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Theories of Entrepreneurship
&
Entrepreneurship Motivation
Motivation
Motivation is defined as a drive that cause a
person to take some goal oriented action.
Inner state of
disequilibrium/ need
expectancies
Incentive
or goalBehaviour
Feedback
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Basic Motivations for Entrepreneur
Passion
Creating Value
Changing the World
Independence
Money
Motivating FactorsR. A. Sharma
Internal Factors
Motivations
Education background
Experience
External factors
Government assistance and support
Availability of factors of production
Social Encouragement / suppression
Encouragement from big business
Promising demand for the product
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Maslows Need Hierarchy or ERG
Higher order needs- esteem and self actualization
Self-development
Accomplishing new things
Achievement of target and new standards.
Desire for reputation and recognition
Desire for a top position in the industry
Desire for social status.
In some cases maybe physiological or security
needs
Manifest Needs TheoryMurray & McClelland
Need for Power Sensitive to perceive when things can be done better (Logical?
More efficiently?)
Has a strong sense of order within the hierarchy or system
Is good at organizing things and people
Desires to influence others...Likes to give advice and guidance
Desires to be in-control of the situation
Need for Autonomy Desires to be his/her own boss Wants to do things their way Desire for independence Desire to be involved in decisions affecting oneself Desire to know the results of ones actions.
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Manifest Needs TheoryMurray & McClelland
Need for Affiliation
The extent to which an individual is concerned
about establishing and maintaining good
interpersonal relations, being liked, and having
other people get along.
Desire to fulfill family obligations
Desire to belong to a group
Manifest Needs TheoryMurray & McClelland
Need for Achievement The extent to which an individual has a strong desire to perform
challenging tasks well and meet personal standards forexcellence.
Drive to achieve targets, persist in adversity, sense problems andopportunity
the desire to do something better, faster, more efficiently, with
less effort. likes situations in which he/she takes personal responsibility for
finding solutions to problems.
has a tendency to set oneself challenging but realisticachievement goals and to take calculated risks.
also wants concrete feedback as to how well he/she is doing.
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Factors for Entrepreneurship
These factors are commonly grouped under 4schools of thought
1. Traits Approach: entrepreneurs are shaped bytheir character internal attributes
2. Environmental Approach: entrepreneurs are aproduct of their environment external factors
3. Behavioural/Managerial Approach : it isneither internal nor external factors but actions
& behaviors that lead to entrepreneurship4. Contingency Approach
Environmental Approach
Choice of Entrepreneurship is related to
external factors beyond the individuals
control,
Culture
Entrepreneurs are products of their culture Some cultural groups see Entrepreneurship as a more
desirable career opportunity
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Environmental Approach
Family Background- Entrepreneurial traits are
impacted by birth order, role models andexperience of rejection in childhood First born: self confidence, independence and internal
locus of control correlation exists with reception ofspecial attention & care
Role models: entrepreneurial environments foster thedevelopment of entrepreneurial traits risk-taking,independence, creativity and achievement
Rejection: rejection from family relations can lead tothe development of independence (to avoid authorityfigures)
Environmental Approach
Education and Experience
Level of education: more and more entrepreneurs are
educated
Experience: managerial and industry experience
A large percentage of entrepreneurs start
businesses in industries they are familiar with
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Environmental Approach
Push-Pull Theory: New venture creation
results from positive and negative external
factors
Pushedinto Entrepreneurship by negative
elements such as job dissatisfaction or job loss
Pulledinto Entrepreneurship by the
observation of an opportunity, idea (e.g. dot-
com mania)
Environmental Approach
Marginal/Displacement Approach: Some
studies show that marginal individuals are
more likely to become Entrepreneurs Misfits that cannot fit into the business mainstream
Dislike 9am to 5pm routine
Problem with acceptance of authority Difficulty in coping with bureaucracy
Minorities who feel discriminated against
Women experiencing the glass ceiling often start own business
out of necessity
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Entrepreneurial Traits Approach
Entrepreneurs generally possess the following characteristics: High need for achievement need to always achieve new
bold goals Risk taking propensity willingness to take financial risks Tolerance for ambiguity no fear of the unknown Innovation ability to create new or modify existing business
concepts Intuitionmake decisions based on gut feelings High need for independence & autonomymake own
decisions Internal locus of control belief that the future is
determined by their own actions Low need for conformity unhappy in environment withstrict rules
Proactive plans for events before they occur
Behavioral/Managerial Approach
Based on the entrepreneurs ability to achieve goals
Success depends on the entrepreneurs ability to obtainresources, implement an appropriate strategy and developan appropriate structure to exploit the opportunity
Actions are the key criteria to determining whether or notan individual fits the profile of an entrepreneur
Strategic thinking, goal setting, and planning, are all part ofdefining the characteristics of an entrepreneur under thistheory
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Contingency Approach
Combination of ALL factors
The ability to sense the opportunity
(result of E traits)
The ability/willingness to exploit(management skill)
Schumpeters view
The entrepreneur-innovators motivation
includes such aspects as
the dream to found a private kingdom,
the will to conquer and to succeed for the sake of
success itself, and the joy of creating and getting things done.
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Entrepreneurship Innovation theory
Theory by Joseph Schumpeter who believes that entrepreneur helps theprocess of development in an economy
He says that an entrepreneur is the one who is innovative, creative andhas 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 organisation in any industry
The theory emphasises on innovation, ignoring the risk taking andorganising abilities of an entrepreneur
Schumpeters entrepreneur is a large scale businessman, who is rarelyfound in developing countries, where entrepreneurs are small scalebusinessmen who need to imitate rather than innovate
Economic Theory
Entrepreneurship and economic growth take placewhen the economic conditions are favourable
Economic incentives are the main motivators forentrepreneurial activities
Economic incentives include taxation policy, industrialpolicy, sources of finance and raw material,infrastructure availability, investment and marketingopportunities, access to information about marketconditions, technology etc
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Sociological Theory
Entrepreneurship is likely to get a boost in a
particular social culture
Societys values, religious beliefs, customs, taboos
influence the behaviour of individuals in a society
The entrepreneur is a role performer according tothe role expectations by the society
Psychological Theory
Entrepreneurship gets a boost when society hassufficient supply of individuals with necessarypsychological characteristics
The psychological characteristics include need for highachievement, a vision or foresight, ability to faceopposition
These characteristics are formed during the individualsupbringing which stress on standards of excellence, selfreliance and low father dominance
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Competence motivation
A drive to do high quality work.
Competence motivated entrepreneur
seek mastery in job or tasks that they areundertaking,
develop problem solving skill and
strive to be innovative
Tend to perform good work because the inner
satisfaction they feel and respect they gainfrom others due to their competence.
Leibensteins Theory of X-efficiencyHarvey Leibenstein
popularly called Gap Filling Theory.
Entrepreneurial functions are determined by
the X-efficiency which means the degree of
inefficiency on the use of resources within the
firm. Eg. Lalu Prasad Yadav as an entreprenaur for
Indian Railways. Turned around the Indian
Railways by improving efficiency and innovation.
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Mark Cassons Theory
Deals with the functional behavior of entrepreneur and his qualitieswhich are crucial for his success.
Casson defines and Entrepreneur as someone who specializes intaking judgmental decisions about coordination of scarceresources
Demand Supply Relationship
Identification of qualities
Theory reveals that in development of successful entrepreneurshipthe following things are not to be followed: The demand for entrepreneurship need to be adjusted as per the
changing needs of time.
The deficient qualities of the entrepreneur should be made good bypersonal care.
Mark Cassons Theory
Example
Narayan Murthy
Identified the demand supply relationship and his
qualities and then established Infosys
Used his and his companys qualities to becomeone of the best I.T. Firms in the world.
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Papanek and Harris Theory
According to Papanek and Harris, economic
incentives are the integral factors that have
induced entrepreneurial initiatives. Main
Features of this theory are as under:
Economic incentives
Link between economic gains and the inner urge
Economic gain sufficient condition
Harvard School Theory
Internal Forces: These forces refer to the internalqualities of the individual such as intelligence,skill, knowledge experience, intuition, exposure,etc. These forces influence the entrepreneurialactivities of an individual to a great extent.
External Forces: These forces refer to theeconomic , political, social, cultural and legalfactors which influence origin and growth ofentrepreneurship in an economy.
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M.Kirzners Theory of Adjustment
Adjustment of Price: The chief role of entrepreneur isbased upon the adjustment of price in the market. Thebuyer may pay higher price or seller may accept alower price, which gives rise to opportunities for profit.Further if different prices prevail in the same market,there in an opportunity for profitable arbitragebetween two segments.
Alertness to disequilibrium: Alertness todisequilibrium enables the entrpreneur to intervene inthe market by changing the price. Thus, economy in
purchase and profitable selling results in economicgains
Knights Theory of Profit
Knight points out that entrepreneurs are specialized
group of persons who bears risk and deals with
uncertainty. Main features of this theory are:Pure Profit
Situation of Uncertainty
Risk Bearing Capability
Guarantee of Specified Sum
Identification of Socio Economic and Psychological Factors
Use of consolidation techniques to reduce business
uncertainty
Self Confidence
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Theory of religious belief- Max Weber
According to Max Weber, entrepreneurism is a
function of religious belief and the impact of
religion shapes the entrepreneurial culture.
He emphasized that the entrepreneurial
energies are exogenous supplied by means of
religious belief.
Elements of Webers theory
Spirit of capitalism
Spirit of capitalism is the guiding factor which
guides the entrepreneur to get engaged in
activities that can bring about more and more
profit.
Adventurous spirit
Spirit of capitalism is influenced by strict
discipline, where as, adventure spirit is affected by
the force of impulse.
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Elements of Webers theory
Protestant ethic: According to Weber, attitude can beprovided by protestant ethic irrespective of culturalbackground, personality type and experiences in thesociety. He also adds that, Hinduism lacks this sort ofmental attitude which acts as a stumbling block in theirway to entrepreneurship
Inducement of profit: The principle of low prices andlarge turnovers was the mechanism of theentrepreneurs to reap profits. This motive of profitguided protestant ethic to become entrepreneurialwhich was not found among Hindus
limitations
Diverse cultures in India
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Theory of Entrepreneurial supply-Thomas Cochran
Beginning with the premise that fundamental
problems of economic development are non-
economic, he emphasizes on the cultural
values, role expectation and social sanctions
as the key elements that determine the supply
of entrepreneurs
The type of childrearing and schooling and itsinfluence on intrinsic character
Theory of Social Change E.E. Hagen
The theory exhorts certain elements which
presumes the entrepreneurs creativity as the key
element of social transformation and economic
growth.
interrelationship among physical environment,
social culture, personality and culture.
entrepreneur as a creative problem-shooter who
brings about economic development which is
mingled with political and social changes.
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Theory of Social Change E.E. Hagen
Rejection of followers syndrome: rejecting the ideathat the solution to economic development lies inimitating western technologies, Hagen insisted that thefollowers syndrome on the part of the entrepreneur, isdiscouraged. This is because technology is an integralpart of socio cultural-complex, and super-imposition ofthe same into different sociocultural set-up may notdeliver the goods.
Historic shift as a factor of initiating change: Historicshift is the crucial force which has brought about the
social change and technological progress therebyleading to the emergence of entrepreneurial classfrom different castes and communities.
Theory of Social Change E.E. Hagen
Withdrawal of status respects as the mechanismfor rigorous entrepreneurial activity: Whenwithdrawal of status respect occurs, it leads tofour different responses and creation of fourdifferent personality types, namely:
Retreatist: One who constantly does his work in the society
but remain indifferent to his own position. Ritualist: One who adopts a kind of defensive personality
Reformist: One who initiates rebellion and attempts toestablish a new order in the society
Innovator: A creative individual who converts all odds intoopportunities and is likely to become an entrepreneur
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Theory of Group Level Pattern F. Young
Solidarity Groups: Young regarded the solidaritygroups as the main agencies for buildingentrepreneurship. He mentions that entrepreneurshipcharacteristics are found in clusters, ethniccommunities, occupational groups or politicallyoriented factions.
Disregarding single-handed concept ofentrepreneurship: Entrepreneurship is the product offamily background, experience and exposure of theindividual as a member of the group and as a reflection
of general values. Thus, entrepreneur doesnt workalone.
Theory of Group Level Pattern F. Young
Reduction of complex economic problems: The effort ofsolidarity group is likely to reduce the economic problemsthrough the recombination of factors related to production,higher standards of labor, new technology and markets andmore effective management of time and money
Incorporation of reactive subgroups: According to Young, agroup becomes reactive when three important conditions
coincide. These conditions are:a) When low status recognition is found in a group
b) When access to important social networks is denied
c) When the group has better institutional resources than othergroups in the society at the same level