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Showing posts from October, 2018

Hoselitz theory of entrepreneurship

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What is Hoselitz theory of entrepreneurship? Burt F. Hoselitz was a professor of economics at the University of Chicago. Hoselitz argues that entrepreneurship tends to come from socially marginalized groups in a given society. This is very similar to the withdrawal of status respect theory and the misfit theory of entrepreneurship, which both deal with marginalized populations.

Hoselitz assumes that entrepreneurship can only come out of a developed cultural base. Marginalized populations must be considered culturally developed in order to be considered eligible for entrepreneurship. He refers to entrepreneurship by marginalized groups as "pariah entrepreneurship".

U.S. Coast Guard Photo

Hoselitz claimed that his theory helps to explain to the highly entrepreneurial behaviors of Greeks and Jewish people in medieval Europe, Lebanese in West Africa, Chinese in Southeast Asia, and Indians in East Africa.

The concept of cultural development is ambiguous and potentially problemati…

Experiential learning theory of entrepreneurship

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What is the experiential learning theory of entrepreneurship?Learning involves the transformation of experience into potential knowledge, cognition, behaviors, and/or actions (Kolb, 1984). Experiential learning can be differentiated from rationalist (e.g., cognitive theories). Rather than emphasize the role of acquiring, manipulating, and recalling, experiential learning theory embraces subjective experience. 

Subjective experience can be of many different types. However, the concept of 'know-how' is useful here. Unlike knowledge, which is learned by language, know-how is acquired through experience, for instance, actually doing something in the real world, like taking an entrepreneurial action. 

Building on Kolb’s experiential learning model, Corbett (2005) argues that entrepreneurship requires several different types of learning (convergent, assimilative, divergent, accommodative) at different stages of the entrepreneurial process (preparation, incubation, evaluation, elaborat…

Prospect theory and entrepreneurship

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What is the prospect theory of entrepreneurship?Prospect theory was developed by behavioral economists Daniel Kahneman and Amos Tversky in the 1970s. Their aim was to better understand decision making processes by looking at how individuals assess the potential gains and losses from a decision separately. The most famous hypothesis tied to the theory is that most individuals fear losses more than they value gains.

The theory posits that when individuals think they are winning (gain domain frame), they become more risk-averse, whereas when they think they are losing (loss domain frame), they become inclined to take bigger risks to get back to a break-even position.

According to Hsu et al. (2017): "So essentially, whether a person frames a situation as associated with gains or losses influences his or her attitude toward engaging in risky behaviors such as reentering entrepreneurship." Entrepreneurs judge whether they are in a gain or loss position based on a reference point.…

Social entrepreneurship theory

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The concept of social entrepreneurship is relatively new and may not be thought of as a theory. It is more like a domain or niche phenomenon that may deserve attention.

According to Dees (2017), social entrepreneurship has largely emerged out of discontent with the performance of government and charitable organizations in tackling social problems. Governments are often underfunded, ineffective, and too political to do what is right for all. Charities are busy fighting for funds and justifying their existence and many successful such organizations use many of their donors funds for internal development purposes.

If governments and charities would be more effective at tackling poverty, health issues, and inequality, then there would not be a need for social entrepreneurs to try to pick up the slack. This is also a core idea in the stakeholder theory of entrepreneurship.

Social entrepreneurs bring market logic and business acumen to bear in combating social problems. They are change age…

Cantillon theory of entrepreneurship

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What is Cantillon's theory of entrepreneurship? The word "entrepreneur" has been traced back to Richard Cantillon, an Irish banker with French roots writing in the early 1700s, before Adam Smith.

Cantillon distinguished between entrepreneurs with nonfixed incomes and employees with fixed incomes. Cantillon considered the entrepreneurs as those who undertake to bear and overcome uncertainty by investing, paying expenses and hoping for a return. Cantillon viewed a wide slice of society as entrepreneurial because they bear uncertainty, including:

"All the other entrepreneurs, like those who take charge of mines, theaters, buildings, the traders by sea and land, restaurateurs, pastry cooks, innkeepers, etc., as well as the entrepreneurs of their own labor who need no capital to establish themselves, like journeymen artisans, coppersmiths, seamstresses, chimney sweeps, water transporters, live with uncertainty and proportion themselves to their customers. Master craftsm…

Real options theory of entrepreneurship

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What is the real options theory of entrepreneurship?Real options theory is concerned with investments in real assets that are similar in structure to financial options like put and call options that allow investors to bet on the upside or downside of stocks without tying up too much capital (Bowman and Hurry, 1993)

According to McGrath (1999), real options theory is supposed to be superior to net present value analysis and other time value calculations, especially under conditions of uncertainty. The fundamental idea behind real options theory is that an opportunity that has a way out is worth more that one that does not have a way out. For example, startups can be merged, one startup can be stripped of resources to help another, a team can be moved from one opportunity to another etc...
Thus, entrepreneurs and investors in entrepreneurial ventures are apt to view failure as a learning opportunity that contributes to the assessment of future projects. Real options thinking reduces t…

Life-cycle theory of entrepreneurship

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What is the lifecycle theory of entrepreneurship? A life cycle theory typically starts with the assumptions of birth, growth, maturity and decline. Life cycle theories are borrowed from biology where life cycles of flora and fauna are studied extensively. Thus, perhaps it is ok to think of this borrowing as a kind of analogy--imperfect, but potentially interesting.

By definition a life has a beginning and an end, which provides initial boundary conditions for the theory. What happens in between, or those inner-transitions, are where we are going to find most of the action in terms of debate.

Because of its close relationship to stage based theories, we will defer your attention there for further information.

Other biological theories that might interest you:

Birth order theory of entrepreneurship Brain parasite theory of entrepreneurship Genetic theory of entrepreneurship The Great Man theory of entrepreneurship



Cognitive evaluation theory of entrepreneurship

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Cognitive evaluation theory is a theory in psychology (part of self-determination theory) where it has been used to explain how external factors affect an individuals intrinsic or internal motivation. Events that increase (decrease) perceived confidence increase (decrease) intrinsic motivation.

Keh et al. (2002) borrow the theory to conduct a study of entrepreneurs and find that: "illusion of control and belief in the law of small numbers are related to how entrepreneurs evaluate opportunities." These authors propose that individuals that perceive a lower level of risk associated with an opportunity are more likely to judge it positively. Entrepreneurs exhibiting an illusion of control, will have higher overconfidence and will perceive less risk. This is related to the hubris theory of entrepreneurship.

Another finding is that entrepreneurs with stronger beliefs in "the law of small numbers" perceive lower risks. The law of small numbers refers to the fallacy that …

Utility theory of entrepreneurship

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What is the utility theory of entrepreneurship?Utility theory was developed by moral philosophers in the early 1900s, including John Stuart Mill. The core concept is that individuals make (or should make) decisions that maximize utility. Utility includes value for one's self and for others (society). Mill's book Utilitarianism sets forth several principles and argues that happiness has utility, as does justice.

All sentient beings can experience utility, thus maximizing utility can take into account the interests of animals. But it brings forth a debate about how much utility to give to a deer versus a driver in the decision to construct an expensive nature fence and land bridge. Moreover, there might be "more sentient" beings, such as gifted humans, which some might want to give a higher utility in their calculations.

Another problem is that we might give little weight to things that affect many people but only a little bit. For example, if one may litter and affec…

Weak ties theory of entrepreneurship

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What is the weak ties theory of entrepreneurship? The weak ties theory was put forth by Mark Granovetter in 1969 as a theory that explains why some people seem to access to more and better opportunities than others. He conducted a study of around 200 people who had just gotten new jobs and asked them how they got their jobs and most of them, around 75% had got them from acquaintances. The rate was even higher for the higher income earners in his sample.

The core idea is that weak ties are more important than strong ties in terms of providing you with novel and actionable information. Close ties refer to individuals that we interact with on a nearly constant basis, such as roommates, nuclear family members and a few good friends. Close ties provide very little new information because most of the individuals within the clique of a close tie network share many of the same relations.

Weak ties refer to social connections to individuals who are not closely related. Rather, weak ties may b…

Niche theory of entrepreneurship

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What is the niche theory of entrepreneurship? In ecology, a niche refers to a space with specific necessary environmental conditions that may guide the evolution and existence of species (Hardesty, 1972).

This is closely related to the concept of convergent evolution, where two or more species develop similar adaptations because they occupy similar evolutionary niches. For example, the marsupial wolf is adapted to forests, plains and preys on other mammal herbivores, just like the placental wolf.


In entrepreneurship lingo, a niche refers to a narrow market space.  Hutchinson (1978) suggests that much like animal species, competitors rarely occupy the same niche because if they do then they compete directly and would result in frequent fights (e.g., price wars). Rather, each species tends to specialize, for instance, one might evolve to prey at night, while the other preys during the day. Similarly, businesses can cater to distinct customer segments by offering differentiated products…

Stages theory of entrepreneurship

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The entrepreneurial process is often conceptualized as stage-based. In ecology and biology, there are stages of development or decay present in many phenomena. The description, explanation and prediction of cycles is one of the mainstays of the hard sciences.

Kazanjian and Drazin (1990) suggest four stages to explain the how an entrepreneurial opportunity becomes a business. They propose that the drivers and resisters of entrepreneurship are different at each stage of venture development. Probably only the first stage or two is really about entrepreneurship, whereas growth and stability are really managerial issues after a certain point. 
conception and developmentcommercialization growthstabilityBhave (1994) put forward four stages. In this case, the transitions where ordered but one can easily imagine cases where these stages overlap temporally or are happening simultaneously. While the stages proposed by each theory do not perfectly line up, there is a pattern between them. However, …

Marshall McLuhan's theory of entrepreneurship

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“The crossing or hybridizations of the media release great new 
force and energy as by fission or fusion…” (1964:48). 
Marshall McLuhan was a Canadian academic and celebrity who famously coined the phrase “the medium is the message” back in the 1960s to express his thesis about the effect of new technologies on culture and society. 

At a time when critics railed against sex, violence, and blasphemy on vacuum tube televisions, McLuhan claimed that the content of television was irrelevant, as it is the medium of television that really changes us by creating new audio/visual tribes, and seating us passively in front of the tube. New environments!
The implication of McLuhan’s theory is that new technologies shape environments and perceptions, by making accessible new dimensions of time and space. 

He gave the example of the light bulb, which is a medium devoid of any content (or message), yet it creates an environment by its mere presence, illuminating the dark, extending our ability to make u…

Social exchange theory of entrepreneurship

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What is the social exchange theory of entrepreneurship? Social exchange theory regards trading relations as built on norms of reciprocity and mutual attraction (Emerson, 1981; De Clercq et al., 2010). Reciprocity is the exchange of privileges between parties on the basis of mutual trust. For instance, a lunch or round of drinks may be purchased by one individual, with the understanding that other will pay back the debt at some unspecified time. In extended reciprocity, the assumption is that the environment will pay it forward to ensure repayment, even if indirectly over time.

Mutual attraction implies that one party is not predating on the other, that both parties that have something to gain. There is therefore an assumption of trust between the parties. For example, it has been observed that in traditional subsistence cultures, tribes will often donate their surpluses to neighboring tribes with no time bound expectations of repayment.

Social exchange and entrepreneurship There …

Procedural justice theory and entrepreneurship

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The theory of procedural justice was introduced by John Thibaut and Laurens Walker (1975) and has then been applied to the organizational strategy context (e.g., Kim and Mauborgne, 1991), and most recently to help explain entrepreneurial success from a financing-availability perspective. 
Thibaut and Walker propose that procedural justice focuses on the processes of justice rather than the outcomes of such processes (i.e., distributive justice), because the processes are more important in the evaluations of participants. Processes take place over time, whereas outcomes are more like events. For example, a client may be more willing to accept concessions suggested by a lawyer that assures him or her that the negotiation process is normal and offers are within the bounds of acceptable behavior for an opponent's council. 
According to Sapienza and Korsgaard, we do not yet know much about how entrepreneurs manage their relationships with investors. Entrepreneurs want to build trust to a…