Entrepreneurship Theories

What is the achievement motivation theory of entrepreneurship? Harvard psychologist David McClelland developed the Achievement Motivation Theory in his book entitled The Achieving Society  in 1967. McClelland sought to explain why some societies are more economically successful than others. For answers, he looked at the entrepreneurial behaviors of individuals, which he thought were key to the development of all economies. According to McClelland, entrepreneurs do things in a new and better way and make decisions under uncertainty. Entrepreneurs are characterized by a need for achievement or an achievement orientation , which is a drive to excel, advance, and grow. By focusing in on a particular need, he was able to challenge the then prevailing  great man theory of entrepreneurship  as well as religious theories of entrepreneurship . He believed that entrepreneurship is learned and that such learning can be encouraged fruitfully. Need for achievement The need for achieve

Information Processing Theory is explained by Allen Newell and Herbert A. Simon (1972) in their book entitled Human Problem Solving. The book focuses on how humans think and process information. They view the human system as including the sensual, memory and arousal subsystems. Hansen and Allen (1992) borrow the theory of information processing to explain and predict the creation of new ventures. They start with the assumption that business environments produce information in varying quantities and varieties. For instance, a very simple environment might produce a small amount of very similar information, whereas a complex environment produces a large quantity of heterogeneous information. A complex environment might match a fast-paced, ever-changing high-tech industry, whereas a simple environment might match a slow moving traditional industry such as the restaurant industry. A single individual may find it difficult or impossible to cope with the information load that a compl

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

What is the expectancy theory of entrepreneurship? Expectancy theory was developed to explain work motivation and organizational behavior ( Kanfer, 1990 ). It has since been used to explain additional behaviors, including entry into entrepreneurship. Expectancy theory starts with the concept of motivational forces that Vroom (1964) expressed as an equation: MF = V x I x E, where V = valence, I = instrumentality, and E = expectancy. Valence refers to the value that an individual places on the outcome of their efforts—such as the importance of financial rewards. Instrumentality refers to the belief that if an individual meets performance expectations, that they will actually receive the reward. Expectancy is the belief or probability that an individual’s effort will result in the desired goal being achieved. Since the equation involves multiplication, it implies that if any one of the parts is zero then the motivational forces equal zero. Valance depends upon the individual’

What is the self-efficacy theory of entrepreneurship? Bandura (1977) proposed that an individual’s belief in their ability to perform a given task can be conceptualized as self-efficacy. Self-efficacy is viewed as an antecedent to the formation of intentions. If an individual believes that they have the ability to achieve a goal, they are more likely to develop the intention to achieve the goal. By contrast, if an individual believes that they do not have the ability to achieve a goal, then they will not form intentions to purse the goal. Individuals develop self-efficacy over time as they obtain a variety of skills (cognitive, social, linguistic, or physical) through life experiences. Past achievements (e.g., mastery of a given task) reinforce self-efficacy, thus leading to more ambitious intentions (i.e., higher aspirations). Self-efficacy can also be gained via modeling the behaviors of others through close observation (i.e., vicarious or social learning), self-reflection, and