Theories of Entrepreneurship

Theories of
Entrepreneurship
by-
Gauhar (084)
Neeraj (352)
01
McClelland’s Theory of Entrepreneurship
McClelland’s Theory of Needs
According to McClelland, entrepreneurs do things in a new and better way and make
decisions under uncertainty. Entrepreneurs are characterized by a need for achievement
or an achievement orientation, which is a drive to excel, advance, and grow. Theory
states that every person has one of three main driving motivators: the needs for
achievement, affiliation, or power. These motivators are not inherent; we develop them
through our culture and life experiences. Achievers like to solve problems and achieve
goals.He believed that entrepreneurship is learned and that such learning can be
encouraged fruitfully.
Need for Achievement:
This is the drive to excel, to achieve in relation to a set “standard, and to strive to
succeed. In other words, need for achievement is a Behaviour directed towards
competition with a standard of excellence. McClelland found that people with a
high need for achievement perform better than those with a moderate or low need
for achievement.
Through his research, McClelland identified the following six
characteristics of high need achievers:
1. High need achievers tend to set moderately difficult goals and take calculated risks.
2. High need achievers have a strong desire for performance feedback.
3. They have need for achievement for attaining personal accomplishment.
4. They look for challenging tasks.
Need for Power (“n Pow”):
The need for power is concerned with making an impact on others, the desire
to influence others, the urge to change people, and the desire to make a
difference in life. People with a high need for power are people who like to be
in control of people and events. These result in ultimate satisfaction to man.
People who have a high need for power are characterized by:
1. A desire to influence and direct somebody else.

2. A desire to exercise control over others.
3. A desire for rank and social status
Need for Affiliation (“n Aff”):
The need for affiliation is defined as a desire to establish and maintain friendly
and warm relations with other people. The need for affiliation, in many ways, is
similar to Maslow’s social needs.
The people with high need for affiliation have the following
characteristics:
1. They have a strong desire for acceptance and approval from others.
2. They tend to conform to the wishes of those people whose friendship and
companionship they value.
3. They value the feelings of others.
02
Schumpeter’s Theory of Entrepreneurship
Schumpeter’s Theory of Innovation:
Joseph Schumpeter propounded the well-known innovative theory of entrepreneurship.
Schumpeter takes the case of a capitalist closed economy which is in stationary
equilibrium. He believed that entrepreneurs disturb the stationary circular flow of the
economy by introducing an innovation and takes the economy to a new level of
development. The activities of the entrepreneurs represent a situation of disequilibrium
as their activities break the routine circular flow.Innovations of entrepreneurs are
responsible for the rapid economic development of any country.Talking about
innovation, he referred to new combinations of the factors of production, Schumpeter
had assigned the role of innovator to the entrepreneur, who is not a man of ordinary
managerial ability, but one who introduces something entirely new.
Innovation could involve any of the
following:
1. Innovation of new products.
2. Innovation in novel methods or processes of production.
3. The opening up of a new market.
4. Entrepreneurs might find new source of supply of raw materials
5. Innovation in management. This means reorganization of an industry.
Schumpeter’s theory criticisms:
1. Critics feel that the theory over emphasized on innovative functions of the
entrepreneur. It ignored the organizing aspects of entrepreneurship.
2. Schumpeter had completely ignored the risk-taking function of the entrepreneur, which
cannot be ignored. Whenever an entrepreneur develops a new combination of factors
of production, there is enough risk involved.
3. The theory is more applicable in developed countries only. In developing countries
there is a paucity of innovative entrepreneurs.
4. The theory does not provide the explanation as to why few countries have more
entrepreneurship talent than others. Despite of all the above criticisms Schumpeter’s
theory is considered as a landmark in the expansion of entrepreneurship theories.
03
John Kunkel’s Entrepreneurial Behaviour

Theory
An overview:
Kunkel’s theory is concerned with the expressed activities of individuals and their
relations to the previous and present surroundings, social structures, physical
conditions and behavioural patterns determined by reinforcing and opposing
present in the context.
Hence, entrepreneurial behaviour is a function of surrounding and social struc

tures, both past and present and can be readily influenced by the manipulative
economic and social incentives.
Four types of structure for the development of
entrepreneurship:
1. Demand structure,
2. Opportunity structure,
3. Labour structure,
4. Limitation structure
1. Demand Structure- The demand structure is of economic nature. This structure is
changing day by day according to economic progress and government policies. The
behaviour of individual can be made enterprising by affecting the main elements of demand
structure.
2. Opportunity structure- The opportunity structure is formed by combination of supply of

capital, managerial and technical skill production methods, labour and market, training
opportunity establishment of an enterprise and conducting different activities.
3. Labour structure- The labour structure is directed by several factors such as source of
livelihood, traditional outlook and life ambitions. The quality of labour influences the
emergence and growth of entrepreneurship.
4. Limitation structure- We can say that the limitation structure is social and cultural. This
structure affect the development of an entrepreneur.
Criticisms
The theory assumes the ideal structures for the supply of entrepreneur. But
generally there is discrepancy between objectives, structures and the actual
incidence of entrepreneurs. It is due to the fact that there are inadequate or
incorrect perception. In practice, entrepreneurship is also governed by the specific
combination of circumstances which are generally not available in the
environment.
Thank you!

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Theories of Entrepreneurship

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Theories of

1. A desire to influence and direct somebody else.

John Kunkel’s Entrepreneurial Behaviour

Hence, entrepreneurial behaviour is a function of surrounding and social struc

2. Opportunity structure- The opportunity structure is formed by combination of supply of

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Theories of Entrepreneurship

Uploaded by

Copyright:

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Theories of Entrepreneurship

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Theories of Entrepreneurship

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Theories of

1. A desire to influence and direct somebody else.

John Kunkel’s Entrepreneurial Behaviour

Hence, entrepreneurial behaviour is a function of surrounding and social struc­

2. Opportunity structure- The opportunity structure is formed by combination of supply of

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Hence, entrepreneurial behaviour is a function of surrounding and social struc