Entrepreneurship Theory

Perspectives on Entrepreneurship

Scholars from different disciplines have come up with agendas or ways of exploring the concept of entrepreneurship and entrepreneur. The perspective have emerged over many years and taken together they provide us with valuable insights into the role of the entrepreneur and the nature of entrepreneurship. The perspectives can be broadly categorized into three;

1. economics
2. psychological
3. behavior/processual

Economics

Most of the extant theories of the entrepreneur were developed by scholars in the Austrian school of Economics which emphasized on the market processes or market dynamics and entrepreneurial discovery to understand the dynamic character of market and disapproves of the equilibrium models of markets.

The Austrian school of economics observe that the standard neoclassical micro-economics for which the general equilibrium model is the analytical core, fails to offer a satisfying theoretical framework for understanding what happens in the market economies.

Psychological

In the 1960s a rather different perspective on entrepreneurship emerged. There was a switch from the focus on the function of entrepreneur within an economic system to instead look at the individual. 

This body of knowledge suggested that certain individuals had a particular aptitude for entrepreneurship by virtue of certain distinctive personality “traits’. Some of these traits are the need for high achievement, high internal locus of control etc. 

The psychological perspective focuses on discovering and enumerating a set of stable characteristics describing this personality type i.e. locus of control, need for achievement, risk taking propensity While many successful entrepreneurs, especially those who come across as “heroic” figures do possess many of these characteristics, the place of personality within entrepreneurship has been the subject of extensive critical comments.

Behavioral or Processual

The criticism leveled against the psychological perspective which focuses on the individual has led some researchers to look at the broader context within which entrepreneurship takes place. The behavioral perspective is directed at exploring business behavior and business context. These have looked at factors such as ethnicity, gender, occupational background, culture and family structure related to entrepreneurial activity. The behavioural/processual perspective focuses on why some individuals are more likely than others to bear uncertainty , undertake the process of creating an organisation to pursue possible opportunities for profit irrespective of the resources they currently control. Behavioural view focuses on the process of creating an organisation and an entrepreneur is viewed in terms of what activities or roles he/she undertakes to enable the organisations come into existence and exploit an opportunity.

Entrepreneurship Process

Entrepreneurship involves a number of activities to create and manage an enterprise profitably. An entrepreneurial process includes all activities and actions that an entrepreneur takes to identify and evaluate an opportunity, develop a business plan and mobilize resources to create and manage a new venture. There is need for you to know the activities which are part of the entrepreneurial process.

Activities are which are part of entrepreneurial process

1. Identifying an opportunity
2. Innovation & creativity
3. Getting resources
4. Creating & growing a venture
5. Taking risks
6. Being rewarded
7. Managing the business

The entrepreneurial process is one through which a new venture is created by an entrepreneur. This process results from the actions of the entrepreneur in bringing the resources together to form the organization in order to pursue an opportunity. While some scholars have focused on activities, others have identified five phases in the entrepreneurial process:

Phases in entrepreneurial process

1. Identify and evaluate an opportunity
2. Develop a business plan
3. Determine resources required
4. Start and manage an enterprise
5. Manage growth of the business

Another way of understanding the entrepreneurial process is to broadly categorize the various activities into two processes, namely discovery process of opportunity and exploitation process. The exploitation process is about how entrepreneurs actually organize and coordinate resources and activities to turn a business idea into an enterprise and get rewarded for it.

Motivational Factors for Becoming an Entrepreneur

Entrepreneurship is not always seen as a desirable career choice for many people in different countries. Many people are forced to become entrepreneurs due to a number of reasons.

Reasons for becoming an entrepreneur

1. Loss or lack of employment as source of income. These individuals do business with expectation to get same or more money than the salary they used to get as an employee. They do not have patience and perseverance to allow business to grow before one starts to enjoy profits. They expect business to be profitable within the shortest period possible. They gradually eat the capital or may stop or reduce business activity once there is an offer of employment.
2. Imitating or copying others who are doing well in a particular business and hoping they will succeed too. Imitating a business is easy, but what is difficult is imitation of the entrepreneurial skills to succeed in a particular business. “Me to” businesses do not last. It is important to align business opportunities with individual skills and interest for business to last and grow.
3. To keep or increase money as they think business is a good means to easily generate money. These people often do not realize that business success does not only involve money, but also entrepreneurial skills, managerial skills, marketing and financial management skills as well. Money alone is not enough to do a successful business. When people have money, they need to identify and evaluate business opportunities, draw well researched business plan, and understand the market well.
4. Just because they want money, some entrepreneurs do not care if the needs of the customers are met. Consequently, customers become dissatisfied and choose alternative providers of same or similar product or service.

Doing business with wrong reasons leads to business failure. The main reasons or forces that cause individuals to become entrepreneurs can be classified as either necessity (push factors) or opportunity (pull factors) of entrepreneurship. Before explaining these factors, it is key to discuss the concepts of opportunity and necessity entrepreneur.

Concept of Opportunity Entrepreneur

An opportunity entrepreneur is the one who take advantage of business opportunities and therefore start a business due to a gap spotted in the market. This type of an entrepreneur is normally pulled towards entrepreneurship. An opportunity entrepreneur is patient, determined and motivated by an opportunity to do successful business. They often do not lack sources of income.

Concept of Necessity Entrepreneur

People who start business because they do not have any options are usually pushed towards entrepreneurship. Some of the factors which push people into entrepreneurship include unemployment, job insecurity, and disagreement with management. 

Individuals pushed into entrepreneurship are referred to as necessity entrepreneurs. They are motivated by necessity. It is common that necessity entrepreneurs stop their business or redirect their focus and effort once they get an alternative and relatively assured source of income (e.g. employment) or suffer from low tenacity or lack of persistence.