entrepreneurship theory

THEORIES OF ENTREPRENEURSHIP:

i: Pyschological Theories

—   “Entrepreneurs are born”

—   It is a matter of individual, mostly in-born qualities

(1) The need for achievement model (see details from McClelland, 1961)

The need for achievement (n-Ach) is associated with one’s desire to do well for the sake of an inner feeling of personal accomplishment.

People with n-Ach traits are portrayed to (among other things):

—       Spend more time thinking about how best to do something

—       Like situations where personal responsibilities are pursued

—       Like immediate feedback

—       Prefer tasks that pose challenges but which are achievable

Accordingly, people with high n-Ach are more likely to be successful entrepreneurs.

Criticisms of the N-Ach theory

—   Criticisms include concerns on cultural insensitivity and contradictions to Maslow’s Theory of Hierarchy of Needs, particularly in African developing contexts.

—   Maslow’s Hierarchy of Needs Theory identifies a number of stages through which an individual’s needs hierarchically pass by, namely physiological need, safety, affiliation, esteem and self-actualization.

(2) Locus of control (Rotter, 1966)

—       This refers to “the extent to which people believe that they control their own destinies”.

—       People with internal locus of control believe that they control their destinies, while those with external locus of control believe on some external factors – lucky, powerful people, nature, etc.

—       Accordingly, individuals with internal locus of control are supposedly more likely to behave entrepreneurially, and would also display high need for achievement than others.

However, the debate behind the theory is strong, as there are both supporters and criticisms.

—       For instance, it is difficult to differentiate entrepreneurs from managers (who also have internal locus of control)

—       Among the major criticisms is the one based on culture, particularly in connection with the African context. The possible influences on the trait itself are also not evident (religion, history, culture, etc.?)

(3) The psychodynamic model (Kets de Vries, 1977)

—       Entrepreneurial behavior is posed as “an outcome of family background that is often filled with images of endured hardships”

—       In this perspective, the entrepreneur is a deviant, non-conformist, unable to fit in established structures, leading to an innovative rebelliousness kind of life.

—       Criticisms against this model include the observation by Robbins (1979), that the model has a serious theoretical problem. It deals with the extremes of a given population and leaves the rest untouched. It also doesn’t tell why deprived persons are likely to choose an entrepreneurship and not other sort of career.

(4) Risk taking propensity (Bird, 1989)

—       Is related to the generalized tendency to choose more risky alternatives

—       Central to the theory are individuals’ perceptions of risks – “low – moderate – high”

—       Those with high propensities are more likely to do better in entrepreneurship

—       Entrepreneurial risk are broadly considered to encompass financial resources, career opportunities, family relations, psychic well being, etc.

—       However, there is consensus that since any business undertaking is associated with some risk of failure, successful entrepreneurs are the ones who take calculated risks. In calculating the risk: they first of all, scan the environment; secondly, devise imaginative solutions; and thirdly, gain confidence and hence decisively take action.

—       They avoid low-risk situations because there is no challenge, and they avoid high risk situations because they want to succeed.

—       One major criticism to this theory is that there is no appropriate instrument for measuring the various aspects of entrepreneurial risk-taking or for distinguishing among the various contributing motives.

—       Moreover, the perception of risk changes with time.

(5) Innovation theory (Schumpeter, 1934)

—   This views entrepreneurship as focused on “bringing about new resource combinations”

—   Innovation is contrasted to invention

—   Schumpeter identifies five types of new resource combinations:

—   A new (novel) product,

—   A new method of production,

—   A new market,

—   A new source of inputs ( or raw materials) and

—   A new organizational design

—  ii. Sociological explanations of entrepreneurial behavior

These have an inclination on the view that entrepreneurs are mould by the society.

They include:

(1) The social marginality model (Stanworth and Curran, 1976)

This theory basis on two pillars:

—   That, economic action is driven by the desire to satisfy some needs and wants

—   It is the society that shapes the desires we experience

Accordingly, individuals who perceive inequalities between their personal desires and attributes on one hand, and the roles they hold in the society on the other, will be motivated to change their social realities.

The theory has been applied in explaining both minority groups within societies and individuals within organizations.

—   Examples include – the Jews in Europe and America

—   Indians in East Africa

—   Chaga, Ibo, Kikuyu

—   However, the theory lacks power in explaining why some marginal groups in some social settings do not behave entrepreneurially, for instance the Blacks in the U.S.A..

(2) The inter-generational Inheritance of Enterprising culture via role modeling (Birley, 1984)

The main line of reasoning here is that entrepreneurial behaviour is largely inherited.

—  Children of enterprising parents are more likely to display entrepreneurial behaviour as they see, learn and adapt from their parents.

The experiences they get, the exposure, guidance and even resources they acquire from their parents count a lot in their decision making processes.

(3) Small businesses as role models (Chell, 1985)

—       The explanation here is that those who form small firms are likely to have previously worked in similar firms, which they use as role models.

—       The employee makes the comparisons in terms of the boss’s competences (education, skills, age, etc.), and then develops the courage that he/she can also be a boss of her/his own.

—       However, on the contrary there is also an observation that it is employees of large firms who are more exposed to wider experiences, which in turn motivate them to start small firms.

(4) The social development model (Gibb and Ritchie, 1981)

—       The main theme here is that entrepreneurs can be whole understood in terms of the types of situations they encounter and the social groups into which they relate.

—       The argument is that entrepreneurial behaviour is made and shaped by the society.

—       Nevertheless, the theory is criticized on the grounds that it downplays the role of the individual as being central to the entrepreneurial process.

—       Moreover, it is challenged in that its ability to predict success is not apparent.

iii. Social background, economic, and environmental factors

A number of other variables (at both micro and macro levels) are put forward as antecedents of entrepreneurial behaviour.

These include:

(1) At a micro level (individual level)

—       Age – in connection with this variable individuals within the age group of 30-40 are more likely to do well in entrepreneurship

—       Ethnicity -  this is based on the social marginality theory

—       Marital status – relative to unmarried people, married people are placed in a better position. However, this variable goes hand in hand with the age factor.

—       Education – here there are conflicting views about the role of education in the entrepreneurial process - However, to a large extent it is agreed upon that education helps an individual in becoming a successful entrepreneur

—       Experience (accumulated skills and knowledge)

Three types of experiences are often mentioned:

                - Industrial expertise (technical know-how)

                - Managerial expertise

                - Entrepreneurial experience

However, the experience factor is closely related to other factors such as role modeling and age.

(1) At a micro level (individual level)

Gender

Male and female entrepreneurs are considered differently, with men being given better chances. This is subject to cultural backgrounds that disfavor women, but with the ongoing reforms in social relations the differences are expected to diminish.

(2) At macro level (Environmental factors)
The focus is on factors that pose both opportunities and threats to entrepreneurs. These include:

The economy – government policies and their influences

- Undeveloped infrastructure

- Availability of relevant information

- Access to finance

- Access to large markets at favorable terms

- Employment and unemployment levels

Dominant values

-The predominant culture’s perception of entrepreneurs and entrepreneurship

- Individuality tendencies versus social ties and their influences

Conclusion

It is worth noting that Entrepreneurial behavior can never be explained by focusing on any one perspective, be it psychological, social or environmental. Instead, we can be in a better position if we focus on the way the above perspectives complement each other.