Theories of entrepreneurship: “Entrepreneur” and “entrepreneurship” are the two synonymous words for many people. The person is called as entrepreneur who starts his own business which is different from the existing businesses in the market. Consensus on standard behavioral definition of entrepreneurship is still missing, but there are various theories of entrepreneurship which elaborate the concept up to the understanding level.

Theories of entrepreneurship

It was an economic thinker Richard Cantillon (1680-1734) who first of all defined the entrepreneur as “an agent who buys means of production at certain prices to combine them into a new product. Richard Cantillon classified economic agents into landowners, hirelings, and entrepreneurs, and thought of the entrepreneur because the most active among these three agents, connecting the producers with customers”.

Further below is the brief discussion on the various theories of entrepreneurship suggested by various authors in due course of time.

A. Risk Bearing Theory

Frank Knight considered the risk taking behavior as an important feature in the concept of entrepreneurship. Though he agreed to the theory given by Richard Cantillon, an economist he suggested addition of risk taking factor in the existing theory. The theory focuses on the main strength of entrepreneur is the ability to anticipate the future but on the same time it considers risk and uncertainty as important factors which are rewarding in terms of heavy profits if successful.

B. Entrepreneurship Theory by Alfred Marshall

Alfred Marshall in his Principles of Economics (1890) held land, labor, capital, and organization because the four factors of production, and thought of entrepreneurship because the driving factor that brings these four factors together.
According to this theory, a successful entrepreneur must have the following characteristics:
· Up so far knowledge and understanding of the market.
· Must be a good leader.
· Be able to forecast the demand and supply statistics and respond accordingly while taking risk if required.

C. Sociological Theory given by Max Weber

The theory considers the driving force of entrepreneurship is the social cultures and societal needs. The entrepreneur envisages a vision in conformity with the expectations o the society. The idea entrepreneur conceives also take care of religious beliefs, customs, traditions, eco systems and sentiments of the society. Max Weber stated religion as the key deciding force for the type of the product or service entrepreneurship business results, and stressed on the strength of capitalism, which highlights economic freedom and private enterprise.

D. Economic Theory by Mark Casson

Mark Casson suggested that entrepreneurship is the outcome of favorable economic environment. Economic factors that are responsible for entrepreneurship to occur are;
· Tax structure of the country,
· Policy for the industries,
· Availability of required raw materials,
· Availability of loans at attractive rates,
· Availability of reliable information through market information system,
· Supporting infrastructure and technology,
· Opportunities and government support for marketing.

E. Innovation Theory by Joseph Schumpeter

Joseph Schumpeter’s rolled out the theory of innovation to conceptualize entrepreneurship and stated that an entrepreneur is the person who should have three main characteristics: innovative, foresighted, and creative. Entrepreneurship occurs when the entrepreneur;
· Develops a new service or a product,
· Improvises new methods and techniques in production,
· Introduces new market for a product,
· Discovers new sources to gather raw material,
· Discovers a new path to establish organisation.

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Schumpeter’s theory of innovation however ignores the entrepreneur’s risk taking ability and organizational skills, and places undue importance on innovation. This theory applies to large-scale businesses, but economic conditions force small entrepreneurs to imitate instead of innovate. Economists other than have Schumpeter also added a dimension to imitating and adapting to innovation. This entails successful imitation by adapting a product to a distinct segment during a better way than the first product innovators innovation

F. Theory of Entrepreneurship by Israel Kirtzner

Israel Kirzner (1935-) hold’s that spontaneous learning and application as two major characteristics of entrepreneurship, and entrepreneurship is that the transformation of spontaneous learning to conscious knowledge, motivated by the prospects of some gain. Kirzner considers the alertness to acknowledge opportunity more characteristic than innovation in defining entrepreneurship. The entrepreneur either remedies ignorance or corrects errors of the purchasers .
In his model he gave following observations in entrepreneurship;
· The primary aim of an entrepreneur is new discovery and also to earn money by reproducing and selling it in the market.
· Investing money from a capitalist is also desirable in entrepreneurship.
· Entrepreneur repays the loan along with the interest, and retains “pure entrepreneurial profit.”

G. Theory of Entrepreneurship by Leibenstein

Harvey Leibenstein, called entrepreneur as a person who fills in the gaps. To justify his theory he suggested three traits of entrepreneurship as under;
· Ability to analyse trends in the market
· Ability to generate new demand and fulfill the same with new products
· Promote profitable ventures
Entrepreneurs have the skills to explore the new markets and ability to fill in the gaps by ensuring balance between demand and supply of new innovative products.

H. Theory of Achievement Motivation by McClelland

McClellands Theory of accomplishment Motivation hold that folks have three motives for accomplishing things: the necessity for achievement, need for affiliation, and wish for power. Need for achievement and wish for power drive entrepreneurship.
Kirzner considers the alertness to acknowledge opportunity more characteristic than innovation in defining entrepreneurship.

David McClelland (1917-1988) considers that “Entrepreneurs are peoples that do things during a better way and make decisions in times of uncertainty. The dream to realize big things overpowers monetary or other external incentives”. His experiment revealed that traditional beliefs don’t inhibit an entrepreneur, which it’s possible to internalize the motivation required for achievement orientation through training.

I. Theory of Entrepreneurship by Peter Drucker

The theory of entrepreneurship given by Drucker considers innovation, resources and an entrepreneurial behavior as primary fundamentals of entrepreneurship. He says entrepreneurship involves
· Increase in value or satisfaction to the customer from the resource
· Creation of new values
· Combination of existing materials or resources during a new productive combination

Theories of entrepreneurship

You may interested to read this FUNCTIONS OF A ENTREPRENEURS.