Entrepreneurship Theories

Family Entrepreneurship: The Backbone of the Global Economy When we think of startups, we often imagine a lone wolf in a garage. But the data suggests a different reality: most businesses are a family affair. "75% of entrepreneurs in 48 economies around the world said that their family was involved in starting their businesses, either as co-managers or co-owners. The vast majority of startups around the world are, in fact, family businesses." — Babson College Beyond Succession: Pooling Resources Historically, research focused on Succession —the passing of the torch from one generation to the next. While legacy is important, modern theory recognizes that family entrepreneurship is also about the creation of new ventures. Chrisman et al. (2003) argue that the true power of families lies in their unique ability to pool resources . Families can mobilize labor, capital, and social connections faster than non-family teams because of high trust and shared goal...

Neurodiversity in Entrepreneurship: Turning Mental Health Into an Asset Historically, mental health conditions were viewed solely as problems requiring medical intervention or counseling. A common misconception persists that neurodivergent individuals are less capable than their neurotypical peers. However, modern research challenges this view. While neurodivergent individuals often perceive and process information differently than what is considered "normal," this difference does not equate to inability. In fact, neurological variations have been linked to significant success, particularly in the world of entrepreneurship. The Link Between Mental Health and Business Research indicates a strong correlation between entrepreneurship and mental health conditions. In a landmark study, Freeman et al. (2019) surveyed 335 individuals, including 242 entrepreneurs. The results were striking: 49% of the entrepreneurs reported having one or more lifetime mental health conditio...

The Dark Side of Entrepreneurship: Can You Be Addicted to the Lifestyle? Could one become addicted to the idea of being an entrepreneur? Countries vary in terms of how their people view entrepreneurs and entrepreneurship as a career path. In some places, entrepreneurship may be viewed negatively or associated with corruption. However, the prevailing view of the entrepreneur in Western Media is the heroic entrepreneur meme . These figures are often portrayed as outsiders who manage to disrupt incumbencies and are associated with ideas such as democracy, freedom, and liberty. The Rise of the "Wantrepreneur" Perhaps the positive view of the practice has led to entrepreneurship becoming a desirable pursuit for individuals searching for a lifestyle and character to identify with. These types of individuals have been given names over time including: The "Wantrepreneur" The Veblenian Entrepreneur The "Untrepreneur" These labels refer to in...

The Underdog Advantage: Does Childhood Adversity Create Entrepreneurs? While researchers have long studied resilience in adults, few have examined how childhood adversity specifically affects entrepreneurial entry later in life. Does early trauma break a person, or does it forge the skills necessary to build a business? Recent studies suggest the latter, pointing to a biological and psychological link between hardship and business creation. The Underdog Theory of Entrepreneurship To explain this phenomenon, scholars utilize the ‘Underdog Theory’ proposed by Miller and Le Breton-Miller (2017). The core premise is that life challenges require the development of adaptive skills that inadvertently make individuals better suited for entrepreneurship. "Negative personal circumstances of an economic, sociocultural, cognitive, and physical/emotional nature may have a … powerful role to play in getting people to become effective entrepreneurs" (...

The Physiology of Entrepreneurship: Are You Biologically Wired for Business? Could your physiology make you more entrepreneurial? While the debate of "Nature vs. Nurture" continues, research examining the biological roots of entrepreneurship is uncovering fascinating links. Although this field is relatively new, studies are beginning to show how our hormonal makeup and physical traits may affect our propensity for risk, aggression, and business creation. The Testosterone Connection: The 2D:4D Ratio One of the most intriguing areas of study examines how testosterone levels experienced in the womb affect adult behavior. Bönte, Procher, and Urbig (2016) explored the link between prenatal testosterone and traits common in entrepreneurs, such as competitiveness and risk-taking. Because we cannot measure prenatal testosterone directly in adults, researchers use a biological marker: The Finger Length Ratio (2D:4D) . To calculate this ratio, rese...

Cognitive Evaluation Theory: Why Entrepreneurs Ignore Risk Why do entrepreneurs often pursue ventures that statistics say are doomed to fail? The answer may lie in Cognitive Evaluation Theory (CET) . A sub-theory of Self-Determination Theory , CET explains how external factors affect an individual's intrinsic motivation. The core premise is simple: Events that increase an individual's perceived competence and autonomy will increase their intrinsic motivation to act. [Image of Self-Determination Theory diagram] Evaluating Opportunity Under Risk Keh et al. (2002) borrowed this psychological framework to study how founders evaluate business opportunities. They found that entrepreneurs do not assess risk objectively. Instead, their cognitive processes alter their perception of reality. The researchers identified two specific cognitive biases that lead entrepreneurs to judge risky opportunities more positively than they should: 1. Illusion of Control Entrepreneurs ...

What is the niche theory of entrepreneurship? In ecology, the concept of a niche is crucial to understanding the interactions between species and their environment. Essentially, a niche is a space or role that a particular species occupies within an ecosystem, defined by the specific environmental conditions it needs to survive and thrive. These conditions can include factors like temperature, humidity, available food sources, and predators. One interesting aspect of the niche concept is the phenomenon of convergent evolution. This occurs when two or more species independently evolve similar adaptations or traits because they occupy similar ecological niches. The marsupial wolf and the placental wolf mentioned in the prompt are a great example of this. Despite being separated by millions of years of evolution and located on opposite sides of the world, the marsupial wolf of Australia and the placental wolf of North America share remarkable similarities in their physical appearance an...

The Stages Theory: Understanding the Entrepreneurial Life Cycle The entrepreneurial process is often conceptualized as a life cycle. Borrowed from biology, where the life cycles of flora and fauna are studied extensively, this theory views a business as a living organism. By definition, a life has a beginning (birth) and an end (decline/death). The "Stages Theory" attempts to map the critical transitions that happen in between. The Biological Analogy In ecology, these theories start with the assumptions of Birth, Growth, Maturity, and Decline . The core argument is that the drivers and resistors of entrepreneurship are different at each stage. What works for a newborn startup (e.g., product development) will kill a mature company (e.g., lack of process). [Image of business life cycle stages graph] Model 1: The Kazanjian & Drazin Framework (1990) Kazanjian and Drazin focused on technology-based ventures. They proposed that the focus s...

One of the most popular 19th-century 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...

As always, we should take new theories with a grain of salt. In this case, you might get a little grossed out! The Toxoplasma gondii parasite is carried by felines (cats) and has been found to infect their human masters too. The parasite can be caught through contact with the animals and their bodily fluids and solids. [Image of Toxoplasma gondii life cycle] The parasite causes brain cysts that last a lifetime and lead to behavioral changes including bipolar disorder, reduced fear, and lower IQ. Some have estimated that over 2 billion humans have been infected, though infection rates differ greatly by country (e.g., ~3% in the U.S. vs. 50-70% in France and Mexico). The Link to Entrepreneurship Research by Stefanie Johnson (Leeds School of Business) and colleagues suggests that those infected by the parasite are 1.7 times more likely to choose entrepreneurial career paths. They tested subjects for infection by taking saliva swabs. They found significant positive associati...

The Birth Order Theory is a psychological theory that suggests that the order in which individuals are born in relation to their siblings has a significant impact on their personality development and experiences throughout their lives. This theory was popularized by psychoanalysts such as Sigmund Freud, Carl Jung, and Alfred Adler in the 1950s and has since become a widely studied and debated topic in the field of psychology. The Birth Order Hypothesis According to the Birth Order Hypothesis, depending on their position in the birth order, each child in a family goes through a different set of conditions and experiences. For instance, it's well knowledge that first-born children are more mature and goal-oriented, whereas younger siblings may be more inventive and rebellious. Only children may be more self-assured and egocentric, but middle children are regarded to be more autonomous and adaptable. The Birt...

The Genetic Theory: Is There an "Entrepreneur Gene"? Do entrepreneurs get made in the classroom, or are they born that way? The Genetic Approach to Entrepreneurship looks to biological inheritance to explain the tendency for an individual to become a founder. Research on genetic links is spurred by considerable anecdotal evidence that the children of entrepreneurs are significantly more likely to become entrepreneurs than the children of non-entrepreneurs. But is this due to their DNA, or simply growing up in a business household? The Evidence: Twin Studies To separate biology (Nature) from upbringing (Nurture), researchers turn to Twin Studies . Nicolaou et al. (2008) conducted a landmark study comparing identical twins (who share 100% of their genes) with fraternal twins (who share 50%). They concluded that when one identical twin becomes an entrepreneur, the other is significantly more likely to do so, even when controlling for family upbringing. This suggest...

Population Ecology Theory: Survival of the Fittest in Business Why do industries seem to explode with new startups, only to suffer a mass extinction event later? Population Ecology Theory (also known as Organizational Ecology) explains business through the lens of biology. Proposed by Hannan and Freeman (1977) , the theory hangs on the assumption that environments have a fixed "carrying capacity." Just as a forest can only support a certain number of wolves, a market can only support a fixed number of organizations. The Tension: Legitimacy vs. Competition The theory describes a fundamental tension in the lifecycle of an industry, known as Density Dependence . As more organizations enter a new market, two opposing forces occur: Legitimacy (Early Stage): At first, new entrants help each other. The more firms there are, the more "legitimate" the new industry appears to customers and investors. Survival rates improve. Competition (Late Stage): On...

The Pecking Order Theory was developed in the 1980s by finance scholars (Myers and Majluf) seeking to understand the financing preferences of firms. The theory suggests that there is a specific hierarchy (a "pecking order") that entrepreneurs follow when deciding how to fund their business. They do not choose randomly; they choose based on the path of least resistance and lowest cost. The Hierarchy of Preferences Entrepreneurs typically prefer funding sources in this specific order: Internal Funds (Bootstrapping): Personal savings and retained earnings (profits reinvested). This is the preferred choice because it requires no disclosure to outsiders. Debt (Loans): If internal funds run out, entrepreneurs prefer debt. Banks are less intrusive than equity partners. New Equity (Investors): Selling shares to outside investors is the last resort. It is the most expensive (you lose ownership) and requires the most disclosure. The Cause: Information Asymmetr...