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. 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 environmental conditions (Davidsson, 2015). Unlike the notion of objective ...

  Serial entrepreneurship refers to the repeated behaviours of entrepreneur.     “There are two types of entrepreneurs: novice entrepreneurs, who launch a business for the first time, and habitual entrepreneurs, which include serial entrepreneurs, who launch businesses sequentially, and portfolio entrepreneurs, who run multiple businesses concurrently.” ( Plehn-Dujowich, 2010)   Plehn-Dujowich suggests that serial entrepreneurs differ substantially from first time entrepreneurs. They argue that the serial entrepreneurs develop new capabilities over time that makes them more effective entrepreneurs. For instance, they may develop heuristics that guide their decision processes that reduce the analysis task needed to assess risks. These types of advantage lead to equal or higher success rates for serial entrepreneurs and a higher likelihood of sticking to entrepreneurship as a career choice. Serial entrepreneurship theory starts with the idea that entrepr...

 The actualization theory of entrepreneurial opportunities introduced by Ramoglou and Tsang (2016) is intended to bridge the gap between discovery and creation theories of entrepreneurial opportunity. The discovery perspective views entrepreneurial opportunities as existing out there in objective reality waiting to be found and exploited by entrepreneurs. This implies that if an opportunity does not exist, then no amount of effort to exploit it will be fruitful. One would be spinning their wheels! Denying the objective existence of opportunities is a bit like arguing that if Edison had died early, we might not have the electric world we current experience as perhaps only he could subjectively construct the notion of electric light. Clearly it is a stretch to have so little faith in multiple independent invention. The creation perspective takes the opposite view, suggesting that opportunities do not exist outside of entrepreneurs themselves and are created by their cognitions and ac...

What is the individual-opportunity-nexus theory of entrepreneurship? There is a long standing debate about the origins of entrepreneurial opportunities. There is a divide between scholars that think entrepreneurs create opportunities, and those that believe they merely discover them. Scott Shane and Jonathan Eckhardt (2003) make the case that opportunities are found and discovered, not made or created. They propose that the foundation of the field of entrepreneurship relies upon the objectiveness of opportunities and would otherwise 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 theory suggests that it is the constant pivoting of the entrepreneur that lands him or her on an opportunity that exists out there, objectively. Although it resembles a process of search it appears from the outside to be a cr...

Scholars have divided entrepreneurship into different categories. For example, self-employed individuals are often not considered entrepreneurs. To be an entrepreneur, there has to be an organization being built. There is even a growing sense that only scalable forms of entrepreneurship should be encouraged (Shane, 2009). Another way to slice up entrepreneurs is to separate between necessity and opportunity entrepreneurs (Harding, 2002). Most entrepreneurship theories focus on opportunity entrepreneurship, but perhaps scholars should also embrace broader views that include entrepreneurship that is based on necessity, or at least consider a greater diversity of entrepreneurship (Welter et al., 2017). This approach looks at the motivations of the entrepreneurs, thus can be considered a motivational theory. Basically, if you have one of the two motives, you are more likely become an entrepreneur. Necessity entrepreneurs are individuals who start businesses because they cannot find a ...

The misfit theory suggests that individuals who do not share the dominant cultural values of their society are more likely to attempt entrepreneurial careers as an alternative to traditional employment.    Hofstede et al. (2004) propose that individuals who feel like they do not fit in with the dominant culture may be dissatisfied with their job prospects and may be more inclined to start their own ventures. This theory has been used to explain why immigrants are often more entrepreneurial than native-born populations. Immigrants may face challenges in finding lucrative employment due to a variety of factors, including language and cultural barriers, differences in educational and professional credentials, and discrimination (Kahn et al., 2017). As a result, they may be more likely to pursue entrepreneurship as a means of creating their own economic opportunities and achieving financial success. In addition to the challenges faced by immigrants, the misfit theory of entreprene...

Israel Kirzner is a British-American economist and emeritus professor at New York University. He is associated with the Austrian school of economics. Below, we review Kirzner's alertness theory of entrepreneurship. Kirzner argues that entrepreneurs balance supply and demand by detecting market imperfections and exploiting them. Market imperfections are caused by information asymmetry and bounded rationality.   Information asymmetry refers to cases where different stakeholders have varying information about a business venture. If one stakeholder uses the information advantage to profit from the another, it is engaging in opportunistic bargaining. Bounded rationality refers to the idea that humans are not perfectly rational. Neo-classical and Classical economics model the assumptions of economic man, and tend to ignore bounded rationality. According to Kirzner, the profits entrepreneurs receive from entrepreneurship are their reward for their tolerance of uncertainty ...

What is the strategic disagreements theory of entrepreneurship? Steven Klepper (2007) was an American economist at Carnegie Mellon University. He introduced the used the concept of strategic disagreements to explain a particular type of entrepreneurship commonly referred to as spinout (or employee spinoff) entrepreneurship. Klepper credited spinouts with the creation of clusters like Silicon Valley and Detroit. A spinout occurs when an employee of a firm leaves to start a new business. Most spinout entrepreneurs create ventures that compete indirectly with their employers by pursuing new strategies or going after new markets with differentiated products. However, the seeds of spinout ventures often originate in parent firms. For instance, many entrepreneurs report that they are exploiting ideas that were generated inside of the organizations of their previous employers (Bhide, 1994). Strategic disagreements refer to disagreements between employees and managers regarding the pro...

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 is credited to Levi-Strauss (1962) who was a French anthropologist who introduced the concept of bricolage entrepreneurship as he tried to show that indigenous peoples were just as entrepreneurial as “civilized” peoples. He compared the “bricoleur” to the “engineer” in his book unfortunately entitled The Savage Mind . Unlike the engineer, the bricoleur “makes do” with the inputs "at hand" to concoct whatever process needed to accomplish a particular project as it develops. By contrast, the engineer plans ahead, gains access to all that is needed to complete a project before starting. Thus, the bricoleur is seen as contrasting with the rational view as projects are accomplished by solving problems as they emerge, with whatever is available rather than what is really needed. The bricoleur practices radical experimentation rather than planning ahead. Bricolage theory is mainly focused on explaining how entrepreneurship emerges in economically depressed, ...

What is the effectuation theory of entrepreneurship? Dr. Saras Sarasvathy is an Indian born business school professor researching strategy, entrepreneurship and business ethics, currently appointed at the University of Virginia. Sarasvathy proposed the theory of effectuation in the early 2000s after studying a sample of expert entrepreneurs with diverse backgrounds. Effectuation theory is often considered a process theory because it explains the process that entrepreneurs use to create new ventures. Effectuation theory stems from the way that expert entrepreneurs think about problems and how they go about solving them. Effectuation logic contrasts with what Sarasvathy calls "causation theories" of entrepreneurship, where it is proposed that entrepreneurs start with a goal and then acquire the resources needed to achieve the goal, in a linear fashion. Each resource acquisition is a step toward the goal. In stark contrast, effectuation logic involves evaluating resourc...

Frank Hyneman Knight, an American economist at the University of Chicago, developed the uncertainty-bearing theory in the 1920s to explain the phenomenon of entrepreneurship. The Roaring 20s The roaring 20s brought with them renewed attention to the people and processes that served to bring innovations to market with increasing intensity, and the media of the day was in the habit of idealizing business tycoons. Much of the government had adopted a laissez-faire attitude toward business. Knight distinguished between risk that can be modeled probabilistically, from uncertainty, for which the probabilities are unknowable. For instance, uncertainty surrounds the implementation of new strategies, the development of new products or entry into new markets. Similarly, the positive consequences of acquiring a competitor may have unknowable probabilities. According to his theory, bearing business uncertainty creates profit and the more uncertainty taken on, the more profit can be gained. The rel...