Entrepreneurship Theories

The Stakeholder Theory of Entrepreneurship: Beyond Shareholders A stakeholder approach to entrepreneurship has roots in a debate that occurred between professors Ron Mitchell and S. Venkataraman in 2002, regarding the connections between stakeholder theory (Freeman, 1984) and entrepreneurship. Historically, stakeholder theory was born out of studies of large corporations managing their stakeholders to improve incumbent firm performance. It had not been fully applied to the entrepreneurship area to explain entrepreneurial behaviors, processes, or outcomes. Background: What is Stakeholder Theory? Proposed by R. Edward Freeman in 1984, Stakeholder Theory challenged the "Shareholder Primacy" view (the idea that a company’s only purpose is to make money for owners). Freeman argued that a firm’s survival depends on any group or individual who can affect or is affected by the achievement of the organization's objectives. In an entrepreneurial context, this means a foun...

Ambiguity tolerance theory can be traced back to Polish psychologist Else Frenkel-Brunswik , whose work in 1949 focused on authoritarianism and ethnocentrism in children. Ambiguous information is everywhere. For many, it leads to the conclusion that there is "no way out," no way to understand, or no viable way to proceed. The decision-making process can become paralyzed by ambiguity that prevents conclusive prescriptions. The Entrepreneurial Advantage When there exist high levels of uncertainty about a particular entrepreneurial venture, those individuals who exhibit higher levels of tolerance of ambiguity are more likely to succeed. The ability to tolerate conflicting information and deal with missing information makes the difference. The more uncertain a particular business opportunity, the more important this trait becomes: Traditional Industries (e.g., Restaurants): Market information is generally consistent and known. New Industries (e.g., Tech): Marke...

The Individual-Opportunity Nexus: Are Opportunities Found or Made? There is a long-standing debate in academia about the origins of business ideas. Do entrepreneurs create opportunities through sheer willpower, or do they merely discover gaps that already exist? Scott Shane and Jonathan Eckhardt (2003) argue firmly for the latter. Their theory, the Individual-Opportunity Nexus , proposes that opportunities are objective phenomena that are found, not made. Defining the Opportunity According to this theory, the foundation of entrepreneurship relies upon the objectiveness of opportunities. If opportunities were just hallucinations of founders, the field would be on shaky ground. "[W]e define entrepreneurial opportunities as situations in which new goods, services, raw materials, markets, and organizing methods can be introduced for profit." — Eckhardt and Shane (2010) The Core Argument: Discovery Theory This theory places Shane and Eckhardt in the ...

Necessity vs. Opportunity Entrepreneurship: Push or Pull? Not all startups are created equal. While popular media celebrates the visionary founder who leaves a cushiony job to change the world, the reality of global entrepreneurship is far more diverse. Scholars (Harding et al., 2002) divide entrepreneurs into two distinct categories based on motivation: Necessity and Opportunity . This is often referred to as the "Push vs. Pull" theory. The Two Types of Motivation Basically, if you have one of these two motives, you are statistically more likely to become an entrepreneur. However, the economic impact of your venture will differ significantly depending on which one drives you. 1. Necessity Entrepreneurship ( The "Push") These individuals start businesses because they have no other choice. They cannot find a decent job, or they have been fired. They are "pushed" into self-employment to survive. Goal: Income replacement and survival. ...

What is the Disagreeableness Theory of Entrepreneurship? In his book David and Goliath (2013) , Malcolm Gladwell introduces disagreeableness as a key attribute of entrepreneurs. Gladwell explains this not as being rude, but as a psychological capability: not needing the social approval of peers . Most people are naturally influenced by critical feedback. If a friend or family member says "that is a bad idea" and you stop, you are demonstrating "agreeableness." In contrast, a successful entrepreneur often requires a specific kind of social resilience to ignore that feedback. The IKEA Example: Risking Disapproval Gladwell cites Ingvar Kamprad, the founder of IKEA , as a prime example. Kamprad pioneered outsourcing production to Soviet periphery states during the height of the Cold War. At the time, this was seen as unpatriotic and a terrible idea by his peers in Sweden. In this case, the entrepreneur was not afraid of being criticized or soc...

Cluster Theory: Why Startups Flock Together Why do technology firms congregate in Silicon Valley? Why are movie studios in Hollywood and finance firms on Wall Street? For decades, researchers have debated the Cluster Theory of Entrepreneurship . The central question is: Do clusters form because of entrepreneurship, or do clusters create entrepreneurs? What is a Business Cluster? A cluster refers to a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. According to Delgado, Porter, and Stern (2010) , these clusters are not just random collections of companies; they are engines of economic efficiency. The "Spinout" Mechanism How do clusters actually grow? The primary mechanism is the Employee Spinout . Spinouts occur when employees leave an existing firm to start a complementary or competing independent venture. Berchicci, King, and Tucci (2011) found that half of all spinouts choose to stay ...

The Harvard School Theory: Entrepreneurship as Strategy While some theories view entrepreneurship as a personality trait (Psychology) or a market function (Economics), the Harvard School Theory views it as a strategic process. Often described as a Process Theory , this framework argues that entrepreneurship is not about "magic" or "luck," but about the rigorous analysis of internal and external forces. The Core Definition Pradhan and Nath (2011) define the Harvard School approach as: "All such activities that initiates, maintains and results in a profit oriented enterprise for production or distribution of economic goods or services and which is consistent with internal and external forces." In simple terms: Successful entrepreneurship happens when a founder finds a "Strategic Fit" between what they *can* do (Internal) and what the market *needs* (External). [Image of SWOT analysis diagram] The Two-Step Analysis Accor...

What is the Impulsivity Theory of Entrepreneurship? Impulsiveness refers to taking action without thinking about it first and without considering all available data before deciding. In the context of business, Wiklund, Patzelt and Dimov (2016) state that: "Acting without thinking is characterized by rapid decision making in situations that would seem to require extensive analysis and deliberation." They explain that individuals need to act impulsively in some entrepreneurial conditions because deep analysis is often impossible due to uncertainty, ambiguity, and urgency. Rather than succumbing to analysis paralysis , impulsive entrepreneurs take leaps of faith that others are not willing to take. The Link Between ADHD and Entrepreneurship Attention-Deficit/Hyperactivity Disorder (ADHD) is usually considered a problem that needs to be treated. For instance, many parents medicate their children to combat the negative effects of the disorder...