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TOPIC

THEORIES OF
ENTREPRENEURSHIP

SUBMITTED TO-
Prof. V. Shunmuga Sundaram
(Faculty of Commerce, BHU)

PREPARED BY-
SAIMA NAFEES SIDDIQUI
MBA(Financial Management)
SEMESTER-2
ROLL No.- 32
INTRODUCTION: Entrepreneurship is an activity of acquiring an
existing business or creating a new venture right from the scratch by
judiciously combining various factors of production with a view to
supply either some new wants or to supply some existing wants in a
more efficient and effective way and thus to lead value addition and
wealth creation in the society by bearing the uninsurable primary risk
through the raw material of entrepreneurial ideas and hardwork.
Entrepreneurship is the process of designing, launching and running a
new business, which is often initially a small business. The people who
create these businesses are called entrepreneurs.
Entrepreneurship has been described as the "capacity and willingness to
develop, organize and manage a business venture along with any of its
risks in order to make a profit". While definitions of entrepreneurship
typically focus on the launching and running of businesses, due to the
high risks involved in launching a start-up, a significant proportion of
start-up businesses have to close due to "lack of funding, bad business
decisions, an economic crisis, lack of market demand—or a combination
of all of these.
THEORIES OF ENTREPRENEURSHIP
There are various theories of entrepreneurial supply in an economy:
1. ECONOMIC THEORY OF ENTREPRENEURSHIP:
Entrpreneurship and economic growth takes place
when economic conditions are favourable. Economic
incentives are the main motivators. Economic incentives
include taxation policy, industrial policy, sources of finance and
raw material, infrastructure availability, investment and
marketing opportunities, access to information like market
conditions, technology, etc.
The economic theory of entrepreneur was established by an
Irish French economist Richard Cantillon, who viewed
entrepreneur as an agent who buys factors of production at to
selling it at uncertain price in future. He illustrated farmer as an
entrepreneur who pays out contactual incomes to the landlords
and labourers which are certain while sells his crops at a price
which are uncertain. Thus he views entrepreneurs as a risk
taker.
2.THE SOCIOLOGICAL THEORY OF ENTREPRENEURSHIP:
This theory proposes that Entrepreneurship is likely to get
boost in a particular culture. Entrepreneurs as an individuals
lives in a society and are conditioned and shaped by social
factors.
As such the entrepreneurial behaviour of individuals in a society
is influenced by societies values, religious beliefs, customs,
taboos, etc. The entrepreneur merely performs the role as per
the expectations of the society.
As per an aristocratic industrialist Jean Baptist says an
entrepreneur is one who combines the land of one, the labour of
another and the capital of yet another to produce a product. By
selling the product in the market he pays interest on capital, rent
on land, wages to labourers and what remains is his profit.
This was for the first time that a distinction was made between
the capitalist as a financer and the entrepreneur as an organiser.
Thus this theory sees entrepreneur as an Organiser.
2. ENTREPRENEURSHIP INNOVATION THEORY:
This theory was propounded by Joseph Shumpeter. As per this
theory entrepreneurship is Innovation. An entrepreneur
innovates when he :
(i) Introduces new product
(ii) Introduces new production method
(iii) Opens up a new market
(iv) Finds out a new source of raw material supply
This theory ignores the earlier two abilities which were till then
considered key for an entrepreneur i.e. risk taking abilities and
organising abilities. According to Joseph Schumpeter: “An
entrepreneur is a person who is willing and able to convert
a new idea or invention into a successful innovation.”
Schumpeter’s example of innovation was the combination of
steam engine with a wagon cart in order to produce a horseless
carriage. In this case the cart was transformational and it did not
require the development of new technology . Merely the
application of an existing technology in a novel manner was
entrepreneurial. Thus this theory sees entrepreneur as an
innovator.
3. PSYCHOLOGICAL THEORY OF ENTREPRENEURSHIP:
Entrepreneurship gets a boost when society has
sufficient supply of individuals with necessary psychological
characteristics. The psychological characteristics include:
(i) Need for achievement
(ii) A vision or foresight
(iii) Ability to face opposition etc.
These characteristics are formed during the individuals
upbringing. For example an individual who would have faced
trying times during his childhood is more likely to develop an
entrepreneurial trait. Secondly by high standards of
excellence through self reliance and low father dominance.
For example when an individual is not habituated of being
guided by his elder’s decision he is more likely to garner an
entrepreneurial trait.
4. THEORY OF ACHIEVEMENT MOTIVATION:
Mc Clelland’s theory of achievement motivation holds that
people have three motives for accomplishing things:
(i) Need for achievement
(ii) Need for affiliation
(iii) Need for power
Need for achievement and need for power drives
entrepreneurship. Mc Clelland considers entrepreneurs as
people who do things in a better way and makes decision in
times of uncertainty. The dream to achieve big overpowers
monetary and other incentives.
5.UNCERTAINITY BEARING THEORY:
Frank H Knight in his book Risk, Uncertainty and Profit
regards profit of the entrepreneur as the reward of bearing risk
and uncertainities. Entrepreneur undertakes varying degrees of
risks according to their abilities and inclination. Theory suggests
that the more risky the nature of enterprise the higher the level
of profit earned by entrepreneur.
7.OPPORTUNITY BASED THEORY :
Prolific business management author, professor and
corporate consultant, Peter Drucker put forward an opportunity-
based theory. Drucker contends that entrepreneurs excel at
seeing and taking advantage of possibilities created by social,
technological and cultural changes. For example, where a
business that caters to senior citizens might view a sudden influx
of younger residents to a neighborhood as a potential death
stroke, an entrepreneur might see it as a chance to open a new
club.
8.RESOURCE- BASED THEORY :
Resource-based theories focus on the way individuals
leverage different types of resources to get entrepreneurial
efforts off the ground. Access to capital improves the chances of
getting a new venture off the ground, but entrepreneurs often
start ventures with little ready capital. Other types of resources
entrepreneurs might leverage include social networks and the
information they provide, as well as human resources, such as
education. In some cases, the intangible elements of leadership
the entrepreneur adds to the mix operate as resource that a
business cannot replace.

CONCLUSION: Though these theories of entrepreneurship are


rich and vivid but none of these theories are complete in itself.
Each theory explains only one aspect of entrepreneurial supply
ignoring the other viewpoints. There is no unanimity among
scholars regarding the sources of entrepreneurial supply as
every theorist has considered the problem from his viewpoint.
What is therefore needed is an integration of the various theories
to understand the sources of entrepreneurial supply.