TECHNICAL UNIVERSITY OF MOMBASA

SCHOOL OF BUSINESS
DEPARTMENT OF BUSINESS ADMINISTRATION

BEN 4401: ENTREPRENEURSHIP SKILLS

INSTRUCTOR: Dr. Titus M. Kising’u, Ph.D.

OFFICE: Main Campus, Business Studies Block, Ground Floor
PHONE: +254720263369
EMAIL: [email protected]

WEEK 6

TOPIC 6
Theories of Entrepreneurship

There are a number of schools of thought which view entrepreneurship from fundamentally different theories. As a
result, the definitions can differ depending on the authority’s perspective. Entrepreneurship theories and research
remain important to the development of the entrepreneurship field. This paper examines six entrepreneurship
theories with underlying empirical studies. These are: (1) Economic entrepreneurship theory, (2) Psychological
entrepreneurship theory (3) Sociological entrepreneurship theory, (4) Anthropological entrepreneurship theory (5)
Opportunity-Based entrepreneurship theory, and (6) Resource-Based entrepreneurship theory. These theories offer
us a fairly good opportunity to refocus our efforts at integrating the diverse viewpoints.

1. Economic Theory of Entrepreneurship

The economic theory of entrepreneurship asserts that the economy and entrepreneurship are closely linked together.
Entrepreneurship and economic growth can only work when the economic conditions are favorable. As such, it is usually hard
for entrepreneurs to realize growth when the economy is doing poorly. This theory further states that entrepreneurs find
motivation in the presence of economic incentives which include industrial policy, policies of taxation, financial and resource
sources, availability of infrastructure, investment opportunities, marketing opportunities, availability of information regarding
the conditions of the market and technology among others . An entrepreneur is therefore a risk taker because he can never fully
predict about the favorability of the economic conditions in future.

The etiology of term “entrepreneur “provides insight for the economic perspective which means to ‘’undertake’’ in French. It
distinguishes entrepreneurs from managers. Undertaking connotes some degree of risk, uncertainty and creativity. Innovation,

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creativity and discovery are the central focus of this perspective.

Neoclassical economic analysts (Keynesian, Friedmanities, Supply Siders and Marxists) emphasize optimization of existing
resources in order to reach equilibrium (in realm of external forces). Hence definitions such as “Economic agents who engage
in market exchange for profit at their own risk”, “Shifters of economic resources out of an area of lower into a higher
productivity and greater yield” “Stabilizing force which brings markets closer to equilibrium and forces work more smoothly”.
The entrepreneur is involved in allocating scarce resources in order to produce tangible/intangible goods with utility. As a forth
factor of production, he/she distributes and organizes scarce resources. The entrepreneur is driven by profit motive (profit
maximization and cost minimization) and gains socially and financially from economic activities. Entrepreneurs can, therefore
be trained on effective utilization and management of scarce resources.

Another school of economics away from neoclassical economics (Led by Joseph Schumpter) focused on dynamics of economic
life, dynamic disequilibrium as opposed to statistic equilibrium. According to this school, the entrepreneur is central to
economic development. He /she is the mechanism of economic. Dynamic disequilibrium is created by the innovating
entrepreneur who introduces new combinations into the production. Entrepreneurial activity is therefore a destabilizing force
that starts the process of creative destruction, the essence of economic development. Entrepreneurs are not managers who
undertake routine activities on basis of past experience without the idea of change but one who risks uncertainties and engages
in activities that has not been undertaken before.

The training implication for this is that more time could be spent on enhancing the creativity of individuals and supporting
innovative ideas. People can be trained to sharpen their decision making abilities and abilities to analyze opportunities
creatively. People who follow this school of thought ask themselves these questions:
• What are the opportunities?
• What vision do I have?
• How do I respond to situations?

According to the Economic Theory of Entrepreneurship, an entrepreneur executes all activities due to economic incentives.
The supporters of this theory, profit motive is the prime driving force that 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. Papanek, “The inner drive of a man is associated with economic gains, which drive him
into economic activities. Therefore, they regard economic gains as a pre-condition for the supply of entrepreneurs.”
Thus, the desire of increasing actual income and economic gains exist in any type of society. This tendency creates the spirit
of economic development. They believe that the economic incentive is the basic condition of entrepreneurship.
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 inter- partial demand.”
It means that an entrepreneur finds those situations in which he can earn profit by producing goods at low cost or purchasing
goods at less prices and sell those goods at higher prices in market, he will take all possible steps and tend to act. No doubt, he
is a seeker of profitable opportunities.
Overall this theory emphasises on economic gains and economic incentives which emerge the entrepreneurial class in a society.
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 2. Psychological Theory of Entrepreneurship
According to this theory, an entrepreneur experiences growth when the society has several individuals with the necessary
psychological characteristics. These characteristics include having a vision, being able to face opposition and having the need
to achieve highly. A person can only possess these traits during their upbringing, when they excel, when they are self-reliant
and when there is low father dominance.

The central focus of this theory is that entrepreneurs have unique values, attitudes and need which drive them. People behave
in accordance with their values irrespective of the different situations they might be in. People’s behaviour results from their
attempts to satisfy their unique needs and values. The psychological school focusing on personality factors believes that
entrepreneurs have unique values and attitudes towards work and life. These, along with certain dominant needs propel the
individual to behave in certain ways. The theory argues that entrepreneurs are, therefore, different from non-entrepreneurs by
personality characteristics. Such propensity and personal aspects such as positive self-image, initiative, independence, future
orientation, problem solving, goal setting, time bound planning and environment searching.

Entrepreneurs acquire their values, attitudes and needs as they grow up from families, schools, churches, and community as
well as in the surrounding culture in general. These values are learned and internalized and reflect the process of socialization
into culture. Since these values and needs are learned early in life and are well established prior to adulthood, entrepreneurial
characteristics can only be re-enforced in those who portray them or have them in latent form. It would not be effective to try
and develop them in people who do not possess them but to re-enforce them in those who already have them. The extreme
aspect of this perspective further suggests that the entrepreneur has the ability – a sixth sense – and traits and instincts he/she
is born with. Entrepreneurs portray intuition, vigour, energy, persistence and self esteem. Entrepreneurs according to this
version are born and as they have natural abilities, training, cannot influence them in any way.

The psychological argument perpetuates the myths and stereotypes in society related to superiority and class systems and are
not the healthiest for development. It simply says people are not equal and that it would be difficult to organize training
programmes suitable for all of them. Although entrepreneurs can be used as role models, those in this category can give
negative attitude towards young people who might not be genius or lucky by not possessing the unique abilities and traits.
People following this school of thought follow such leads questions as:
• What am I?
• What are my achievements?
• What principles do I have?
• What are my values?
• What are my strengths and weaknesses?

3. Sociological Theory of Entrepreneurship

The argues that the success of an entrepreneur is affected by their social culture. They are more likely to achieve growth in
particular social settings. Among the social aspects that affect an entrepreneur include the social values, customs, taboos,
religious beliefs and other cultural activities. He or she has to conform to the social expectations when carrying out their

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business.

The entrepreneur is an individual driven by his/her personal economic interests or otherwise not necessarily compatible with
society in general. The entrepreneur contrasts with more traditional emphasis on the society, groups and associations. The
entrepreneur might be well respected and accepted or rejected and resented depending on the society they come from and
what is valued there.

According to this theory, the entrepreneur is driven by self-adventurism (way from norms), desperation due to the societal
factors (live or die) and social recognition of making money in order to take them off his/her back (even taming a stubborn
wife or husband). Entrepreneurs can also emerge as philanthropists by generating money and spending it to improve their
communication and lesser mortals. The assumptions of this theory are that the entrepreneurs are creations of society and that
their activities are just reactions either to protest or better it. Training, therefore, cannot do much to influence the individual.
This theory perpetuates stereotyping of class systems ad great persons theories which are at times not ideal for developing
young nations.

The supporters of sociological theory says that the entrepreneurial activities is affected 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
v. Stocke’s Theory.
The description of each theory are as follows:
i. Frank W. Young Model/Theory:
Frank W. Young is not the supporter of role of individual in entrepreneurship 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 experiences minority situation in society.
b. When group do not make approach upto effective social machinery.
c. When group is having sound and more institutional resources rather than other groups.
Overall, when a group sees their lower positional conditions & experience, they grow an entrepreneurial tendency due to
reactive capacity. According to this theory, set of supporting instructions are the primary determinant factors of
entrepreneurship development.
ii. B. F. Hoselitz Theory:
According to Hoselitz, “The development of industrial entrepreneur is based on only which type of society are there.”
a. Social process is not static.
b. Sufficient employment pattern is available.
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c. Encourage to entrepreneurs for personality development.
Hoeslitz says, “Culturally marginal groups plays an important role in encouraging the economic development of any nation.”
He think that the marginal persons are more able in making creative adjustment in changed situations and during the adjustment
process they make efforts in bringing real innovations in social behaviour. In addition to this, he emphasised on development
of personal qualities for entrepreneurial development.
According to Hoselitz, “Managerial skill and leadership qualities are important factors for entrepreneurship. Besides this,
education, training, social values, behaviour and social behaviour/institutions play a crucial role in personality development.”
Highlighted Points:
i. Entrepreneurship development is based on social progress and employment patterns.
ii. Personality development is an essential quality for entrepreneurship development.
iii. Culturally marginal groups are important characters for development process.
iv. Marginal groups are having the ability of innovation.
v. Managerial ability and leadership quality is must for entrepreneurship development.
iii. 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.
In other words, Max Weber is connected with the emergence and success of entrepreneurs with social ethical values systems.
He also associated the entrepreneurship development with protestants and other non-convents.
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, wealth collection, technology, capital formation and economic
development.
“The modern economic development is explained to a greater extent, by the social factors as discussed in the foregoing lines.
This becomes more prominently evident when we contrast the Indian culture with that of the western of particularly of the
American culture. Even if we contrast the different sub cultures within the same larger society, the story of economic
development is explained.”
Weber says that the religious beliefs and moral values are basically affected to people’s attitude, view trust and thinking pattern
and people’s selected occupational pursuits as per earlier things.
Highlighted Points:
i. Entrepreneurship development is based on Protestants.
ii. Selection of occupation pursuits is effected from religious and social values.
iii. Religious and moral values are effected to people’s attitude, thinking power.
iv. Cochran Theory:
According to Cochran’s, ‘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:
i. The social attitude of the person towards his occupation.
ii. The role expectations of the sanctioning group.
iii. The operational requirements of the job.

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Thus, the social attitude of the person and the role expectations are determined by the society’s values as well as sanctioning
groups that determine the success and failure of entrepreneurship. Overall entrepreneurship development is associated with
social environment.
At last but not the least, we conclude that all the authors i.e., Frank Young, B. F. Hoselitz, Max Weber, Cochran has given
their own opinion on the concept of sociological theory. All the theories depend upon the social factors.
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 adjustment in changed situations.
Max Weber theory says that those persons who are related with 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.

4. The Management Theory of Entrepreneurship

This theory emphasizes organization of resources in a systematic way to attain maximum profit. Entrepreneurs are therefore
organizers of an economic venture: they organize, own, manage and assume the risks. Entrepreneurship is therefore a series
of learned activities which focus on the central functions of managing a business such as production, planning, marketing,
coordinating, controlling, evaluating and financing.

The management theory of entrepreneurship, therefore, emphasizes improving a person’s capability through developing his/her
rational, analytic and cause and effect relationships. Specific functions involved are therefore identified and training structured
around them. Another strand of management views entrepreneur as leaders of people. They have the capacity to adopt their
styles in order to get the maximum out of people. They view other people as their greatest resource and realize that they cannot
accomplish goals without them and their skills. Training is therefore possible by knowing how to motivate, direct and lead
people.

The basic questions that people who follow this school ask themselves include:
• What are my plans?
• What are my capabilities?
• What are my credentials?
• How do I get most from people around me?

Each of the models is based on certain assumptions such as personal qualities or values, anticipating the future, finding and
recognizing opportunities, using management and technical skills and adapting or changing the direction of a venture. The
criteria for each school provide the foundations for research and training emphasis. All of them provide useful insight in
understanding and explaining entrepreneurship. It is possible that they can complement each other in developing a rich
entrepreneurship programme. Pre starters can benefit a lot from the psychological, sociological and economics schools while
starters and those in the growth stage can gain from management.

Exercise

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1. Identify other theories and conceptual frameworks or models that relate to entrepreneurship
2. Explain the macro and micro theories.

5. Entrepreneurship Innovation Theory

This theory was propounded by J.A. Schumpeter. According to Schumpeter, entrepreneur is basically an innovator and
innovator is one who introduces new combinations.

In practice, new combination theory covers five cases which are given below:
(i) The introduction of a new good which consumers, are not yet familiar—or of a new quality of a good.
(ii) The introduction of a new method of production, that one not yet tested by experience in the branch of manufacture
concerned, which need by no means be founded upon a discovery scientifically new and can also exist in a new way of handling
a commodity commercially.
(iii) The opening of a new market i.e. a market into which the particular branch of manufacture of the country in question has
not previously entered, whether or not this market has existed before.
(iv) The conquest of a new source of supply of raw materials or half manufactured goods, irrespective of whether this source
already exists or whether it has first to be created.
(v) The carrying out of the new organisation of any industry like the creation of a monopoly position (for example, through
trustification) or the breaking up of a monopoly position.

Critical Evaluation:
In Schumpeterian theory, the main theme is the innovation. He makes a distinction between an innovator and an inventor.
According to him, an inventor discovers new methods and new materials. But, an innovator is one who applies inventions and
discoveries in order to make now combinations. With the help of these new combinations, he produces newer and better goods
which yield satisfaction as well as profits.
In economic development process, entrepreneurs have been assigned a crucial role so that tempo of growth is maintained
effectively. Development requires basic changes and entrepreneurs carry out the required changes. Thus, entrepreneurial
development brings economic development.
Schumpeter’s concept of entrepreneurship is quite broad based. Entrepreneurship includes not only the independent business
men but also executives and managers who actually undertake innovative functions.

However, Schumpeter’s theory suffers from following limitations:

(i) It excludes individuals who merely operate an established business without performing innovative functions.
(ii) Innovating entrepreneur represents the most vigorous type of enterprise. However, this type of entrepreneur is rarely
available in developing countries like India.
(iii) It laid too much emphasis on innovative functions. But it ignores the risk taking and organising aspects of entrepreneurship.
(iv) It assumes an entrepreneur as a large scale business man. He is a person who creates something new. But in practice, an
entrepreneur cannot have large scale operations from the very beginning,
(v) It fails to provide a suitable answer to question like— why some countries had more entrepreneurial talent than others?

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According to Schumpeter, entrepreneurs are not a class in themselves like capitalists and workers. An individual is an
entrepreneur only when he actually carries out new combinations and ceases to be an entrepreneur the moment he settles down
to running the established business.
According to Schumpeter, an entrepreneur exists only if the factors of production are combined for the first time. Maintenance
of a combination is not an entrepreneurial activity. In this way, combination theory differs from the theory of rent formulated
by Ricardo. Ricardo included the term “entrepreneurial ability” as an independent factor of production and it is concerned with
profit. Thus, this theory fails to provide suitable solutions to the problems.

6. Need for Achievement Theory

This theory was developed by David. C. McClelland. McClelland concerned himself with economic growth and the factors
that influence it. In this context, he tries to find the internal factors i.e. “human values and motives that lead man to exploit
opportunities, to take advantage of favourable trade conditions.” That is why he gives importance to the innovative
characteristics of entrepreneurial role. The entrepreneur is concerned with need for achievement (n-achievement).
The n-achievement is called as “a desire to do well, not so much for the sake of social recognition or prestige, but for the sake
of an inner feeling of personal accomplishment.”
It is this motive of n-achievement that guides the actions of entrepreneur. People with high n-achievement behave in an
entrepreneurial way. So it is better to develop n-achievement among individuals to ensure high scale of economic development.
In practice, n-achievement motive is inculcated through child rearing practices, which stress standards of excellence, material
warmth, self-reliance, training and low father dominance.

McClelland identified two characteristics of entrepreneurship. First doing things in a new and better way. Secondly, decision
making under uncertainty.
This motive is called as the tendency to strive for success in situations involving an evaluation of one’s performance in relation
to some standard of excellence. People having high need for achievement are more likely to succeed as entrepreneurs.
According to McClelland, individuals with high need achievement will not be motivated by monetary incentives but that
monetary rewards will constitute a symbol of achievement for them. Similarly, they are also not interested much for social
recognition or prestige but their ultimate goal is personal accomplishment. That is why McClelland suggests that in order to
raise the level of achievement motivation, parents should set high standards for their children.

Critical Evaluation:
Research studies on the psychological roots of entrepreneurship reveal that high achievement orientation ensures the success
of entrepreneurs. But the empirical tools of concept used by McClelland are found to be highly suspect and one wonders how
many of the individuals who are judged to have high n-achievement could succeed in utilising it in practice in the present day
developing countries unless strengthened by other reinforcing circumstances.

At the same time, empirical investigations also need the following:

(i) It is necessary to create a climate (especially in educational institutions at various levels) to enable the children to grow to
become individuals with high n-achievement.
(ii) It is possible to improve the performance of existing entrepreneurs through imparting proper training and education.

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Theory # 3. Status Withdrawal Theory:
E. Hagen attempted to formulate a theory of social change. The theory of social change explains that when members of some
social groups feel that their values and status are not respected by the society, they turn to innovation to get the respect of the
society. According to Hagen, entrepreneurship is a function of status withdrawal. This theory provides that a class which lost
its previous prestige or a minority group tends to show aggressive entrepreneurial drive.

Hagen postulates four types of events which can produce status withdrawal:
(i) Displacement of a traditional elite group from its previous status by another traditional group by physical force.
(ii) Denigration of values, symbols through some change in the attitude of superior group.
(iii) Inconsistency of static symbol with a changing distribution of economic power and.
(iv) Non-acceptance of expected status on migration to a new society.
Hagen further 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 individual feels a sense
of increased pleasure when facing a problem and tolerates disorder without discomfort.
In traditional societies, positions of authority are granted on the basis of status, rather than individual ability. That is why,
Hagen visualised an innovative personality.

There are four responses which assess the personality-

(i) Retreatist – One who combines to work in the society but remains indifferent to his work and position.
(ii) Ritualist – One who adopts a kind of defensive behaviour and acts in the ways accepted and approved in his society but
with no hopes of improving his position.
(iii) Reformist- One who foments a rebellion and attempts to establish a new society?
(iv) Innovator- A creative individual who is likely to be an entrepreneur.
Innovation requires creativity and such creative individuals cause economic growth. In practice creative personalities emerge
when the members of some social groups experience the withdrawal of status respect. Whenever there is any withdrawal of
status respect, it would give rise to innovation—a creative individual who is likely to be an entrepreneur.

Critical Evaluation:
The theory acts to distinguish between entrepreneurship and intra-preneurship. There are different factors within the
organisation which motivate the executives and professionals to do some innovative behaviour leading to new products and
services. Actually, they are not governed by status withdrawal.
The theory only suggests that the people, who had enjoyed social standing at some stage in their histories fall into a retreatist
phase and with an urge to regain that lost status emerge as entrepreneurial personality. The theory also presupposes a long term
perspective for entrepreneurial growth about three to five generations for the emergence of entrepreneurship.
But actually it does not happen. In India, first generation entrepreneurs are quite successful in their entrepreneurial behaviour.
J.P. Gour of Jai Prakash Industries and Sunil Mittal of Bharti group etc. can be cited in this context.

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7. Theory of Social Change
It was Max Weber who first of all took the stand that entrepreneurial growth was dependent upon ethical value system of the
society concerned. The central figure of the Weber’s theory of social change consists in his treatment of the protestant ethic
and the spirit of capitalism. Moreover, this theory provides an analysis of religion and its impact on entrepreneurial culture.
Max Weber opined that the spirit of rapid industrial growth depends upon a rationalised technology, acquisition of money and
its rational use for productivity and multiplication of money. These elements of industrial growth depend upon a specific value
orientation of individuals i.e. the tendency of acquisition and rational attitude towards action which are generated by ethical
values.
Weber analysed his theoretical formulation by the relationship that he found between protestant ethic and the spirit of
capitalism. He found his thesis true about other communities also, e.g. Hindu, Jain and Juda. He held that Protestants progressed
fast in bringing capitalism because their ethical value system provided them with rational economic attitude, while the Jews
and Jains failed to develop industrial capitalism because of their value of ‘Pariha’ (the restriction on having any contact with
other communities).
According to this theory, driving entrepreneurial energies are generated by the adoption of exogenously supplied religious
beliefs. It is these beliefs which produce intensive exertion in occupational persecutes, the systematic ordering of means to
ends and the accumulation of assets.
For people who believe in this belief (Protestant ethic] hard-work in their walk of life is not only to enable them to have their
worldly desires met but also to have their spiritual needs satisfied. Thus, in the Weberian system, the motivating force for
entrepreneurial activity is provided by Calvinist ethic irrespective of the cultural background, personality type of the individual
and the social environment to which he lives.

Critical Evaluation:
The theory of social change propounded by Max Weber is based on the invalid assumptions. So expected results are not valid
in all cases.

These assumptions are as follows:

(i) There is a single system of Hindu value.
(ii) The Indian community internalised those values and translated them in to day to day behaviour and
(iii) These values remained immune to and insulated against external pressures and change. The studies further show that
Hinduism is not averse to the spirit of capitalism and to adventurous spirit. The Hinduism has contributed a lot in
entrepreneurship development in India which is based on capitalism.

8. Theory of Social Behaviour

Kunkel presents a behavioural model of entrepreneurship. Supply of entrepreneurs is a function of social, political and
economic structure. Behavioural model concerned with the overtly expressed activities of individuals and their relations to the
previous and present surroundings, social structures and physical conditions.
According to Kunkel, Individuals perform various activities of which some are accepted by the society while others are not.
The accepted are rewarded. The rewards act as reinforcing stimulus increasing the probability of repeating that behaviour

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pattern. This pattern of social behaviour is entrepreneurial behaviour. The supply of entrepreneurship depends upon four
structures found in a society.

That are as follows:

(i) Limitation Structure – The society limits specific activities and this limitation structure affects all the members (including
entrepreneurs) of a society.
(ii) Demand Structure- Material rewards are necessary to lay the foundation for future social gains. Moreover, behaviour of
people can be made entrepreneurial by manipulating certain selected components of the demand structure.
(iii) Opportunity Structure – It consists of the availability of capital, management and technological skills, information
concerning production methods, labour and markets.
(iv) Labour Structure – It is concerned with the supply of competent and willing labour. The supply of labour is governed by
several factors such as available alternative means of livelihood, traditionalism and expectations of life.

Critical Evaluation:
The theory assumes the ideal structures for the supply of entrepreneurs. But, generally, there is discrepancy between objectives,
structures and the actual incidence of entrepreneurs. It is due to the fact that there are inadequate or incorrect perceptions
attached with these perceptions. In practice, entrepreneurship is also governed by the specific combinations of circumstances
which are generally not available in the environment.

9. Theory of Leadership
According to Hoselitz, entrepreneurship is a function of managerial skills and leadership. Business also requires finance but
that is of secondary importance. He further explains that a person who is to become an industrial entrepreneur must have more
than the drive to earn profits and amass wealth.
In this process, he has to show his ability to lead and manage. In business, there are generally three types of leadership—
merchant money lenders, managers and entrepreneurs. In practice, money lenders are market oriented and managers are
authority oriented. But entrepreneurs have in addition to these a production orientation.
The merchant money lenders deal in goods/services which is generally acceptable to everyone. However, an entrepreneur
creates his own commodity and its acceptability is uncertain. Therefore, the entrepreneur assumes more risk as compared to a
trader or a money lender.
In this context, it is important to note that making profit is not enough to succeed in entrepreneurship. Hoselitz opined that
entrepreneurship can develop in a society where its culture permits a variety of choices and where social processes are not
rigid. The social conditions should ensure the development of enterprise-oriented personalities.
Hoselitz emphasised the role of culturally marginal groups like Jews and Greeks in Medieval Europe and the Lebanese in West
Africa, the Chinese in South Asia, the Indians in West Africa in promoting economic development.
Making use of the work of Stonequist and Park, Hoselitz formulated the hypothesis that marginal men, because of their
ambiguous position from a cultural or social stand point, are peculiarly suited to make creative adjustments in situations of
change and in the course of this adjustment process too, they are able to develop genuine innovations in social behaviour.

Critical Evaluation:

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It is quite true that marginal men or groups enjoying an ambiguous culture and social position having no bondage of tradition
to inhibit them from entrepreneurship development. But there are certain economic and political factors also which encourage
the people to initiate entrepreneurial behaviour.
For example, Government of India and State Governments are trying to encourage first generation entrepreneurs by offering
them various types of incentives and subsidies. Potential entrepreneurs are also opting for enterprise development without
cringe for social or cultural restrictions.

10. Theory of Model Personality

The theory of Cocharn is a sociological theory of entrepreneurial supply. Cocharn emphasises cultural values, role expectations
and social sanctions as the key elements that determine the supply of entrepreneurs. According to him, an entrepreneur is
neither a super normal individual nor a deviant person but represents a society’s model personality.

His performance is influenced by three factors:

(i) His own attitudes towards his occupation.
(ii) The role expectations held by sanctioning groups and
(iii) The operational requirements of the job. In this context, society’s values are the most important determinant of the attitudes
and role expectations.

Critical Evaluation:
The theory deals with only social factors. Profit is the most important factor for encouraging entrepreneur to assume risky
behaviour. Even need for achievement starts from profit making process. It is implied in need for achievement process. Besides,
entrepreneur is also expected to assume managerial functions. But theory fails to incorporate all these requirements.

11. Theory of Systematic Innovation

Prof. Drucker has developed the theory of systematic innovation. According to him “Systematic innovation consists in the
purposeful and organised search for changes and in the systematic analysis of the opportunities such changes might offer for
economic or social innovation.” Specifically, systematic innovation means seven sources for innovative opportunity.
The first four sources lie within the enterprise, whether business or public service institution, or within an industry or service
sector. They are therefore visible primarily to people within that industry or service sector. They are basically symptoms. But
they are highly reliable indicators of changes that have already happened or can be made to happen with little effort.

These four source areas are:

(i) The unexpected—the unexpected success, the unexpected failure, the unexpected outside event;
(ii) The incongruity—between reality as it actually is and reality as it is assumed to be or as it ought to be;
(iii) Innovation based on process need;
(iv) Changes in industry structure or market structure that catch every one unawares.
The second set of sources for innovative opportunity, a set of three involves changes outside the enterprise of industry-
(i) Demographics (Population changes);
(ii) Changes in perception, mood and meaning;
(iii) New knowledge, both scientific and non-scientific.
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Prof. Drucker, further remarked that the lines between these seven sources areas of innovative opportunities are blurred, and
there is considerable overlap between them. They can be likened to seven windows each on a different side of the same
building. Each window shows some features that can also be seen from the window on either side of it. But the view from the
center of each is distinct and different.

Critical Evaluation:
The theory of systematic innovation is quite comprehensive one. The entrepreneur is required to identify different sources of
change. Thereafter, he is expected to coordinate these changes with the opportunities available in the environment. But the
most important problem attached with this theory is the question of reliability and predictability of seven sources.
For example, new scientific knowledge is not the most reliable or most predictable source of successful innovations. However
theory tries to provide a comprehensive framework to the entrepreneurship.
Thus, on the basis of above theories, we can say that entrepreneurship is a multidisciplinary area. Actually, entrepreneurship
is governed by human factor living in an ever-changing society pursuing simultaneously economic, social and psychological
objectives. So unless a theory of entrepreneurship is woven into sociological, cultural, psychological, political and managerial
fibre, it cannot give a sense of economic web.

12. Anthropological Entrepreneurship Theory

The anthropological theory says that for someone to successful initiate a venture the social and cultural contexts should be
examined or considered. Anthropology is the study of the origin, development, customs, and beliefs of a community. In other
words, the culture of the people in the community.
Here the emphasis is on the cultural entrepreneurship model. The model says that new venture is created by the influence of
one’s culture. Cultural practices lead to entrepreneurial attitudes such as innovation that also lead to venture creation behavior.
Individual ethnicity affects attitude and behavior and culture reflects particular ethnic, social, economic, ecological, and
political complexities in individuals. Thus, cultural environments can produce attitude differences (Baskerville, 2003) as well
as entrepreneurial behavior differences.

Exercise
1. Identify other theories and conceptual frameworks or models that relate to entrepreneurship
2. Explain the macro and micro theories.

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