Entrepreneurship Theories

The External Enabler Framework (Davidsson, Recker & von Briel, 2020) is a conceptual toolbox developed for analyzing the strategic and fortuitous influence of changes to the business environment in entrepreneurial pursuits. External Enabler (EE) refers to significant changes to the business environment, such as new technologies, regulatory changes, macroeconomic shifts, demographic and sociocultural trends, changes to the natural environment, and the like. The basic assumption of the EE body of work is that every such change will benefit some entrepreneurial initiatives even if it disadvantages other economic activities. EE analysis focuses on those enabled; other frameworks are needed for analyzing negative consequences of change. Moving Beyond "Objective Opportunity" The EE concept was introduced as a more workable alternative to “objective opportunity” for realizing the idea of entrepreneurship as a nexus of enterprising agents and favorable ...

Serial Entrepreneurship Theory: Why Founders Build Again and Again Serial entrepreneurship refers to the repeated behavior of starting new ventures. However, in the academic literature, the distinction is more specific. Plehn-Dujowich (2010) categorizes founders into two main groups: Novice Entrepreneurs: Individuals launching a business for the first time. Habitual Entrepreneurs: This group includes Serial Entrepreneurs (who launch businesses sequentially) and Portfolio Entrepreneurs (who run multiple businesses concurrently). The Learning Curve Advantage Plehn-Dujowich argues that serial entrepreneurs differ substantially from first-time founders because they develop new capabilities over time. Experience allows them to develop heuristics (mental shortcuts) that guide their decision-making processes. While a novice might suffer from "analysis paralysis," a serial entrepreneur can assess risks quickly and effectively. These co...

Actualization Theory of Entrepreneurship: Bridging Discovery and Creation Actualization Theory: Bridging the Gap in Entrepreneurial Opportunity The Actualization Theory of entrepreneurial opportunities, introduced by Ramoglou and Tsang (2016), is intended to resolve one of the biggest debates in the field: the gap between Discovery and Creation theories. The Great Debate: Discovery vs. Creation To understand Actualization, we must first understand the two opposing views it attempts to reconcile. The debate centers on whether business opportunities exist objectively (realism) or are imagined subjectively (constructionism). 1. The Discovery Perspective This view argues that opportunities exist "out there" in objective reality, waiting to be found and exploited. This implies that if an opportunity does not exist, no amount of effort will be fruitful. The Edison Analogy: Denying objective existence is like arguing that if Thomas Edison had ...

The Individual-Opportunity Nexus: Are Opportunities Found or Made? There is a long-standing debate in academia about the origins of business ideas. Do entrepreneurs create opportunities through sheer willpower, or do they merely discover gaps that already exist? Scott Shane and Jonathan Eckhardt (2003) argue firmly for the latter. Their theory, the Individual-Opportunity Nexus , proposes that opportunities are objective phenomena that are found, not made. Defining the Opportunity According to this theory, the foundation of entrepreneurship relies upon the objectiveness of opportunities. If opportunities were just hallucinations of founders, the field would be on shaky ground. "[W]e define entrepreneurial opportunities as situations in which new goods, services, raw materials, markets, and organizing methods can be introduced for profit." — Eckhardt and Shane (2010) The Core Argument: Discovery Theory This theory places Shane and Eckhardt in the ...

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. ...

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...

Israel Kirzner is a British-American economist and emeritus professor at New York University. He is a leading figure in the Austrian School of Economics . Below, we review Kirzner's "Alertness Theory" of entrepreneurship, which argues that entrepreneurs balance supply and demand by detecting market imperfections and exploiting them. The Cause: Market Imperfections Kirzner argues that opportunities exist because markets are not perfect. These imperfections are primarily caused by two factors: Information Asymmetry: Cases where different stakeholders have varying information about a business venture. If one stakeholder uses an information advantage to profit from another, it is considered opportunistic bargaining. Bounded Rationality: The idea that humans are not perfectly rational. While Neo-classical economics models the assumptions of "perfect" economic man, Kirzner acknowledges that real humans have limits on their knowledge and processing power...

Strategic Disagreements Theory: Why Employees Create Spinouts Strategic Disagreements Theory , introduced by the late American economist Steven Klepper (2007), explains a specific type of entrepreneurship known as the Employee Spinout . The theory posits that spinouts are not random; they are the result of a rational disagreement between an employee and a manager regarding the value of a new idea. The Core Mechanism: How Disagreements Create Rivals Firms often generate more ideas than they can exploit. According to Bhide (1994), many entrepreneurs report that they are exploiting ideas that were originally generated inside their previous employers' organizations. A "Strategic Disagreement" occurs when the employee and the firm have different assessments of an innovation's potential (Thompson & Chen, 2011). This can happen in two ways: The Frustrated Innovator: An employee believes the firm should pursue a new technolog...

What is the jack of all trades theory of entrepreneurship? The jack of all trades theory of entrepreneurship was proposed by Stanford University economist Edward P. Lazear in a working paper that was eventually published in The American Economic Review in 2004, entitle Balanced Skills and Entrepreneurship . The theory seeks to explain and predict who becomes and entrepreneur, and which entrepreneurs will be successful. According to Lazear, individuals that become entrepreneurs may have more balance in their investment strategy (on average) as compared with individuals that specialize employee roles. Jack of all trades, master of none, still better than a master of one? Lazear's core idea is that entrepreneurs need to be good at many different things, that is, they are generalists rather than specialists. For instance, when first starting out, a restaurant entrepreneur needs to select vendors for inputs such as food, furniture, equipment, and construction. He or she may als...

Bricolage Theory: Making Something Out of Nothing How do entrepreneurs build companies when they have zero capital, no investors, and limited resources? They practice Bricolage . The concept is credited to French anthropologist Claude Lévi-Strauss (1962) . In his book The Savage Mind , he introduced the concept to show that indigenous peoples were just as innovative as "civilized" peoples, but their method of innovation was different. He compared two distinct archetypes: the Engineer and the Bricoleur . The Great Debate: Bricoleur vs. Engineer This analogy is the foundation of the theory. It describes two opposing ways of solving problems: The Engineer (Rational Planning): The engineer plans ahead. Before starting a project, they gather the exact raw materials and tools designed for the specific task. If they lack a resource, they wait until they can acquire it. The Bricoleur (Radical Experimentation): The bricoleur "makes do" with whatever ...

Dr. Saras Sarasvathy is a business school professor at the University of Virginia who proposed the Theory of Effectuation in the early 2000s. After studying a sample of expert entrepreneurs, she identified a specific "logic" they use to solve problems. Effectuation is considered a process theory because it explains how entrepreneurs create new ventures. Effectuation vs. Causation Effectuation logic contrasts with "Causation" logic. Causation (Managerial Thinking): Starts with a specific goal and then acquires the resources needed to achieve it. (e.g., "I want to build a $10M app, so I need to raise $2M.") Effectuation (Entrepreneurial Thinking): Starts with the resources available today and imagines what goals can be made from them. (e.g., "I have a laptop and coding skills; what can I build right now?") The 5 Core Principles Sarasvathy suggests that expert entrepreneurs rely on five core principles: 1. Bird in the Ha...

Knight’s Uncertainty-Bearing Theory: Risk vs. True Uncertainty In the Roaring 20s, the world was changing fast. New technologies were booming, and the media idealized business tycoons as daring heroes. Amidst this backdrop of laissez-faire capitalism, **Frank Hyneman Knight**, an economist at the University of Chicago, developed a theory to explain exactly what these entrepreneurs were doing to deserve their wealth. His answer? They were bearing Uncertainty . The "Knightian" Distinction: Risk vs. Uncertainty Knight’s most enduring contribution (1921) is the distinction between two types of unknowns. While often used interchangeably in conversation, in economics, they are opposites: Risk (Insurable): Situations where the outcome is unknown, but the probability distribution is known. Example: Rolling dice or actuarial tables for life insurance. You can model this mathematically and hedge against it. Uncertainty (Uninsurable): Situations where th...