1. Chapter 2
Theories of Entrepreneur

2. Introduction
• Theory: a conceptual framework for organizing
knowledge and providing a blueprint for action.
• Different theories regarding development of
entrepreneurship have been introduced in
different times. All of which have emphasized
the importance of entrepreneurship
development. These theories also tried to keep
pace with the emergence of new entrepreneurs
and made the readers think how important
entrepreneurs are fir the social and economical
development of a country.

3. Psychological or Personal Theory
• The essence of this theory is the difference in
individuals’ attitude. All eminent psychologists
viewed that the attitude of one individual differs
from another. According to this theory, the
difference in attitude, i.e., the internal attitude
and ability to judge and forecast the situation
lead a man to become a successful
entrepreneur. Another group of famous
psychologists based on their studies stated that
Some special types of attitude, personality and
conceptual ability create entrepreneur and
entrepreneurship.

4. Achievement Motivation Theory
• The analysis of the economical advancement of
different nations shows that the nations, which
possess a great extent of achievement
motivation, made a significant economic
progress. It is the inner drive of individuals that
propels them to work more and to achieve
something for their own interest. Such peoples
show a tendency to take personal risk for social
establishment. They like to take moderate risks.

5. Characteristics of Achievement
Motivation Theory
• Take personal responsibility
• Moderate risk
• Seek feedback
• Sacrifice small interest for the sake of big
one

6. Power Motivation Theory
• Power generally refers to the authority to do a certain
task properly. Power is an inherent right of people.
Numerous scholars defined power in many ways.
DavidC. Mc Clelland explained that the desire of one to
have control over others is power. He also added that
power influences people and that influence makes a man
powerful. Power can be of two types:
• Personal power: related to self interest
• Social Power: related to social interest.
The collective interest are considered as power in this
case. Entrepreneurs usually seek personal power.
Leadership Power is democratic while the power of
entrepreneurs is always autocratic in nature.

7. Risk Taking Theory
• Richard Cantillon and John Stuart Mill,
introduced risk-taking theory which was later
ewctified by Economist Alfred Marshal in 1890.
The essence of this theory is that the
entrepreneurs should have the inclination to take
moderate risk and the ability to bear that risk.
Every society possess some people who are
willing to take risks and challenges. Some of
them tend to take a high extent of risk and some
prefer moderate ones. Again some stand totally
against taking any risk.

8. Risk Taking Theory
• People taking a very big risk also have a great
responsibility. They bear some similarities with
entpreneurs. So people who have the tendency
to take risks can be dubbed as entrepreneurs.
• Some economists viewed that the most
important task an entrepreneur perform is taking
risk and challenging work. But psychologists
disagreed with this view. They describe that risk
taking is the main characteristics of
entrepreneurs. Economists explained that the
entrepreneurs must have the ability to take risk.

9. Risk Taking Theory
• On the other hand, psychologists viewed
that entrepreneurs should bear the
mentality to take risk. The first one is
denoted as the results of being an
entrepreneur and the second one is
termed as the cause. Economist do not
find any boundary of taking risk while
psychologist's thought that there should
be a limit within which the entrepreneurs
would take risk.

10. Internal External Locus of Control
• Prof. J. D Rotter of Ohio University is the
theory. Locus of control is or two types:
2. Internal
3. External
Human being is the product of the
society, and social situation determines
whether a person will be externally or
internally oriented of not

11. Internal Locus of Control
• Internal locus of control could be define as
self confidence, extreme belief over one’s
ability and power. For example, if a person
invests money in a business undertaking
believing and thinking that he/s will bne
able to yield an expected return, we can
call him/ her an internal locus of control
oriented person.

12. External Locus of Control
• If an individual thinks that everything is out of his/her
control, then the person’s locus of control is external.
Values, beliefs, traditions fall under external locus of
control.
• Internal external locus of control theory highlights the self
confidence of a person, the dependency on fortune and
external environment. Entrepreneurs who have a high
quality of self-confidence want to be controlled by
himself/herself. But various studies showed that most of
the entrepreneurs emphasized on their activities and
their luck equally for the success and the failure.

13. Creativity or Innovation Theory
• Creativity is concerned with the origin of new
and fundamental ideas or views. Creative
individuals use their talents, thinking ability etc.,
to create something new and with the help of
various techniques they bring new ideas into
practice. The physical performance is the
determinant to evaluate whether an individuals is
creative or not. A person who has creativity an
innovation capacity must do something new
which is meaningful not only for him/her but for
the society as well.

14. Creativity or Innovation Theory
• Creativity may be of two types;
II. Creating something new which was
never done invented by others.
III. Presenting an old idea in a new form.
That is, to invent some new use of an
old thing or idea.

15. Sociology- Anthropology- Cultural
Theory
• Sociological theory is concerned with social
condition, while anthropology theory is
concerned with culture. Anthropology deals with
the culture of people. The socio-cultural factors
have a substantial influence in creating
entrepreneurs as well as entrepreneurship.
Many psychologists disagree as they view that
only intention and mentality act in creating
entrepreneurs. But the influence of socio-cultural
factors cannot be totally discarded.

16. Sociology- Anthropology- Cultural
Theory
• Because the are instances where people
have become entrepreneurs due to social
reasons. Generally, society creates
comparatively more entrepreneurs where
the opportunity to do anything's, other
than deal in trade and commerce, is to
some extent restricted.

17. Sociology- Anthropology- Cultural
Theory
• There are some socio-cultural motives or
factors that act in creating entrepreneurs.
These factors or variables are described
below:
– Traditional values and modern Values
– Religious values

18. Background Factors Theory
• Studies show that personal traits or background
factors determine entrepreneurs. These factors
are:
– Age
– Education
– Family background
– Community
– Peer group relations
– Honesty
– Birth order
– Child rearing practice
– Work experience