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Stakeholder theory and entrepreneurship

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A stakeholder approach to entrepreneurship has roots in a debate that had occurred between professors Ron Mitchell and S. Venkataraman in 2002, over the connections between stakeholder theory (Freeman, 1984) and entrepreneurship.    Stakeholder theory had largely been born out of studies of large corporations managing their stakeholders to improve incumbent firm performance, and had not been fully applied to the entrepreneurship area to explain entrepreneurial behaviours, processes, or outcomes.   Entrepreneurship and strategy research tends to be about how new wealth is created, whereas stakeholder theory is more about how that wealth should be distributed. For some, the value creation and distribution issues are separate problems, complementary perhaps, but requiring different logics. A stakeholder theory of entrepreneurship seeks to integrate the wealth creation and redistribution problem. In particular, developed economies feature some degree of competition among incumbents of for

Ambiguity Tolerance Theory and Entrepreneurship

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What is the ambiguity tolerance theory of entrepreneurship? Ambiguity tolerance theory can be traced back to Polish psychologist  Else Frenkel-Brunswik , whose work in 1949 focused on authoritarianism and ethnocentrism in children. Ambiguous information is everywhere and it can lead to the conclusion that there is no way out, no way to understand, or no viable way to proceed. The decision-making process can become paralyzed by ambiguity that prevents conclusive prescriptions. When there exist high levels of uncertainty about a particular entrepreneurial venture, those individuals that exhibit higher levels of tolerance of ambiguity, are more likely to succeed. The ability to tolerate conflicting information and deal with missing information makes the difference. The more uncertain a particular business opportunity, the more important it is that individuals are capable of tolerating the demands of conflicting information and vague information. We might expect that ventures

Individual-Opportunity Nexus Theory

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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

Necessity versus opportunity entrepreneurship

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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

Disagreeableness Theory of Entrepreneurship

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What is the disagreeableness theory of entrepreneurship? Gladwell (2013) introduces disagreeableness as a key attribute of entrepreneurs. Not needing the social approval of peers, is explained as a psychological capability of successful entrepreneurs. It is a capability because most people might be influenced by critical feedback. If a friend or family member says "that is a bad idea" and you stop...then you are agreeable, not disagreeable. He gives many examples, like IKEA pioneers in outsourcing production to Soviet periphery states during the Cold War, which was seen as a bad idea by many. In each case, the entrepreneurs are not afraid of being criticized (e.g., even for crossing into Eastern Europe). Disapproval should not stop an entrepreneur or keep them from trying again and again. The disagreeable entrepreneur shrugs off failure and critique and moves on. Interestingly, Gladwell uses an interpretation of the David and Goliath story that has David being the d

Agglomeration Theory and Entrepreneurship

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For some time there has been interest in the question of whether clusters form because of entrepreneurship, or whether clusters benefit entrepreneurs ( Delgado, Porter, and Stern, 2010 ). Clusters refer to geographic concentrations of similar firms, such the technology firms in Silicon Valley. Researchers are interested to know if clusters breed and boost entrepreneurs to see if pro-cluster policies, such as smart parks, make economic sense. Researchers also want to know if entrepreneurs are better off in clusters or not to inform industrial policy around entrepreneurship education and training ( Cusmano, Morrison and Pandolfo, 2015 ). Spinouts: where employees from firms in a cluster leave to start complementary or competing independent ventures, are seen as important to the diversity and competitiveness of clusters. They are especially important because spinouts tend to stay close to their parent firms and their own networks. Thus, where there are many spinouts, there tends to b

Harvard School Theory of Entrerpeneurship

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This one is a bit of a stretch to call a theory, but we can perhaps think of it as a process theory or a discovery theory . Pradhan and Nath (2011) discuss the Harvard School Theory of entrepreneurship. They say the theory views entrepreneurship as involving "all such activities that initiates, maintains and results in a profit oriented enterprise for production or distribution of economic goods or services and which is consistent with internal and external forces." According to Mohanty (2005) , the Harvard School Theory is a framework for strategic analysis and decision-making that is widely used in the field of entrepreneurship. It involves a thorough internal analysis of the organization's resources and capabilities, as well as an external analysis of the broader business environment. The internal analysis focuses on identifying the organization's strengths and weaknesses, as well as any opportunities and threats that may arise from the external environment. T

Impulsivity Theory of Entrepreneurship

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What is the impulsivity theory of entrepreneurship? Impulsiveness  refers to taking action without thinking about it first and considering data before deciding. Wiklund, Patzelt and Dimov (2016)  state that "acting without thinking is characterized by rapid decision making in situations that would seem to require extensive analysis and deliberation." They go on to explain that individuals need to act impulsively in some entrepreneurial conditions because it is impossible to complete a throughout analysis due to uncertainty, ambiguity, and urgency. Rather than succumbing to analysis paralysis, entrepreneurs take leaps of faith that most others are not willing to. As it turns out, there is a way to measure impulsivity. Attention deficit and hyper-active disorder (ADHD) is usually considered a problem that need to be addressed. For instance, many parents medicate their children with drugs like Ritalin in order to combat the negative effects of ADHD.  Interestingly, ADHD

Birth Order Theory of Entrepreneurship

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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

Genetic Theory of Entrepreneurship

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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

Radical subjectivism theory of entrepreneurship

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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

Misfit theory

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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 entrepreneurship ca

Liquidity constraint theory of entrepreneurship

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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

Locus of control

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Among personality theories used by entrepreneurship researchers, locus of control has received considerable attention. The concept was developed in the 1950s by Julian Rotter who is an American psychologist working on social learning theories. Locus of control refers to an individual’s perception about the causes of their life conditions. External locus of control describes an individual that believes that most of their life conditions are determined by forces outside of their control, such as like deities, governments, power structures, institutions, and also fate or luck. Internal locus of control describes an individual that believes that they are their own master and can act to change their own life conditions. They are viewed as a continuum and most individual are situated between the two extremes of complete external control and total internal control orientations. When applied to entrepreneurs, those with an external locus might believe that their survival or success chance

Contingency Theory and Entrepreneurship

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Contingency theory proposes that an organization's success is determined by how well its internal resources, structure, and strategies align with the external environment in which it operates. This external environment includes factors such as political, economic, social, and technological conditions. The concept of fit is central to contingency theory, as it refers to the degree to which the organization's characteristics match those of the environment in which it operates. A good fit between the organization and its environment can lead to greater success, while a poor fit can lead to inefficiencies and even failure. The understanding that there is no one-size-fits-all strategy for organizational design and administration is a major component of contingency theory. Depending on the particular environmental conditions in which they function, various organizations may require various structures, resources, and methods. For instance, a company operating in a highly regulated se

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