was a famous
economist, propounded a theory on
entrepreneurship.
 He makes the comment that there is
no proper definition of what the word
entrepreneurship means.
 Economist have avoid the control of
this term to other disciplines like
psychology, sociology and other
sciences.

39.  The theory of Casson looks at what
the entrepreneur does and the
attributes that differentiate him from
other.
 The main content of this theory is:
The relationship between demand and
supply
The traits of an entrpreneur.

40. Papanek and Haris theory
 Entrepreneur and economic growth
takes place when economic condition
are favorable.
 Economic incentive includes:
The taxation policy
Industrial policy
Sources of finance and raw material
Infrastructure availability
Investment and marketing opportunities.
Access to information.

41. Critics:
 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.

42. Harvard school theory
 According to the Harvard school,
entrepreneurship comprises any
purposeful activity that initiates,
maintains or develops a profit oriented
business.

43.  The main point of the theory are as
follow:
Internal forces:
Inner traits of individual like
his knowledge, beliefs thought
process, skill level, experience etc.
External forces:
These involve to the political,
social, economics, legal and cultural
factor which have a big impact on the
entrepreneur’s environment.

44. M. kirzner’s theory
 The adjustment of price theory was
given by the popular economist, Israel
Kirzner.
 He says that successful entrepreneur
are always careful of opportunities in
the market and on the lookout to take
advantage of the same.
 The main point of the theory are as
follow:
Adjustment of price
Alertness to disequilibrium

45.  The chief role of entrepreneur is
based upon the adjustment of the
price in the market. He states that
wrong price in the market may reduce
the profit of entrepreneur.

46. David McClelland’s theory of
achievement
 David McClelland a professor of
psychology at Harvard university,
along with his team members did
detailed studies on human needs.
 He identified three types of needs
which are capable of motivating
persons
I. Need for achievement(n/ACH)
II. Need for power(n/PWR)
III. Need for affiliation(n/AFF)

47. Need for achievement
 From his research, McClelland
concluded that the desire for
achievement is not same for all- some
have low degree of desire for
achievement, whereas some others
have a high degree of desire for
achievement.
 He has identified the following 4
features of high achievers:

48. Setting of moderately difficult goals
High achievers prefers to set
moderately difficult goal for
themselves and take moderately risky
decision.
They try to improve their performance
as compared to past achievements.
Assuming personal responsibility
for results
High achievers assumes personal
responsibility for achieving the goal.

49. Little desire for material rewards
They put their maximum focus on the
goal, not in expectation of monetary
rewards.
Achievement itself is reward
feedback on their performance
Higher achievers desire immediate
and specific feedback frequently on
their performance so as to gain
confidence and rectify(correct) the
mistake.

50. Need for power
 Need for power refers to the desire for
having control over other people and
events.
 The need for power may differ person
to person – a person having ‘almost
no desire for power’ or to a person for
whom ‘power is everything’.
 Person with high power try to capture
the source of power.

51.  Power may prove a boon or bane for
an organization depending upon its
nature of use.
 It used positively, it may make a
person a very successful manager.
 If power is used in negative form, it
may make a person dictator, who is
unwilling to listen other.

52. Need for affiliation
 This need to a person’s desire to
interact with others, mix with them
and make friends.
 Like other need, this need may also
be in different degrees in different
persons.
 Persons with high need for affiliation
try to change themselves and behave
the way it is desired by the persons
whom they want to make friends

53.  Such persons help others in every
possible way.
 They like attending social gatherings
and respect others sentiments.
 They prefer co-operative environment
rather than competitive one.

54. Knight’s theory of profit
 Frank H. knight in his book risk,
uncertainty and profit regards profit of
the entrepreneur as the reward of
bearing non- insurable risks and
uncertainties.
 Entrepreneurship is genuinely
associated with risk bearing.
 Knight had identify risk into insurable
risk and non- insurable risks.

55.  There are certain risks that are
measurable and the probability of
such risk can be statistically estimated
and hence such risks can be insured.
 Example of insurable risks include
theft of commodities, fire in the
enterprise, accidental death etc.
 On the other hand, there are certain
risks which cannot be calculated. The
probability of their occurrence cannot
be statistically find out.

56.  These risk are non insurable, prof.
Knight opined that the profit is the
reward for bearing the non- insurable
risks and uncertainties.
 Uncertainty- bearing is one of the
most vital function in a economy.
 The entrepreneur bear the uncertainty
involved in the enterprise.
 In a state of competitive economy,
where there is no risk every
entrepreneur will have a minimum
supply price.

57.  The existence of uncertainty tends to
raise the minimum supply price. The
entrepreneur expect a level of profit
for bearing the uncertainty.
The silent points of knight’s theory
include:
According to the theory, entrepreneur
bearing the uncertainty to earns pure
profit.
The theory suggests that the more
risky the nature of enterprise, the
higher level of profit earned by the
entrepreneurs.

58.  The reward of the entrepreneur is
uncertain entrepreneur guarantees
interest to lender of capital, wages to
workers and rent to the landlord.
 The level of uncertainty in business
can be reduced by applying the
technique of fusion.

59. (3)Cultural Theories
 Hoselitz’s Theory
 Stoke’s Theory

60. Hoselitz’s Theory
 Hoselitz’s sociocultural theory is based
on the assumption that every individual
is present with social and cultural
power.
 According to him, entrepreneurs can be
developed where society is well
developed.
 The basis of hoselitz is derived from the
following viewpoint:
Marginal man hypothesis
The importance of marginal and
leadership skills.

61. Stoke’s Theory
 Stoke emphasizes that
entrepreneurship emerges under
particular economic action, social
culture and social sanctions.
 He believed that economic actions are
directed by socio-cultural
values.(beliefs, habits that influenced
our everyday behaviour)

62. (4) Psychological theories
 Theory of personal resourcefulness
 Entrepreneurial supply theory

63. Theory of personal resourcefulness
 Personal resourcefulness is the belief
in one’s own capability for initiating
actions directed towards creation and
growth of enterprise.
 It emphasize on initiative rather than
reaction.

64. Entrepreneurial supply theory
 John H. kunkal advocated the theory
of entrepreneurship supply.
 According to him, psychological &
sociological variables are the main
determinants for the emergence of
entrepreneurs.

65. Entrepreneurism can be dependent
upon the following structures in the
economy.
Demand structure
Limitation structure
Labor structure
Opportunity structure

66. Demand structure
 It indicate economic demand with
relation to change in economic
development & government policies.
Limitation structure
 It is originally socio-cultural in
characteristic.
 In this structure, entrepreneur is
regarded as the most strange
individual in the society& that’s why
the society restricts specific activities
that influence all member in the
society.

67. Labor structure
 It refers to the supply of skilled & willing
labor.
 The structure is governed by a large
number of factors such as available job
alternatives, mobility of labor etc.
Opportunity structure
 It is the most important structure
governing the supply of entrepreneurs.
 The structure refers to the technological
& managerial skills, information about
techniques of production, market
structure & supply of capital.