Theories of Entrepreneurship


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This presentation deals with the various theories of entrepreneurship with the Indian context.


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Theories of Entrepreneurship:

Theories of Entrepreneurship Presented By: Anupam Kumar Reader School of Management Sciences, Varanasi. Email: 1 - © Copyright 2011 Anupam Kumar

Concept of Entrepreneurship:

© Copyright 2011 Anupam Kumar 2 Concept of Entrepreneurship As per Wikipedia: Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods".

Theory of Entrepreneurship:

© Copyright 2011 Anupam Kumar 3 Theory of Entrepreneurship The theories of Entrepreneurship may broadly be discussed as under. Economic Theory of Entrepreneurship Sociological Theory of Entrepreneurship Psychological Theory Entrepreneurship Innovation Theory Theory of Achievement Motivation The Kakinada Experiment

Economic Theory of Entrepreneurship:

© Copyright 2011 Anupam Kumar 4 Economic Theory of Entrepreneurship Entrepreneurship and economic growth take place when economic conditions are favourable Economic incentives are the main motivators of entrepreneurial activities Economic incentives include taxation policy, industrial policy, source of finance and raw material, infrastructure availability, investment and marketing opportunities, access to information about market conditions, technology, etc.


© Copyright 2011 Anupam Kumar 5 Entrepreneur According to Richard Cantillon, an Irish French Economist, Entrepreneur as an agent who buys factors of production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in future. He illustrated a farmer who pays out contractual incomes which are certain to the landlords and labourers an sells at a price that are uncertain.

Sociological Theory of Entrepreneurship:

© Copyright 2011 Anupam Kumar 6 Sociological Theory of Entrepreneurship Entrepreneurship is likely to get a boost in a particular social culture Society’s values, religious beliefs, customs, taboos influence the behaviour of individuals in a society. The entrepreneur is a role performer according to the role expectations by the society.


© Copyright 2011 Anupam Kumar 7 Entrepreneur As per Jean Baptiste Say, an aristocratic industrialist, 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 the capital, rent on land and wages to labourers and what remains is his profit. This was for the first time that a distinction was made between the capitalist as the financer and the entrepreneur as the organiser.

Psychological Theory:

© Copyright 2011 Anupam Kumar 8 Psychological Theory Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary psychological characteristics The psychological characteristics include need for achievement, a vision or foresight, ability to face opposition These characteristics are formed during the individual’s upbringing with stress on standards of excellence, self reliance and low father dominance.

Entrepreneurship Innovation Theory:

© Copyright 2011 Anupam Kumar 9 Entrepreneurship Innovation Theory Propounded by Joseph Schumpeter Theory emphasizes on innovation, ignoring risk taking and organizing abilities of entrepreneur. 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 a new organization in any industry


© Copyright 2011 Anupam Kumar 10 Entrepreneur According to Joseph Schumpeter, a 20 th Century Austrian Economist, An entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship resulted in new industries but also in new combinations of currently existing inputs. Schumpeter's initial example of this was the combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case the innovation, the car, was transformational but did not require the development of a new technology, merely the application of existing technologies in a novel manner.

Theory of Achievement Motivation:

© Copyright 2011 Anupam Kumar 11 Theory of Achievement Motivation David McClelland emphasized the importance of achievement motivation as the basis of entrepreneurial personality and a cause of economic and social development through entrepreneurship by fulfilling Need for power Need for affiliation Need for achievement The Need for Achievement was highest among Entrepreneurs as per McClelland.

Theory of Achievement Motivation:

© Copyright 2011 Anupam Kumar 12 Theory of Achievement Motivation McClelland identified two characteristics of entrepreneurship. Doing things in a new and better way Decision making under uncertainty Stressed that people with High Achievement Orientation (Need to Succeed) are more likely to become entrepreneurs. People are not influenced by money or external incentives. Profits are only a measure of success and competency

The Kakinada Experiment:

© Copyright 2011 Anupam Kumar 13 The Kakinada Experiment Conducted by McClelland in America, Mexico and India (Kakinada) Young adults were selected and put through a 3 month training to induce achievement motivation The course content were Trainees were asked to control their thinking and talk to themselves positively Trainees imagined themselves in need of challenges and success for which they were made to set planned achievable goals. They tried to imitate their role models. The achievement motivation had a positive impact on the performance of the participants. It was understood that traditional belief do not inhibit an entrepreneur.

For further details / comments…:

© Copyright 2010 Anupam Kumar 14 For further details / comments… Contact: Anupam Kumar Reader, SMS Varanasi Email:

Also see…:

Also see… Sustaining the Venture: The Entrepreneurial Challenge! © Copyright 2011 Anupam Kumar 15


© Copyright 2011 Anupam Kumar 16 Bibliography Badi, N.V. and Badi, R.V. Entrepreneurship . Delhi: Vrinda Publications (P) Ltd., 2005 Desai, Vasant. Dynamics of Entrepreneurial Development and Management . Fourth Revised & Millennium Edition. Mumbai: Himalaya Publishing House,2007. Nirjhar Abhishek Entrepreurship Development . First Edition. Lucknow: Word Press, 2011. Khanka, S.S. Entrepreneurial Development . New Delhi: S Chand & Company Ltd. 2010 Kennedy, Dan S. How to make MILLIONS with Your IDEAS . Bangalore: Master Mind Books 2001. Sahay, A and Sharma, V. Entrepreneurship and New Venture Creation . First Edition. New Delhi: Excel Books, 2008 Hisrich, Rober D. and Peters, Michael P. Entrepreneurship . Fifth Edition. New Delhi: Tata Mc Graw Hill Publishing Company Limited, 2002 Acknowledgements: for images, graphs and other details: ;;;;,,

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