Entrepreneurship Theories

Power in Entrepreneurship 1. The Ubiquity of Power in Entrepreneurship Power lets actors influence others towards desired ends. Power provides an alternative lens on entrepreneurship to institutional, networks and cognition lenses from an economic sociology perspective. Our introductory conceptualisation surfaces multifaceted dynamics of this fundamental force that most entrepreneurship literature, unlike social sciences and management, treats somewhat loosely, latently or lopsidedly. Power “comes from everywhere” (Foucault, 1978, p. 96). Not only well-resourced states and legacy firms, but entrepreneurs can shape the perception and development of entrepreneurial opportunities and potentially influence power structures. 2. A Triple-Tiered Framework: Forms, Types, and Actors We pioneer a power lens for entrepreneurship research comprising three forms, two overarching types and three main actor groups. First, building on Wrong’s (2017) work in sociology y...

“Who am I?” / “Who are we?” Social identity theory (SIT) has long been a mainstay of social psychological thinking about politics and human behaviour in general. SIT is at its core a theory about in-groups and out-groups, as easily formed social constructions that can manifest with real consequences. Consider football hooligans beating each other over their team colours. We all have multiple identities, and some scholars propose that the more central one's entrepreneurial identity, compared with family and other identities, the more likely they will start a venture, grow a startup, or develop a capability (Hayter et al., 2021). "I am an Entrepreneur" In entrepreneurship, SIT is pointed at the entrepreneurial identity (EI), defined as a set of attitudes, beliefs and behaviours reinforcing being an entrepreneur. According to Shepherd et al. (2018) "a meaningful self-identity is central to individuals’ psychological functioning and well-being." The li...

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...

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 ...

Actor-Network Theory: Do Objects Have Agency in Entrepreneurship? Actor-Network Theory (ANT) , created by Bruno Latour, Michel Callon, and John Law, offers a radical way to look at how businesses are built. It describes a “material-semiotic" method of analysis that is distinct from mainstream network analysis. The key difference? ANT argues that non-human objects (technology, money, prototypes, contracts) are nearly as important in a network as human actors. The "Gun" Analogy: Understanding Hybrid Agency To understand how an object can have "agency," we look to a famous example provided by Latour (1999) regarding a person holding a gun: “You are different with the gun in your hand; the gun is different with you holding it. You are another subject because you hold the gun; the gun is another object because it has entered into a relationship with you.” Korsgaard (2011) interprets this to mean that neither the gun nor the person kills alone. ...

Informal Entrepreneurship: When Business is "Illegal" but Legitimate Informal entrepreneurship refers to economic activity that occurs outside of the formal economy. It is characterized by the absence of legal and regulatory frameworks. From street vendors to unlicensed home-based artisans, these businesses operate in the "shadows" of the law. While often dismissed as "underground" activity, the informal sector is a massive engine of livelihood for millions. To understand it, we must first distinguish it from the formal sector. The Formal vs. Informal Divide The Formal Economy is recognized and regulated by government institutions. Participants pay taxes, adhere to labor laws, and obtain necessary permits. This creates a level playing field and offers protections (like bankruptcy laws or police protection). The Informal Economy lacks these protections. While this allows entrepreneurs to bypass significant administrative burdens and costs, it al...

The Slacker Theory: Do "Lazy" People Make Better Entrepreneurs? Do you really need a relentless work ethic to succeed? The "Slacker Theory" of entrepreneurship challenges the conventional wisdom of hustle culture. It suggests that individuals who are not particularly motivated by hard labor—or those who simply have more free time—may actually possess a distinct advantage in the startup world. While often discussed more as a rumor than a formal framework, this theory posits that entrepreneurial opportunities are difficult to discover when one is busy. Perhaps the "slacker" has the mental bandwidth and resilience to keep tinkering long after the busy worker has given up. The Two Types of "Slack" Advantage To understand this theory, we must look at two different interpretations of what it means to be a "slacker" in business. 1. Cognitive Slack: The Creative Advantage By embracing a more laid-back approach to work, entrepreneurs...

Feminist Theory and Entrepreneurship: Bridging the Gender Gap How can feminist theory enlighten us about the state of modern business? For the most part, women entrepreneurs remain in the minority, particularly regarding high-growth ventures. The statistics paint a stark picture. According to recent data from PitchBook, companies founded solely by women garnered only 2.3% of the total capital invested in venture-backed startups in the US in 2020. This disparity naturally leads to criticism of the "old boys club" in venture capital investment. While there are indications that these trends are shifting, feminist literature provides the theoretical framework to understand why these systems exist and how they can be dismantled. Anthropological Roots: Hunter vs. Gatherer Hurley (1999) suggests that our understanding of business evolution is often biased by gendered history: "Traditional anthropological theories stated that the key factor in human evolution...

Diffusion of Innovations: How Ideas Spread (and Why Startups Fail) The diffusion of innovations has been studied by many scholars over the ages, but most notably from 1970 onward by American sociologist Everett Rogers . Dr. Rogers developed this theory while studying the agricultural sector. He was fascinated by a simple question: Why did some farmers adopt productive new equipment immediately, while others abstained despite the obvious benefits? The 5 Categories of Adopters Rogers discovered that the adoption of any new product follows a specific statistical distribution. He categorized consumers into five distinct groups, each with different psychological drivers: Innovators (2.5%): Risk-takers who want the newest technology simply because it is new. Early Adopters (13.5%): Visionaries who adopt early to gain a strategic advantage. Early Majority (34%): Pragmatists who wait for proof of concept. Late Majority (34%): Skeptics who adopt only when neces...

Risk Compensation Theory: Do Safety Nets Fuel Startups? What is the Risk Compensation Theory of entrepreneurship? It stems from a counter-intuitive economic principle: When people feel safer, they take more risks. This concept originated with Sam Peltzman’s (1975) pioneering study of automobile accidents. He argued that safety regulations (like seatbelts) didn't always reduce fatalities because drivers, feeling safer, compensated by driving more aggressively. This phenomenon, now dubbed the ‘Peltzman Effect,’ extends to NASCAR racing, hockey visors, and bike helmets. But does it also explain why strong social safety nets might actually increase entrepreneurship? The Safety Net Hypothesis There is emerging evidence that social safety nets function like seatbelts for aspiring founders. By reducing the catastrophic risks associated with failure, they encourage individuals to leave stable employment and start ventures. Evidence from the Field Several studies support ...

Embeddedness Theory of Entrepreneurship: Polanyi & Network Ties Embeddedness Theory argues that economic activity is not an isolated event. Instead, it is constrained by non-economic institutions and social structures. The term was coined by economic sociologist Karl Polanyi in the mid-20th century. He argued that you cannot separate business from the society in which it operates. These "non-economic" constraints include: Kinship: Family ties and obligations. Culture: Religious beliefs and social norms. Politics: Power dynamics and government structures. Trust, Reciprocity, and the "Web" In the context of modern entrepreneurship, embeddedness refers to the nature, depth, and extent of an individual’s ties to their environment (Jack & Anderson, 2002). As entrepreneurs interact, patterns of economic exchange become embedded in a web of social relations . Over time, these repeated interactions lead...

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,...

The Weak Ties Theory: Why Acquaintances Matter More Than Friends Why do some people seem to have access to better opportunities than others? The answer often lies in their network—but not the part of the network you might expect. The Weak Ties Theory was put forth by sociologist Mark Granovetter in 1969 (published widely in 1973). In a groundbreaking study of job seekers, he found that 75% of people found their jobs through acquaintances, not close friends. Surprisingly, the rate was even higher for high-income earners. Strong Ties vs. Weak Ties The core insight of the theory is that "Weak Ties" are paradoxically more powerful than "Strong Ties" when it comes to gathering new information. Strong Ties (Close Circle): These are roommates, nuclear family, and best friends. While they offer trust, they provide very little new information. Because you move in the same circles, you already know what they know. It is an echo chamber. Weak Ties (Acq...

Social Exchange Theory: The Currency of Trust in Entrepreneurship Why do stakeholders support a new venture when there is no guarantee of financial return? The answer often lies in Social Exchange Theory (SET) . While traditional economic theory looks at the exchange of money, SET looks at the exchange of social costs and rewards. It regards trading relations as built on norms of reciprocity and mutual benefit (Emerson, 1981). The Core Pillars of Exchange According to De Clercq et al. (2010) , successful entrepreneurial relationships rely on two fundamental mechanisms: 1. Reciprocity Reciprocity is the exchange of privileges based on mutual trust. It comes in two forms: Direct Reciprocity: "I buy you lunch today; you buy me lunch next week." The debt is clear and specific. Extended Reciprocity: "Paying it forward." The assumption is that if you contribute to the environment, the environment will eventually pay you back, even if indirectly. ...

Social Identity Theory originated from the experiments of Henry Tajfel and John Turner (1979), which showed that the slightest priming of group membership creates prejudice. “Blue eyes, a preference for the paintings of Wasily Kandinsky over those of Paul Klee... were sufficient to produce a preference for fellow group members and to elicit discrimination against outsiders” (Huddy, 2001:132). The Core Concept Social identity theory explains why human personalities and behaviors seem to be context-specific. A given individual may act differently depending on which groups they perceive themselves to belong to. The theory suggests that personal identity plus environmental conditions shape social identity, which in turn leads to the categorization of others into in-groups and out-groups . Application to Entrepreneurship Obschonka et al. (2012) argue that individual beliefs and attitudes are unlikely to be the only drivers of entrepreneurship. Rather, they use social identity ...

Critical Theory: Challenging the Myth of the Heroic Entrepreneur Most entrepreneurship literature takes a "functionalist" perspective: it assumes an objective reality where success is purely a result of hard work and rational economics. Critical Theory argues that this view is a lie. Attributed to Max Horkheimer (1937) and the Frankfurt School of sociology, Critical Theory combines Marxian and Kantian ideas to critique society. It aims not just to explain the world, but to change it. The Goal: Emancipation Critical theorists aim to liberate humans from the circumstances that enslave them—including the ideological chains of capitalism. Alvesson and Willmot (1992) define this goal as: "Emancipation describes the process through which individuals and groups become freed from repressive social and ideological conditions, in particular those that place socially unnecessary restrictions upon the development and articulation of human consciousness." ...

Emancipation Theory: Entrepreneurship as the Ultimate Freedom The term emancipation has deep historical roots, from Roman laws regarding sons leaving their fathers' authority to Lincoln’s Emancipation Proclamation and the women’s liberation movement. Fundamentally, it means breaking free from bonds. In a groundbreaking paper, Rindova et al. (2009) propose that entrepreneurship is not just an economic activity, but a means of emancipation. They define "entrepreneuring" as efforts to create new environmental conditions by breaking free from the status quo. The Three Elements of Emancipation Rindova identifies three key processes through which entrepreneurship resembles emancipation: Seeking Autonomy , Authoring , and Making Declarations . 1. Seeking Autonomy (Breaking Free) Autonomy has long been considered a primary motive for self-employment. Emancipation is defined as breaking free from an authority figure or system. Rindova suggests that Google’s founding...

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...

Too often, entrepreneurship is viewed as a solo job. This myth is perpetuated because of the heroic status that many entrepreneurs are conferred. Stories of Richard Branson, Steve Jobs, and Elon Musk reinforce the idea that entrepreneurs are individuals carving out a new world on their own. In reality, entrepreneurs work in social networks to get their ventures up and running. From a Social Network Theory perspective, entrepreneurship is embedded in networks of enduring social relations (Walker et al., 1997). What is Social Capital? Social capital is loosely defined as the value of a venture founder’s network resources . Networks may act as substitutes for investment capital. Private information flows over networks that can only be accessed through social interactions. An entrepreneur’s ability to recognize opportunities is largely related to their ability to access private information within these webs. Granovetter: The Strength of Weak Ties One of the classic studies was c...

Resource Dependency Theory: Who Holds the Power? No business is an island. According to Resource Dependency Theory (RDT) , the key to understanding a company's behavior is looking at who it relies on for survival. Proposed by Jeffrey Pfeffer and Gerald R. Salancik (1978) , this theory views organizations not as autonomous structures, but as entities constrained by a web of dependencies. The core assumption is simple: Whoever controls the most vital resources holds the power. The Power Dynamic Success and survival are uncertain because power relations constantly change. If Company A relies entirely on Company B for a critical component, Company B has leverage. They can raise prices, squeeze margins, or cut off supply entirely. Therefore, the primary role of a manager is to reduce these dependencies and increase their own power over others. [Image of principal agent theory diagram] Strategic Maneuvers: Reducing Dependence Managers take strategic actions to minimize ...