Entrepreneurship Theories

Cantillon’s Theory: The Origin of the Word "Entrepreneur" Who invented the word "entrepreneur"? It wasn't Steve Jobs, and it wasn't even Adam Smith. The term was traced back to Richard Cantillon , an Irish banker with French roots writing in the early 1700s. His work, Essai sur la Nature du Commerce en Général , laid the foundation for modern economics and gave us the first technical definition of the entrepreneur.   The Core Definition: Fixed vs. Uncertain Income Cantillon’s theory is built on a simple distinction between two types of economic actors: Hired People (Employees): Individuals with fixed incomes (wages). They know exactly how much they will earn. Entrepreneurs: Individuals with non-fixed incomes. They pay known costs now to produce goods that they hope to sell later at an unknown price. The Entrepreneur as Risk Bearer For Cantillon, the defining characteristic of an entrepreneur is not innovation (as Schumpeter woul...

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...

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...

Everett E. Hagen was a political scientist and economist writing at MIT in the 1950s and 1960s. He sought to explain how traditional societies changed into those with continual technological progress and rising incomes. Hagen (1963) argues that a process eventually leading to entrepreneurship is triggered when a social group loses status in relation to other groups in a society. The Core Mechanism When members of a given social group perceive that they are denied their due respect by the dominant groups in society, it triggers a creative spark that encourages entrepreneurial behaviors (Dana, 1995). Specific examples of "withdrawal of status respect" include: Displacement: A formerly higher-status group is displaced by a new group. Insults: A social group's symbols are insulted or devalued by the dominant group. Inconsistency: A group's symbols become unaligned with their actual economic reality. Migration: A group's status is lowered d...

Joseph Schumpeter, a prominent economist, is widely recognized as a pioneer in the field of entrepreneurship. He placed human actors at the center of economic development processes and argued that entrepreneurs played a critical role in driving innovation and economic growth. Schumpeter's view of entrepreneurship was unique in that he saw it as a disruptive force that challenged the status quo and led to the creation of new markets and industries. He believed that entrepreneurs were not simply passive actors responding to market forces, but were active agents who sought to gain power through their ability to resist social pressure and overcome limitations in existing skill sets. The Theory of Creative Destruction Schumpeter is perhaps best known for his theory of "creative destruction," which celebrates the destruction of old ways, companies, and legacies to make way for the new. According to Schumpeter, this process involves the dismantling of established industries...