Entrepreneurship Theories

Actor-network theory was created by Bruno Latour, Michel Callon, and John Law. It describes a “material-semiotic" method of analysis that is distinct from mainstream network analysis in that it includes non-human objects in networks as nearly equally important as human actors. According to Latour (1999): “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.” According to Korsgaard (2011), Latour’s point is that neither the gun nor the person kills alone, but the combination of person and gun can execute the sinful act. The conclusion is that human agency is not merely a human phenomenon, because it relies on non-human elements too be executable. Korsgaard applied actor-network theory (ANT) to entrepreneurship. He argues that ANT is superior to the older ‘ discovery theories ’ that have dominated the entrepreneurship li

Informal entrepreneurship refers to economic activity that occurs outside of the formal economy, which is typically characterized by the absence of legal and regulatory frameworks. This type of entrepreneurship is often associated with small-scale, unregistered, and unregulated businesses that operate in the informal sector. The informal economy is made up of a diverse range of activities, including street vending, artisanal production, and home-based businesses, among others. While these businesses may provide a means of livelihood for individuals and communities, they often face significant barriers to growth and sustainability due to their lack of access to formal financing, legal protections, and other resources. In contrast, the formal economy is the part of the economy that is recognized and regulated by government institutions. Companies and entrepreneurs operating in the formal economy are required to pay taxes, adhere to labour laws and regulations, and obtain necessary licens

Do slackers have an advantage in entrepreneurship? This theory is passed around more as rumour than formal theoretical framework. The theory starts with a premise about how entrepreneurial ventures come about. Entrepreneurial opportunities are viewed as difficult to discover or create, requiring a lot of time and trial and error. Perhaps slacker have nothing more important to do, allowing them the resilience to keep trying, even after repeated failures.   Perhaps individuals who are not particularly motivated or hardworking can still become successful entrepreneurs. By embracing a more laid-back approach to work, entrepreneurs may find creative and innovative solutions to problems that others might overlook. The idea of the slacker theory of entrepreneurship challenges the conventional wisdom that success in business requires long hours and a relentless work ethic. Instead, it suggests that entrepreneurs who are willing to take risks and think outside the box can find success even if

How can feminist theory enlighten us about entrepreneurship? For the most part, women entrepreneurs are in the minority, and they are less likely to be funded by venture capitalists. This naturally leads to criticism of the old boys club in venture capital investment that tends to invest less in women led ventures. There are some indications that these trends are changing but its far from over. Much of the feminist literature that discusses entrepreneurship tends to look at differences between entrepreneurial entry rates and opportunities for women entrepreneurs as well as the systems and structures that cause the disparities between men and women. Hurley (1999): "Traditional anthropological theories stated that the key factor in human evolution was the male’s hunting activities. The men developed the important social skills of  communication, co-operation and tool making, while women contributed little...Feminist theories showed that women’s activities were the key

The diffusion of innovations has been studied by many scholars over the ages, but notably from 1970 onward by American sociologist Everett Rogers. Dr. Rogers was interested in trying to get farmers to adopt innovations (like farm equipment) that could better their lives and make their businesses more productive. He pondered the forces that lead some to adopt and others to abstain. He suggests that different types of adopters: innovators, early adoptions, early majority, late majority and laggards have different adoption criteria. For instance, a strategy that may attract early adopters may not attract the early majority because they want different things. The size distributions of the different types of adopters (i.e., number of members of a particular adopter category), grow and then shrink giving rise to an inverted u-shaped curve, giving rise to the famous s-curve of total adoption. Image source: Wikicommons Rogers noted that it is not always the best technologies that get

What is the risk compensation theory of entrepreneurship? Peltzman’s (1975) pioneering study of automobile accidents revealed that expected positive effects of safety regulations rarely materialized upon implementation. He argued that when drivers feel safer, they take more risks, which compensate for the safety interventions. Support for what is now dubbed the ‘Pelzman effect’ (or risk compensation theory) is far reaching and extends to varying contexts including new rules in NASCAR racing, mandated visor use in hockey, consumer vigilance in response to food safety messages, and bike helmet laws. But does this phenomenon also explain greater entrepreneurial risk-taking in the presence of social safety nets? There is emerging evidence that social safety nets can have positive benefits for entrepreneurs by reducing the risk associated with entry. Olds (2016a) finds that states that provided more food stamps have more limited liability company registrations among members of newly

What is the embeddedness theory of entrepreneurship? Karl Polanyi was an Austrian-Hungarian economic sociologist in the middle years of the twentieth century. He coined the term 'embeddedness' to mean the extent that economic activity is constrained by institutions that are non-economic. Non-economic institutions may include: 1) kinship or family 2) religious or cultural 3) power and politics Embeddedness can also be thought of as the nature, depth and extent of an individual’s ties into the environment (Jack and Anderson, 2002). Patterns of economic exchange become embedded in webs of social relations that over time leading to the development of trust and reciprocity (Uzzi, 1997). Embeddedness affects decisions about who to transact with including potential investors and customers of entrepreneurs' ventures. For instance, someone that graduates from Stanford may be more likely to get investment from someone in the Stanford venture capital network, but they may also

What is the social judgement theory of entrepreneurship? The central concept in social judgement theory is legitimacy (Suchman, 1995), as the buyers and suppliers of any new venture must believe that the startup is legitimate in order to commit their scarce resources or risk capital. A startup must meet the regulatory, normative and cognitive institutional requirements of the markets where it competes.  A social judgment theory of entrepreneurship looks to the entrepreneurs stakeholders' social judgement about their ventures. These judgments are important because of the way that stakeholders make decisions to support a burgeoning venture or not to. Impression management? Perhaps and interesting critique of the social judgement theory as stated above is that is may be descriptive rather than prescriptive. For example, if the theory is considered prescriptive (i.e., normative), then an entrepreneur might thus manages the impressions that stakeholders build about them in o

What is the weak ties theory of entrepreneurship? The weak ties theory was put forth by Mark Granovetter in 1969 as a theory that explains why some people seem to access to more and better opportunities than others. He conducted a study of around 200 people who had just gotten new jobs and asked them how they got their jobs and most of them, around 75% had got them from acquaintances. The rate was even higher for the higher income earners in his sample. The core idea is that weak ties are more important than strong ties in terms of providing you with novel and actionable information. Close ties refer to individuals that we interact with on a nearly constant basis, such as roommates, nuclear family members and a few good friends. Close ties provide very little new information because most of the individuals within the clique of a close tie network share many of the same relations. The concept of weak ties is a well-established one in sociology and network theory. It refers to soci

What is the social exchange theory of entrepreneurship? Social exchange theory regards trading relations as built on norms of reciprocity and mutual attraction (Emerson, 1981; De Clercq et al., 2010). Reciprocity is the exchange of privileges between parties on the basis of mutual trust. For instance, a lunch or round of drinks may be purchased by one individual, with the understanding that other will pay back the debt at some unspecified time. In extended reciprocity, the assumption is that the environment will pay it forward to ensure repayment, even if indirectly over time. Mutual attraction implies that one party is not predating on the other, that both parties that have something to gain. There is therefore an assumption of trust between the parties. For example, it has been observed that in traditional subsistence cultures, tribes will often donate their surpluses to neighboring tribes with no time bound expectations of repayment. Social exchange and entrepreneurship

Social identity theory came out of Henry Tajfel and John Turner (1979) experiments showing that the slightest priming of group membership creates prejudice. “Blue eyes, a preference for the paintings of Wasily Kandinsky over those of Paul Klee, and calling some people over-estimators and others under-estimators were sufficient to produce a preference for fellow group members and to elicit discrimination against outsiders” (Huddy, 2001:132). Social identity theory has been used to explain 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. The theory suggests that personal identity plus environmental conditions shape social identity, which in turn leads to categorization of others into in-groups and out-groups. Obschonka et al. (2012) argue that individual beliefs and attitudes are unlikely to be the main drivers of entrepreneurship. Rather, they use social id

Critical theory may be attributed to Max Horkheimer's 1937 essay Traditional and Critical Theory. The Frankfurt School of sociology has developed critical theory from a combination of Marxian and Kantian ideas about critiquing traditional theories. Alvesson and Willmot (1992: 89) state that: "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". The majority of the entrepreneurship literature takes a functionalist (rational or empirical) perspective, where there is an objective reality that can be measured and hypotheses that can be tested against that reality. However, there are many problems with scientific methods in the social sciences. For one, theories that work in one temporal-spacial context may not work in another. Very few studies have adopted alternative

The term emancipation has roots in Roman era practices of buying, selling and keeping slaves, but also wives and children. In Roman times, a son needed to be freed from the legal authority of the father to make his own way in the world. The term is also associated Lincoln’s Emancipation Proclamation, which, in the U.S., was used to criminalize slavery. In the women’s liberation movement, emancipation is associated with breaking free from bonds of marriage to a man. In a very interesting paper, Rindova and associates (2009) propose that entrepreneurship can be thought of as means of emancipation. They take a positive spin on a critical theory perspective. They define entrepreneuring as efforts to create new economic, social, institutional and cultural environments via the actions of groups or individuals. To bolster their arguments, they point out three key way in which entrepreneuring resembles emancipation processes. These are seeking autonomy, authoring, and making declarations.

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

Too often, entrepreneurship is viewed as a solo job. This myth is perpetuated because of the heroic status that many entrepreneurs are conferred. For instance, the stories of Richard Branson, Steve Jobs, Bill Gates, Elon Musk and others reinforce the idea that entrepreneurs are individuals carving out a new world on their own. More often entrepreneurs work in social networks to get their ventures up and running, to grow and to thrive. From a social network theory perspective, entrepreneurship is viewed as embedded in networks of enduring social relations (Walker et al., 1997). Research on entrepreneurship from a social network perspective has gained steam and evidence that networks are useful tools for gaining access to resources has emerged. Social capital is loosely defined as the value of venture founders’ network resources! Networks may act as substitutes for investment capital. Private information flows over networks that can only be accessed through social interactions. An e

Jeffrey Pfeffer and Gerald R. Salancik (1978) proposed the resource dependency theory as a way to explain the behavior of organizations by looking to the contexts in which they operate. Organizations are influenced by numerous external contingencies, thus the theory views the role of the manager as acting to reduce dependencies, especially the power of other actors to exert control over vital resources, often by increasing the power of the focal organization. The assumptions of the theory are that organizations are the main units of analysis for understanding society. Organizations are viewed not as autonomous, but rather, they are seen as constrained by webs of dependence relationships with other organizations that can exercise power. Success and survival are uncertain because of the ever-changing power relations among organizations. Organizations manage inter-dependencies creating new patterns of inter-dependence and inter-organizational power. Power is typically exerted in

Institutional theory is about the rules of the game in a given context (Scott, 2001), such as a business environment. The rules of the game may be formal, informal, or cognitive (taken-for-granted assumptions) about the nature of the business environment.    The main proposition of institutional theory when applied to entrepreneurship may be that: Context-varying social forces shape entrepreneurial success more than does economic efficiency, therefore, entrepreneurs should seek to align their strategies with the norms, beliefs and regulations of their host societies' institutions or change the rules of the game in their favour.   Institutional Entrepreneurship   Levy and Scully (2007) use the idea of the institutional entrepreneur as a "collective agent who organizes and strategizes counter-hegemonic challenges". In other words, whereas for many, the rules of the game are to be followed, institutional entrepreneurs change the rules of the game.    The theory has start

Human capital theory was developed by Dr. Gary Becker, an American economist at the University of Chicago, and others. According to Becker (1994), human capital is different kind of capital from physical and financial resources.    Education, technology and etiquette training, and health expenditures are capital too because they improve wellbeing, health, earnings, and appreciation. Expenditures on education, training, and health care are investments in human capital. Human capital also refers to an individual or group’s stock of knowledge, routines, personality characteristics and social habits. Human capital even includes creativity that can be usefully applied to an economic purpose, and thus is considered to be a type of wealth. Countries, organizations, and groups with greater human capital are expected to be better able to accomplish goals to bring about economic improvement. Several studies have found a positive association between human capital and economic development, in

William J. Baumol was an American economist at New York University. His theory of entrepreneurship starts with the assumption that every society is endowed with their share of entrepreneurs. However, the way in which entrepreneurs use their energies depends upon the institutions—the rules of the game—in place in a given society. It is also sometimes called a political theory because the regime in a given country or territory may have tremendous influence on incentives. He argues that entrepreneurs may engage in productive (i.e., innovation) or unproductive (rent-seeking and crime) forms of entrepreneurship depending on what a country’s institutions encourage. Baumol argued that the notion of a "spirit of entrepreneurship" is largely useless for policymakers because it is difficult to measure and even more difficult to influence. Instead, Baumol proposed that policymakers should focus on altering the rules of the game to encourage productive entrepreneurship and discourage

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 and development (and compound interest). A religious belief in saving for the future was key, he believed, to the capitalistic spirit . Weber distinguished between religions that encourage capitalism from those that do not. In particular, Weber noted that Hinduism, Buddhism and Islam may not be conducive to entrepreneurship. Hinduism and Buddhism purportedly have a focus on the present moment and tend to shun materialism, making them problematic to the pursuit of entrepreneurial goals. He suggested that Islam’s focus on the rewards of the afterlife make material accumulation problematic.    By contrast, he argued that the protestant work ethic prevalent in