Entrepreneurship Theories

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 radical subjectivist theory of entrepreneurship? Ludwig M. Lachmann was a German Economist who proposed a radical subjectivist theory of entrepreneurship as an alternative to existing Austrian School theories of entrepreneurship (e.g., altertness theory or uncertainty-bearing theory or creative destruction theory ). According to Lachmann, entrepreneurs develop plans according to their subjective knowledge and expectations. Expectations form as a result of the creative imagination of entrepreneurs, who may envision many competing futures. Entrepreneurs continually revise their plans as they encounter new bits of market information during exchange experiences. Capital is seen as continually recombining due to the process of capital regrouping. As capital is invested sub-optimally, errors lead to new temporary stocks of capital that need to be redeployed toward new purposes. Institutions are viewed as signposts that provide the rules of the game for millions of individu...

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...

Founding a new venture is more common among individuals with greater access to financial capital because financial capital makes it easier to acquire the resources needed to start ventures. For instance, Evans and Jovanovic (1989) find that wealthier individuals are more likely to enter into entrepreneurship because they can risk their own capital. There is some evidence that many employees make the leap to entrepreneurship during liquidity events such as initial public offerings and acquisitions of their parent firms which can put significant financial resources into the hands of employees that own shares or options in the company. These employees, now flush with cash, have the financial freedom to spin out new ventures from their parent firms into independent companies (Stuart and Sorenson, 2003). Hurst and Lusardi (2004) find some evidence for liquidity constraints however only at the top of the range, suggesting that only very wealthy individuals are more likely to become e...