Theories of Entrepreneurship PDF

THEORIES OF ENTREPRENEURSHIP Scholars have put forward several theories to explain the field of entrepreneurship to help aspiring entrepreneurs succeed in their endeavours. Theories of entrepreneurship seek to explain why entrepreneurs behave the way they do. In addition, they explore the environme...

THEORIES OF ENTREPRENEURSHIP Scholars have put forward several theories to explain the field of entrepreneurship to help aspiring entrepreneurs succeed in their endeavours. Theories of entrepreneurship seek to explain why entrepreneurs behave the way they do. In addition, they explore the environmental and individual characteristics that influence entrepreneurial decisions. The following are some of the theories of entrepreneurship 1. Schumpeter's Innovation Theory Proposed by economist Joseph Schumpeter (1934), this theory emphasizes the role of innovation as the driving force behind entrepreneurship. Schumpeter highlighted the entrepreneur's role of innovation on products, processes, or business models that disrupt existing markets and create economic growth. He coined the term "creative destruction" to describe how entrepreneurial innovation leads to the replacement of outdated practices. 2. Resource-Based Theory Founded by Jay Barney and Birger Wernerfelt (1980s). This theory focuses on the role of resources and capabilities in entrepreneurship. It suggests that entrepreneurs with unique resources or skills have a competitive advantage in identifying and exploiting opportunities. Entrepreneurs leverage their resources to create value and gain a sustainable competitive edge. 3. Psychological Trait Theories Founded by Andrew C. Corbett and Jeffery S. McMullen (2007). These theories examine the personality traits and characteristics that differentiate entrepreneurs from the general population. Traits such as risk-taking propensity, need for achievement, self-confidence, and locus of control are often associated with entrepreneurial behavior. 4. Social Network Theory Founded by James Coleman and Barry Wellman (20th century, developed over time). Social networks play a vital role in entrepreneurship. This theory suggests that entrepreneurs with strong social networks can access resources, information, and support necessary for venture creation and growth. Networks provide access to mentors, investors, customers, and collaborators. 5. Risk Bearing Theory of Knight A major element of entrepreneurship is risk bearing. Prof. Knight and John Staurt Mill saw risk-bearing as an important function of entrepreneurs. Some of the essential features of this theory are as follows: i. Risk creates profit: According to the risk-bearing theory, the entrepreneur earns profits because he undertakes risks. ii. More Risk more gain: The degree of risk varies in different industries. Entrepreneurs undertake different degrees of risk according to their ability and inclination. The risk theory proposes that the more risk the nature of business, the greater must be the profit earned by it. iii. Profit as reward and cost: Profit is the reward of the entrepreneur for assuming risks. Hence, it is also treated as a part of the normal cost of production. iv. Entrepreneur’s income is uncertain: He identifies uncertainty with a situation where the probabilities of alterative outcomes cannot be determined either by a priori reasoning or by statistical inference. Importance of Entrepreneurship Theories 1. Entrepreneurship theories bring greater understanding of entrepreneurship behavior exhibited by different entrepreneurs. 2. They enable one to understand the need for entrepreneurship and why some people are more entrepreneurial than others. 3. The theories bring out various approaches and perception held by entrepreneurs. 4. Show that the desire for entrepreneurship is innate as well as environmentally determined. 5. Inspire entrepreneurs to think outside the box and develop novel solutions. Theories encourage the exploration of new ideas and approaches. 3.0 ENTREPRENEURIAL THINKING 3.1. Entrepreneurial thinking skills refer to the ability to identify marketplace opportunities and discover the most appropriate ways and time to capitalize on them. Sometimes, it is simply referred to as the ability to find and pursue the problem- solution fits. 3.2. Entrepreneurial thinking is the ability to see things differently than the rest of the world but, it is not necessarily an inherent trait and can be easily developed or improved. It is more like a state of mind that opens your eyes to new learning opportunities and helps you grow in your role. In addition, Entrepreneurial thinking is all about harnessing passions, skills, experience, knowledge and insights, resources and networks to spot and take advantage of opportunities at the right time and in the right way. 3.3. Critical thinking: Critical thinking is closely related to problem-solving, but it goes beyond that. As critical thinkers, entrepreneurs don't merely solve problems. They solve problems in the best way. Critical thinkers formulate a number of potential solutions to a problem and consider them all before deciding on the best one. Critical thinking is the ability to think in an organized and rational manner in order to understand connections between ideas and/or facts. It helps you decide what to believe in. In other words, it’s “thinking about thinking”—identifying, analyzing, and then fixing flaws in the way we think (Michael, 2021). The key critical thinking skills are: analysis, interpretation, inference, explanation, self-regulation, open-mindedness, and problem-solving. Critical thinking is important because it ensures you have the best answer to a problem, with maximum buy-in from all parties involved – an outcome which will ultimately save your business time, money and stress. 3.4. Reflective thinking At its core, 'reflective thinking' is the notion of awareness of one's own knowledge, assumptions and past experiences. It can be seen as the bridge back and forth between theory and practice and from prior experiences to future challenges. Reflective thinking is a dynamic process that continues to develop and evolve as you learn and respond to new experiences, situations, events or information. In practical terms, this is the process where you interpret and evaluate your experiences, check that they make ‘sense’ to you, create meaning, justify actions and solve problems, and it helps with your future planning. 3.5. Creative thinking A thorough observation of the entrepreneurial process shows that creative thinking is the must have “skill” of an entrepreneur for the creation of new ideas. Creativity allows a person to devise interesting processes, which gives so many advantages to entrepreneurs. Creative thinking is a way of looking at problems and situations from a fresh perspective. It is often called 'thinking outside the box' and is all about avoiding the more normal, the most orthodox, the prosaic solution, and instead thinking of innovative ways to tackle a problem.