Entrepreneurship Theories

Mathew Hayward and colleagues (2006) introduce a Hubris Theory to entrepreneurship. Their aim is to explain why so many new ventures are started despite a very high background failure rate. After all, most businesses fail within the first few years of founding. So why do entrepreneurs keep trying to create new ones? The theory suggests that individuals overestimate the personal wealth they may attain by starting new ventures. The Mechanism: Overconfidence The theory assumes that individuals have information about their likelihood of success, but think that they can "beat the odds." The theory hangs on the idea of confidence. More confident individuals have the bravado to be able to start businesses and allocate resources in challenging situations, while less confident individuals may not be moved to start ventures or grow them. The Double-Edged Sword While confidence drives entry, it can be detrimental to operations. The Risk: Hayward and colleagues (2006) s...

Critical Theory: Challenging the Myth of the Heroic Entrepreneur Most entrepreneurship literature takes a "functionalist" perspective: it assumes an objective reality where success is purely a result of hard work and rational economics. Critical Theory argues that this view is a lie. Attributed to Max Horkheimer (1937) and the Frankfurt School of sociology, Critical Theory combines Marxian and Kantian ideas to critique society. It aims not just to explain the world, but to change it. The Goal: Emancipation Critical theorists aim to liberate humans from the circumstances that enslave them—including the ideological chains of capitalism. Alvesson and Willmot (1992) define this goal as: "Emancipation describes the process through which individuals and groups become freed from repressive social and ideological conditions, in particular those that place socially unnecessary restrictions upon the development and articulation of human consciousness." ...

One of the most popular pre 1900 theories of entrepreneurship is the "Great Man Theory." The theory's popularity is primarily owed to the historian Thomas Carlyle. While the name sounds archaic today, we can stretch the meaning to "Great People Theory" to analyze its impact. Great people theories are often heard in historical tales of WW2, with figures like Churchill, Eisenhower, and Roosevelt leading the way. In the business world, this narrative pits Bill Gates against Steve Jobs in the battle for the PC, often ignoring the thousands of others involved. Definition of Great Man Theory The Great Man Theory holds that most of the important decisions about how the economic and political world works today were made by just a handful of people. These gifted individuals are viewed as the heroes and heroines of every age. The Assumption: Born, Not Made A core assumption of this theory is that great people are born, not made . They are born with a special gif...