Expectancy Theory of Entrepreneurship
What is the Expectancy Theory of Entrepreneurship?
Expectancy theory was originally developed to explain work motivation and organizational behavior (Kanfer, 1990). However, it has since been used to explain additional behaviors, including the decision to enter into entrepreneurship.
Understanding Vroom's Equation
Expectancy theory begins with the concept of motivational forces that Victor Vroom (1964) expressed as a specific equation:
In this formula:
- V = Valence: The value an individual places on the outcome of their efforts (such as financial rewards or prestige).
- I = Instrumentality: The belief that if an individual meets performance expectations, they will actually receive the reward.
- E = Expectancy: The belief or probability that an individual’s effort will result in the desired goal being achieved.
Note: Since the equation involves multiplication, it implies that if any one of these variables is zero, the total motivational force equals zero.
Applying the Theory to Entrepreneurs
When applied to the entrepreneurial context, specific factors influence the variables:
- Valence depends upon the individual’s desire for material rewards (profits) or psychic rewards (influence, ownership, power, autonomy).
- Expectancy is based on past experiences and feedback from others regarding their ability to start a venture.
- Instrumentality is often influenced by the environment. For instance, if taxation is prohibitively high, the individual may believe that their venture—even if successful—will not yield sufficient monetary rewards.
Therefore, an individual will have the motivational force to pursue entrepreneurship as a career path only if they value the profits, believe they are capable of starting a business, and trust that the business will actually yield those profits (see Renko et al., 2012).
Watch: Expectancy Theory Explained
Sources:
Kanfer, R. (1990). Motivation theory and industrial and organizational psychology. Handbook of industrial and organizational psychology, 1(2), 75-130.
Renko, M., Kroeck, K. G., and Bullough, A. (2012). Expectancy theory and nascent entrepreneurship. Small Business Economics, 39(3), 667-684.
Vroom, V. (1964). Work and Motivation. New York, NY: Wiley.
