Entrepreneurs see issues as new opportunities to investigate a new product, new mechanism, new ideas, and innovation. Their main drive is to discover something new every day, or to discover a new part of oneself. Steve Jobs’ entrepreneurial spirit led him to alter the technology and communication industries with his incredible product brand Apple, where the iPhone was originally released.

In a nutshell, entrepreneurship is the acceptance of challenges and the development of inventive solutions to them. Entrepreneurship is concerned with the creation of your startup and the desire to pursue your dreams/hobbies as a career. An entrepreneur is someone who owns and operates their own business.

Scholars who are constantly researching the enormous topic of entrepreneurship based on anthropology, sociology, economics, psychology, and many other disciplines characterize entrepreneurs in a variety of distinct ways. Here is a list of the top entrepreneurship theories you should be aware of because they provide better insight and clarity for aspiring entrepreneurs.

Psychological Theories of Entrepreneurship

Psychological trait theories of entrepreneurship contend/state that certain attitudinal and psychological attributes differentiate entrepreneurs from non-entrepreneurs, and successful entrepreneurs from unsuccessful ones.

These theories include:

• Need for achievement (n-ach) and power by McClelland, 1961.
• Locus of control by Rotter, 1966
• Psychodynamic model by Kets de Vries and
• Risk taking propensity.

Need for achievement model.

This theory contends/states that people desire to achieve something for their inner feeling of accomplishment.

Observations/Criticisms

– This theory has been criticized due to the following;

• The theory is contradictory and it has a limited evidence
• It holds true to some cases while to other cases it is not
• It has no direction of causality
• The theory may be related to the Western culture where personal achievement is very much appreciated by society compared to other cultures.
• It is limited only to business people while other people also show that behavior.

Locus of control

This theory contends/states that there is a degree to which one believes that he/she is in control of one’s destiny. This can either be internal or external.

Internals: The internals believe that what happens to them is a result of their internal efforts whether it is good or bad.

Externals: These believe that whatever happens to them is a result of external factors whether good or bad.

Therefore the theory contends that internals are more successful in business than the externals.

Observations/Critics

– This theory correlates to n-ach i.e. people who are internals are the ones who need for achievement more than the externals.

– There is limited research support of this theory.

– Other people are also internals but do not run businesses e.g. Presidents or Priests.

– Direction of causality i.e. some people tend to work harder when getting success thus becoming internals.

– Culture and belief system; i.e. there are societies whose belief system makes them more externals. E.g. those who believe that GOD will do everything for them. This belief also affects witches and those beliefs in witchcraft.

– Being internal is not always better i.e. you cannot be in-charge of everything such as weather and other peoples’ behavior. In this case, you should be pragmatic and note that there are certain things that you cannot control (are beyond your control).

Psychodynamic model

This was propounded by Kets de Vries. This says that people tend to be self-employed and become successful because of a “troubled childhood”. In troubled childhood, children tend to be lacking, security or abuse, low self-esteem, lack of confidence. Therefore growing in such an environment some people do have repressed wishes towards those in control.

This condition/situation occurs when a child has been brought up in either of the following conditions/situations:

• Loss of one or both parents
• Broken marriages
• Extreme poverty
• Refugees, and
• Child abuse

In this case, when these children grow up they exercise what is called “innovative rebelliousness” by starting and running their own firms. This is also true due to the fact that being rebellious she/he cannot fit in any organization as she/he will not like the structural environment. In this situation such kids have;

• averse to structures
• to get away from commands, and
• to be away from control of anybody

Observations/critics

– This theory explains the behavior of extreme category of people leaving out the rest.

– Some people with similar background do not show innovative rebelliousness. Some tend to be criminals and/or drug addicts or alcoholics.

Risk taking propensity

This theory contends about one’s willingness to accept risk. People who are more likely to accept risk and taking chances are more likely of being self-employed than those who do not take risk.

Observations/Criticism

– People tend to say that “they take the profit and pass the risk to someone else”.

– People who take risks normally take a “calculated risk” and do not gamble.

– People who are success in business are moderate risk takers.

– It has been suggested that being NOT innovative or NOT producing a new product is more risky. That is, idleness is more risky than ever.

– Risk is not only a financial loss, but also image loss or loss of relationship with other people in the society.

Sociological Theories of Entrepreneurship

These theories suggest that entrepreneurial behavior is a function of the individual’s interaction with the society. Sociological models that have received significant empirical support are the inter-generation inheritance of enterprise culture, social marginality and ethnicity.

Social marginality model

This theory suggests that individuals who perceive a strong level of incongruence between their personal attributes and the role they hold in society will be motivated to change or reconstruct their social reality. While some people may reconstruct their reality by changing careers or employers, others may choose self-employment.

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‘Marginal men” are referred as individuals who are less integrated in their society. Since marginal men are not completely part of the society of their adoption, they are free of the restrictions imposed by its value system. At the same time, having left their own society, they are no longer constrained by its dominant values. This situation gives way to the development of unconventional patterns of behavior, which increases their propensity to become entrepreneurs.

Observations/Criticism

– It has been observed that being marginal is not sufficient explanation for the over-representation of certain people in entrepreneurship carriers e.g. Hispanics and Africans are underrepresented in entrepreneurship despite them being marginal.

– Aggressiveness and co-operation is among things in which marginal people tend to have.

Ethnicity

An ethnic origin of a person is said to influence the choice between paid employment and self-employment as well as performance in self-employment. Evidence of over-representation of certain ethnic groups in business carriers abounds throughout the world.

The ethnic groups often quoted in the literature as being overrepresented in entrepreneurship include Ibos in Nigeria, Kikuyus in Kenya and Chagga in Tanzania. All of these are spread in different parts of their countries in which they overepresented in entrepreneurial careers. To this extent, they are less integrated in the societies in which they work and therefore less likely to be constrained by dominant values shared either by their own ethnic group or by their hosts.

Observations/Criticism

– It has been found that, even members of these groups (Ibo, Kikuyu and Chagga) who have remained in their homelands are quite active in entrepreneurship. Therefore their cultures must have influenced their entrepreneurial behavior rather than ethnicity.

Inter-generational inheritance of enterprise culture via role modeling.

This theory purports that entrepreneurial practice is largely inherited. Accordingly, offspring’s of entrepreneurial parents are more likely to be entrepreneurs and be more successful compared to others. It has been further suggested that a strong grounding in business and ownership ethic at an early age is a useful and powerful driving force for children as they choose their future carriers.

A person, who grows up around a family that runs a business is likely to benefit from the skills, accumulated experiences and networks of existing firm. She or he is likely to have better access to advice, credit, established markets and sources of inputs. The fact that these will make it easier to start a business may be a big encouragement to those associated with businessmen.

Observations

– Several researches supports this theory, however the study done on female entrepreneurs found that most of them were first generation entrepreneurs and none of their parents have been running their own business.

– Other studies also found that there is no significant difference between entrepreneurs and managers in terms of having self-employed parents. However this is the most supported sociological model.

Small firms as role models

It has been observed that employees who work in small firms are more likely to become self-employed and be successful. This is because it is easier for them to envision having the role of the owner.

Some business owners become mentors by telling their workers why not start their own businesses like them. Existing small business can support people by either selling products or buying their products.

Social development model.

This theory contends that it is the transactions with different context in one’s life and career that shape one’s propensity to be self-employed. These are factors, which start in early, middle or late life.

Observations/Criticism

– This model cannot be tested

– It assumes that behavior is a factor of social events only, a issue that is criticized by most people.

– It stereotype people by group them in certain categories in life.

2.3 Socio-economic Factors and Small Firms Performance.

Socio-economic background factors that have received both research interest and empirical support are type and level of education and occupational experiences. In comparison to sociological variables, socio-economic background factors lend themselves more readily to objective measurements.

2.3.1 Level of education

Two conflicting hypotheses have been proposed regarding the role of education in the entrepreneurial process. The first is that formal education can operate as an impediment/hindrance to entrepreneurship because, rather than develop creative thinkers, it fosters c onformity and low tolerance for ambiguity, leading to thought and behavior process that refuse to admit tolerance, and social values that preclude “ getting one’s dirty”.

The alternative arguments is that education is seen as capable of developing competencies required in an entrepreneurial venture including creativity, curiosity, open mindedness, good interpersonal skills and technical know-how.

Some studies conducted in USA and Australia found that there is a probability of entry into self-employment to increase with the level of education.

Observation/Criticism

– It has been observed that education may have different influences on performance depending on context and how performance is defined.

– It has also been found that education can be positively related to growth, but negatively to rate of profits. The relationship between education and performance is therefore still an unsettled issue.

2.3.2 Entrepreneurship education

It is generally agreed that there is a positive association between taking entrepreneurship courses and becoming self-employed. It has been also found that students who take entrepreneurship majors tend to be less conforming, more impersonal, more risk taking, more welcoming of change, have a higher energy level, a profile similar to that of successful entrepreneurs.

Entrepreneurship courses may attract those who have entrepreneurial qualities or, alternatively, move students towards entrepreneurial archetype by challenging assumptions and encouraging the development of competencies required.

Observations/Criticism

– The relationship between taking entrepreneurship courses and interest or success in entrepreneurial careers is a bit unclear.

2.3.3 Experience

There are three types of experiences that are considered to be important in determining entrepreneurial success;

1. Industrial (technical or market) expertise;

2. Management expertise; and

3. Entrepreneurial experience.

An individual’s managerial experience as well as previous entrepreneurial experience is considered to be incentives for one to become a successful entrepreneur. Previous experience as an entrepreneur is also likely to give one leads and confidence in venturing into a new firm. It has also been found that management experience provides contacts, information about business regulations and procedures, people skills and confidence, all of which are useful in setting up and running a business successfully.

Observations/Criticisms

– It has been found that in societies where those who are self-employed are looked down upon, those with senior management experience may not be attracted to entrepreneurship.

Socio-economic Factors and Small Firms Performance.

Socio-economic background factors that have received both research interest and empirical support are type and level of education and occupational experiences. In comparison to sociological variables, socio-economic background factors lend themselves more readily to objective measurements.

Level of education

Two conflicting hypotheses have been proposed regarding the role of education in the entrepreneurial process. The first is that formal education can operate as an impediment/hindrance to entrepreneurship because, rather than develop creative thinkers, it fosters c onformity and low tolerance for ambiguity, leading to thought and behavior process that refuse to admit tolerance, and social values that preclude “ getting one’s dirty”.

The alternative arguments is that education is seen as capable of developing competencies required in an entrepreneurial venture including creativity, curiosity, open mindedness, good interpersonal skills and technical know-how.

Some studies conducted in USA and Australia found that there is a probability of entry into self-employment to increase with the level of education.

Observation/Criticism

– It has been observed that education may have different influences on performance depending on context and how performance is defined.

– It has also been found that education can be positively related to growth, but negatively to rate of profits. The relationship between education and performance is therefore still an unsettled issue.

Entrepreneurship education

It is generally agreed that there is a positive association between taking entrepreneurship courses and becoming self-employed. It has been also found that students who take entrepreneurship majors tend to be less conforming, more impersonal, more risk taking, more welcoming of change, have a higher energy level, a profile similar to that of successful entrepreneurs.

Entrepreneurship courses may attract those who have entrepreneurial qualities or, alternatively, move students towards entrepreneurial archetype by challenging assumptions and encouraging the development of competencies required.

Observations/Criticism

– The relationship between taking entrepreneurship courses and interest or success in entrepreneurial careers is a bit unclear.

Experience

There are three types of experiences that are considered to be important in determining entrepreneurial success;

1. Industrial (technical or market) expertise;

2. Management expertise; and

3. Entrepreneurial experience.

An individual’s managerial experience as well as previous entrepreneurial experience is considered to be incentives for one to become a successful entrepreneur. Previous experience as an entrepreneur is also likely to give one leads and confidence in venturing into a new firm. It has also been found that management experience provides contacts, information about business regulations and procedures, people skills and confidence, all of which are useful in setting up and running a business successfully.

Observations/Criticisms

– It has been found that in societies where those who are self-employed are looked down upon, those with senior management experience may not be attracted to entrepreneurship.