THEORIES AND MODELS

OF ENTREPRENEURSHIP
 INTRODUCTION
Entrepreneurship is an evolved thing. With the advancement of
science and technology it has undergone metamorphosis change and
emerged as a critical input for socio-economic development. Various
writers have developed various theories on entrepreneurship and
popularized the concept among the common people.
 Sociological theories
 Economic theories
 Cultural theories
 Entrepreneurship Innovation theory
 Psychological theories
• Theory of Achievement Motivation
• Motivation theory by McClelland (Acquired Needs theory)
SOCIOLOGICAL THEORIES
• Entrepreneurship is likely to get a boost in a
particular social culture Society’s values, religious
beliefs, customs, taboos influence the behavior of
individuals in a society.
• The following theories explain how sociological
factors accelerate the growth of entrepreneurs:
• Theory of religious beliefs
• Theory of social change
THEORY OF RELIGIOUS
BELIEFS
 Max Weber has propounded the theory of
religious belief.
 entrepreneurism is a function of religious beliefs
and impact of religion shapes the entrepreneurial
culture.
 entrepreneurial energies are exogenous supplied
by means of religious beliefs.
ELEMENTS OF WEBER’S
THEORY
Spirit of Capitalism-In the Webrian theory, spirit of
capitalism is highlighted. We all know that capitalism is an
economic system in which economic freedom and private
enterprise are glorified, so also the entrepreneurial culture.
Adventurous spirit -Weber also made a distinction
between spirit of capitalism and adventurous spirit.
According to him, the former is influenced by the strict
discipline whereas the latter is affected by free force of
impulse. Entrepreneurship culture is influenced by both
these factors.
• Protestant ethic-The spirit of capitalism can be grown
only when the mental attitude in the society is favorable to
capitalism.


Inducement of profit - The spirit of
capitalism intertwined with the motive of profit
resulted in creation of greater number of
business enterprises. In fact, this theory suited
the British rulers, who desired to encourage
European entrepreneurship in India. This theory
was vehemently criticized by many researchers
because of the unrealistic assumptions.
 THEORY OF SOCIAL
CHANGE
Everett E. Hagen, in his theory of social change propounded how a
traditional society becomes one in which continuing technical
progress takes place.
• Presentation of general model of the society- The theory
reveals a general model of the society which considers
interrelationship among physical environment, social structure,
personality and culture.
• Economic Growth
• Rejection of followers syndrome -Hagen rejected the idea that
the solution to economic development lies in imitating western
technology. So the follower’s syndrome on the part of the
entrepreneur is discouraged.

•
• Historic shift as a factor of initiating change-Hagen in his
book, How Economic Growth Begins, depicts historic shift as the
crucial force which has brought about social change technological
progress thereby leading to the emergence of entrepreneurial
class from different castes and communities.
• Withdrawal of status respects as the mechanism for
rigorous entrepreneurial activity-Closely consistent with
the historic shift it is the social group that plunges into rigorous
entrepreneurism which experiences the status withdrawal or
withdrawal of status respects.
 ECONOMIC THEORY
• Entrepreneurship and economic development are
interdependent. Economic development takes place when a
country' real rational income increases overall period of time
wherein the role of entrepreneurs is an integral part.
• Entrepreneurship and economic growth take place when the
economic conditions are favorable.
• Economic incentives are the main motivators for
entrepreneurial activities.
• Economic incentives include taxation policy, industrial policy,
sources of finance and raw material, infrastructure
availability, investment and marketing opportunities, access
to information about market conditions, technology etc.
PSYCHOLOGICAL THEORY
• Entrepreneurship gets a boost when
society has sufficient supply of
individuals with necessary psychological
characteristics.
• The psychological characteristics include
need for high achievement, a vision or
foresight, ability to face opposition.
 THEORY OF HIGH
ACHIEVEMENT/ACHIEVEMENT
MOTIVATION
• McClelland identified 2 characteristics of
entrepreneurship
– Doing things in a new and better way
– Decision making under uncertainty
• He stressed that people with high achievement
orientation (need to succeed) were more likely to
become entrepreneurs.

• Such people are not influenced by money or external

incentives.
• They consider profit to be a measure of success and
competency.
MOTIVATION THEORY (ACQUIRED
NEEDS THEORY)
• According to McClelland, a person has three types
of needs at any given time, which are:

– Need for achievement (get success with one’s

own efforts).
– Need for power (to dominate, influence others)
– Need for affiliation (maintain friendly relations
with others).
• The need for achievement is the highest for
entrepreneurs.
CULTURAL THEORIES
• Entrepreneurship is the product of culture.
Entrepreneurial talents come from cultural values
and cultural system embedded into the cultural
environment.
Hoselitz’s Theory
• The supply of entrepreneurship is governed by
cultural factors, and culturally minority groups are
the spark-plugs of entrepreneurial and economic
development. In many countries, entrepreneurs
have emerged from a particular socio-economic
class.
ENTREPRENEURSHIP INNOVATION
THEORY
• Theory by Joseph Schumpeter believes that entrepreneur
helps the process of development in an economy.
• He says that an entrepreneur is the one who is innovative,
creative and has a foresight.
• According to him, innovation occurs when the entrepreneur-
– Introduces a new product.
– Introduces a new production method.
– Opens up a new market.
– Finds out a new source of raw material supply.
– Introduces new organization in any industry
• The theory emphasises on innovation, ignoring the risk
taking and organising abilities of an entrepreneur.
 MODELS OF
ENTREPRENEU
RSHIP
 CONSULTANT MODEL
• This model is common among academicians and
those with who gained expertise in the industry.
• Many corporate executives, after retiring from their
regular jobs also take the consulting route, either
directly or by taking on director roles at different
companies.
• Many IT professionals, especially those with niche
skills and/or certifications also tend to move on to
consulting roles.
 MOONLIGHTING MODEL

• This model is common among those want to

experience entrepreneurship “part-time” without
taking the risks associated with full-time
entrepreneurial activities.
• This model is not really new.
• Opportunities with industries that use their
expertise to implement the research ideas fine-
tuned in academia.
• Some professionals take the public speaking or
column writing route where they try to publish their
ideas outside the confines of their organisations.
BRILLIANT IDEA MODEL
• Model applied to professionals and others working
in the corporate world or for regular employers.
• They realise that they have a “million dollar idea”
that they can capitalise on.
• Employees take their new/innovative idea to the
employer with a suggestion to implement it on the
job.
• When the ideas are not taken up by the
management, they contemplate the
entrepreneurial route if they feel strongly about it.
BUSINESS/FRANCHISE
MODEL
• Individuals who do not want to continue in the
corporate world decide to start their own
venture.
• Entrepreneur approaches a corporation.
• Takes on the responsibility of running his
business using the brand and marketing
support from the enterprise.