Entrepreneurship Theories

"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 Entrepreneurship has non-economic dimensions as a vehicle for legacy or building family institutions. Many aging entrepreneurs wish to pass the business to the next generation, while other feels to pull of the family business as they reach maturity.  However, it's not all about succession! Family entrepreneurship is about families building businesses together, often for the first time. Perhaps one of the most interesting characteristics of families is their ability to pool together resources to spawn new ventures that achieve family goals (Chrisman et al., 2003).  Randerson et al. (2015) propose a number of interesting new topics for family entrepreneurship scholars to pursue. They suggest researching 'copreneurs', ...

Mental disorders were previously studied as problems needing remedies like medication, interventions, or counselling. A common misconception today is that those with mental health disorders are incapable of the same things that neurotypical individuals are. Neurodivergent individuals often perceive and process information differently than neurotypical individuals consider “normal.” However, that does not make them any less capable. Neurological disorders have been linked to success in many instances, particularly in entrepreneurship. In 2015, Freeman et al. (2015) studied 335 individuals, including 242 entrepreneurs. The study revealed that 49% of the entrepreneurs reported having one or more lifetime mental health conditions.  They were also significantly more likely to report a lifetime history of depression (30%), ADHD (29%), substance use conditions (12%), and bipolar diagnosis (11%) than were comparison participants.  These results suggest that while individuals with ment...

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 the Western Media is the heroic entrepreneur meme. These are often outsiders that manage to disrupt incumbencies and are associated with ideas such as democracy, freedom, and liberty. Perhaps the positive view of the practice has led to entrepreneurship becoming a desirable pursuit for individuals searching for a lifestyle and character to identity with. These types of individuals have been given names over time including the "Wantrepreneur", Veblenian Entrepreneur or "Untrepreneur". These labels refer to individuals who pursue entrepreneurship not with true innovative intentions, or a desire to solve a problem, or to satisfy a need -- but solely for the look and...

  Another biological theory is the childhood adversity theory. While researchers have looked at resilience in adults, few have examined the how childhood adversity may affect entrepreneurial entry later in life. Using a variant of the underdog theory, which looks at how negative experience shape an individual's resilience. Recent research has looked at samples of entrepreneurs from a famine in China (1959–1961) and from war-torn Vietnam. Both studies find that individuals who endured childhood adversity are more likely to become entrepreneurs.  Churchill et al. measure adversity as the bombing intensity experienced by the entrepreneurs in early childhood. They find that as the bombing intensity increased, so did the chance that the children grow up to become entrepreneurs. The effect size is about 5% increase in entrepreneurial entry for a 10% increase in bombing intensity. Cheng et al. measure adversity as the experience of starvation during the societal upheavals of C...

Could your physiology make you more entrepreneurial? Research examining the physiology of entrepreneurs is rather new and underdeveloped. Very little is known about how our physiology can affect our propensity for entrepreneurship. One study examined how testosterone level experienced in the womb can affect us. Testosterone exposure in utero is linked to competitiveness, aggressiveness, and other traits that have been linked to some extend with entrepreneurs.[1]   The researchers used a technique of measuring finger length ratios that are markers of testosterone exposure. Survey respondents where supplied with rulers and instructions and self-reported the lengths of their index and ring fingers. To calculate the ratio (2D:4D), one divides the length of the index finger by the length of the ring finger on the same hand. A higher ratio (i.e., relatively long index finger) is associated with many different traits including sexuality, aggressiveness, assertiveness, unprovoked violence,...

Cognitive evaluation theory is a theory in psychology (part of self-determination theory) where it has been used to explain how external factors affect an individuals intrinsic or internal motivation. Events that increase (decrease) perceived confidence increase (decrease) intrinsic motivation. Keh et al. (2002) borrow the theory to conduct a study of entrepreneurs and find that: "illusion of control and belief in the law of small numbers are related to how entrepreneurs evaluate opportunities." These authors propose that individuals that perceive a lower level of risk associated with an opportunity are more likely to judge it positively. Entrepreneurs exhibiting an illusion of control, will have higher overconfidence and will perceive less risk. This is related to the hubris theory of entrepreneurship . Another finding is that entrepreneurs with stronger beliefs in "the law of small numbers" perceive lower risks. The law of small numbers refers to the fallacy t...

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 entrepreneurial process is often conceptualized as stage-based or as a life cycle. These theories are borrowed from biology where life cycles of flora and fauna are studied extensively. Thus, perhaps it is alright to think of this borrowing as a kind of analogy - imperfect, but potentially interesting. In ecology and biology, there are stages of development or decay present in many phenomena. These theories start with the assumptions of birth, growth, maturity and decline. The description, explanation and prediction of cycles is one of the mainstays of the hard sciences. By definition a life has a beginning and an end, which provides initial boundary conditions for the theory. What happens in between, or those inner-transitions, are where we are going to find most of the action in terms of debate. Kazanjian and Drazin (1990) suggest four stages to explain how an entrepreneurial opportunity becomes a business. They propose that the drivers and resistors of entrepreneurs...

One of the most popular 19th century theories of entrepreneurship is the "great man theory". The theory's popularity is probably owing to the historian Thomas Carlyle. Yes, I know, it sounds sexist from the start, but let us stretch the meaning and say it's the great people theory, and try to move it along from there. Great people theories are often heard in historical tales of WW2, with Hitler, Stalin, Churchill, Eisenhower, Roosevelt, and a few others leading the way. In reality, tens of millions of people were involved in the war and a myriad of events occurred over time that may have impacted the outcomes of the war. The same is done with entrepreneurs, pitting Bill Gates against Steve Jobs in the battle for the PC, for instance. The great people 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 the heroes and heroines of every age. Another po...

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 be found to infect their human masters too. The parasite can be caught through contact with the animals and their bodily fluids and solids. The parasite causes brain cysts that last a lifetime and lead to behaviors 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. For instance, the U.S. infection rate is around 3%, while it may be as high as 50 to 70% in France and Mexico. Petr Houdek at University of Economics in Prague reviewed the literature in a 2017 paper published in the Academy of Management Perspectives . Research by Stefanie Johnson (Leeds School of Business) and colleagues (a gang of non-biologists) suggests that those infected by the virus are 1.7 times more likely to ch...

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. 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 Birth Order Theory suggests that these differences in personality and behaviour can be traced back to the un...

The genetic approach to entrepreneurship looks to biological inheritance to explain the tendency for an individual to become an entrepreneur and succeed in entrepreneurial ventures. Research on genetic links is spurred on by considerable anecdotal evidence that the children of entrepreneurs are more likely to become entrepreneurs than the children of non-entrepreneurs. Genetic research tries to tease out family and environmental factors (learning, role modeling, and resources) from genetic factors. Nicolaou et al. (2008) conclude that when one twin becomes an entrepreneur then the other twin is more likely to, even when controlling for family upbringing and other environmental factors. They suggest that testosterone levels are inherited and related to the decision to become an entrepreneur. Later studies have added more depth to the analysis, looking to personality traits as mediators. For instance, Shane et al. (2010) study twins (with 50% and 100% similar genes) and conclud...

What is the population ecology theory of entrepreneurship? Hannan and Freeman's (1977) population ecology theory hangs on the assumption that environments can only handle a fixed number of organizations of each type. After a certain point is reached, there are diminishing returns to density that eventually balance out through the mortality of organizations. The theory is about the tension between the need to be considered as legitimate in order to compete, but also the need to be competitive. As more organizations enter the market, they become increasingly legitimate, but this leads to greater competition making survival more challenging. Thus, the early market is dominated by the need for legitimacy , while the later market is dominated by competitive forces of selection. As environments change, often due to innovations introduced by organizations within them, mortality rates increase for organizations experiencing high levels of resistance to change. Inertial forces guaran...

What is the pecking order theory of entrepreneurship? The pecking order theory was developed by in the 1980’s by finance scholars seeking to understand the financing preferences of firms. Pecking order theory also relates to entrepreneurs’ preferences about financing choices. Financing options include using one’s own personal funds, reinvesting profits back into the business, selling equity to outside investors, and bank debt or loans. At the core of the theory are information asymmetries between the entrepreneur or the startups’ executive team, and the prospective sources of funds for the business—that is, the financiers. Entrepreneurs and other insiders have better information about the business’ operations and potential than do prospective financiers because the former deal with stakeholders and problems on a day to day basis. Financiers usually have to rely on second hand information provided by the leadership team of the startup and the financial statements they provide. ...