Entrepreneurship Theories

The Psychology of Social Entrepreneurship: From Compassion to Xenophilia (opposite Xenophobia) The field of entrepreneurship is generally defined by the pursuit of opportunities to add value. However, for social entrepreneurs , the stakes are different. This unique breed of business leader aims to tackle complex social issues—often in different cultural contexts—in addition to producing economic value. But what drives someone to take on this double burden? Research into the motivations of social entrepreneurs reveals a complex psychological landscape that goes far beyond simple charity. The Traditional View: Altruism vs. Self-Interest There are two prevailing theories regarding what sparks a social venture: Prosocial Motives: The most common explanation is that altruism and compassion inspire social entrepreneurs to provide social benefits. According to Miller et al. (2012), this "heart-led" approach is the primary engine for social change. Self-Interes...

Social Judgement Theory in Entrepreneurship: Legitimacy & Success The Social Judgement Theory of entrepreneurship posits that a new venture's survival depends entirely on the subjective evaluations of its stakeholders. Before a startup can access resources (capital, labor, suppliers), it must first pass a "social audit." The Core Metric: Legitimacy The central concept in this theory is Legitimacy . According to Suchman (1995), buyers and suppliers must believe a startup is legitimate to risk committing their scarce resources to it. To succeed, a startup must meet three institutional requirements in its market: Regulatory: Complying with laws and rules. Normative: Adhering to professional standards and values. Cognitive: Fitting into the "taken-for-granted" assumptions of how a business should look and act. Legitimacy has been variously described as the right to exist, social fitness, desirability,...

Biculturalism Theory: The Immigrant Advantage in Entrepreneurship What gives an entrepreneur the ability to spot a gap in the market? According to Biculturalism Theory , the answer may lie in the unique cognitive flexibility developed by immigrants and individuals exposed to two distinct cultures. Biculturalism refers to an individual characteristic that develops as a result of deep exposure to two cultures. The typical case is the immigrant who must learn a host country's local culture while maintaining the elements of their home culture. The Cognitive Advantage The Al-Shammari research team (2018) theorizes that this duality provides a distinct competitive edge. They argue that: "Those who are exposed to different cultures and environments will experience different types of experiences in their social interactions and thus will accumulate rich knowledge that is diverse." This "rich knowledge" allows bicultural entrepreneurs to connect dots th...

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. ...

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...

Misfit Theory: Why "Outsiders" Make the Best Entrepreneurs Why do immigrants, rule-breakers, and social outliers start businesses at higher rates than the general population? The Misfit Theory of Entrepreneurship suggests that the drive to create is often born from the inability to "fit in." According to Hofstede et al. (2004) , individuals who do not share the dominant cultural values of their society often feel dissatisfied with traditional job prospects. This dissatisfaction becomes the fuel for new ventures. The Cultural Misfit (Hofstede) Hofstede argues that culture is a set of shared values and expectations. When an individual's personal values clash with the dominant culture, they become a "misfit." [Image of Hofstede cultural dimensions diagram] For these individuals, traditional employment feels restrictive or illogical. Entrepreneurship offers an alternative path where they can create a micro-culture (a startup) that aligns wit...

Cultural Theory of Entrepreneurship: Why Geography Shapes Innovation Why do some countries produce endless streams of startups while others struggle to innovate? Scholars have long argued that the answer isn't just economics—it's Culture . Thomas Cochran (1965) was one of the first to propose that entrepreneurship is "culturally determined." He argued that an entrepreneur's performance is influenced by: Their own attitudes toward the occupation. The expectations of the groups facilitating new ventures (investors/peers). The operational difficulty of the career in that specific society. Cochran pointed to historical evidence of entrepreneurial prominence in specific groups, such as Protestants in America , Samurais in Japan , the Yoruba in Nigeria , and the Parsis in India . Hofstede’s Cultural Dimensions Later, Geert Hofstede (1980) provided a more rigorous framework. He defined culture as the "collective programming of the mind...

Baumol’s Theory: Productive, Unproductive, and Destructive Entrepreneurship Why do some societies innovate while others stagnate? William J. Baumol (1990) argued that the answer isn't a lack of entrepreneurs. In fact, he assumed that every society is endowed with a roughly equal share of enterprising individuals. The difference lies in how those entrepreneurs use their energy. Depending on the "Rules of the Game" (institutions), entrepreneurs will allocate their talent in one of three ways. The Three Types of Entrepreneurship Baumol moved beyond the idea that all entrepreneurship is "good." He categorized it by its economic impact: Productive: Innovation that creates new wealth (e.g., Steve Jobs creating the iPhone). This "grows the pie." Unproductive: Activities that merely redistribute wealth, often called Rent-Seeking (e.g., a corporate lobbyist securing a tax loop-hole, or frivolous lawsuits). This "slices the pie dif...

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...

Max Weber was a German sociologist writing in the early 1900s who theorized that religious beliefs are a key determinant of entrepreneurial development. He argued that entrepreneurial energies are driven by beliefs about causes and consequences. In particular, he emphasized how religions encourage investment in economic growth, development, and compound interest. A religious belief in saving for the future was key, he believed, to the capitalistic spirit . Religion and Economic Behavior Weber distinguished between religions that encourage capitalism from those that do not. Non-Conducive: Weber noted that Hinduism, Buddhism, and Islam might not be conducive to entrepreneurship. He argued that Hinduism and Buddhism have a focus on the present moment and shun materialism, while Islam’s focus on the rewards of the afterlife makes material accumulation problematic. Conducive (The Protestant Ethic): By contrast, he argued that the Protestant work ethic prevalent in N...