Entrepreneurs find problems as a new opportunity to explore a new product, new mechanism,

new ideas, and innovation. Their biggest motivation is to find something new every day or at
least search for a new side of themselves. The entrepreneurial side of Steve jobs made him
transform the tech and communication industry with his awesome product brand Apple where
the iPhone was first introduced.
- Steve Jobs

Theories of Entrepreneurship
Entrepreneurs are defined in various unique ways by scholars who are continuously searching
the vast field of entrepreneurship based on anthropology, sociology, economics, psychology,
and many more. Here’s a list of top entrepreneurship theories you should know as it brings
more understanding and clarity for the budding entrepreneurs.

1. Innovation Entrepreneurship theory

What makes entrepreneurs different from normal businessmen is finding innovative solutions
and having foresight. Joseph Alois Schumpeter, one of the greatest economists, put forth the
well-known innovative theory which changed the entrepreneur’s perspective. According to
Schumpeter, entrepreneurs take the stationary economy to a new level of development by
adding innovation and creativity of their own. Schumpeter also stated that entrepreneurs bring
innovation in two ways namely:

 By reducing the cost of production

 By increasing the demand for certain products
An exemplar of this theory is Steve Jobs, the co-founder of Apple. Jobs revolutionized the
technology industry by introducing groundbreaking products like the iPhone, which combined
a phone, iPod, and internet communicator into a single device. This innovation not only
transformed the mobile phone market but also spurred the development of an entire app
ecosystem, changing the way people interact and communicate.

2. Economic Entrepreneurship theory

This theory was proposed by Richard Cantillon who considered the economy as one of the
fields affected by entrepreneurship. According to Cantillon, an entrepreneur acts as both
‘producers’ and ‘exchangers’. An entrepreneur’s action greatly affects the supply chain of raw
products being collected, to become an end product for consumers. Cantillon included
everyone as an entrepreneur from their little actions starting from a beggar to restaurant owners
as they also have their source of unfixed income; this counts as a unique factor and made his
theory stand out from other entrepreneurship theories.

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Richard Branson's entrepreneurial journey with the Virgin Group exemplifies this theory.
Branson's initial venture, a record store, was motivated by a gap in the market for unique and
personalised retail experiences. Over time, he expanded into various industries such as airlines,
music, and telecommunications, capitalizing on diverse profit opportunities presented by
market gaps and consumer demands.

3. Sociological Entrepreneurship theory

This theory talks about the social aspects of entrepreneurship. If an entrepreneur considers all
the social aspects such as social taboos, customs, culture, and other religious beliefs, they might
have a well-established business that is up to mark with every consumer’s expectation. Max
Weber propounded the sociological entrepreneurship theory and stated that entrepreneurs
should accept the system of a society for the development of themselves as well as their startup.

Muhammad Yunus, the founder of Grameen Bank, illustrates this theory. Yunus recognised
the social issue of poverty in Bangladesh and developed a microfinance model that provided
small loans to impoverished individuals, primarily women. This socially-conscious approach
aimed to empower individuals through economic means, highlighting the strong connection
between entrepreneurship, social values, and cultural contexts.

4. Psychological Entrepreneurship theory

Psychological theories are of three sections. They are based on the personal characteristics of
a typical entrepreneur.

 Locus of control:- Any entrepreneur’s success can be an outcome of internal locus of

control as well as the outer locus of control i.e., his or her Inside abilities and support
from outside.
 Theory of personality traits: The inborn qualities of an individual are the one that naturally
makes them an entrepreneur.
 Theory of need for achievement:- Entrepreneurs are driven by a need for achievement and
it eventually makes them succeed.

Elon Musk serves as a prime example of this theory. Musk's ventures, including SpaceX and
Tesla, showcase his propensity for taking calculated risks and his unwavering self-
confidence. These traits have enabled him to pursue audacious goals, such as colonising Mars
and transitioning the automotive industry to electric vehicles.

5. Opportunity based Entrepreneurship theory

Peter Drucker in his theory stated that “this defines entrepreneur and entrepreneurship, the
entrepreneur always searches for change, responds to it and exploits it as an opportunity”. Peter
Drucker and Howard Stevenson focused on a wide-ranging conceptual framework of
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entrepreneurship and hence contradicted Schumpeter’s theory which stated entrepreneurship
as change.

Brian Chesky's founding of Airbnb embodies this theory. Chesky recognised the untapped
potential in the accommodation industry, leveraging the sharing economy concept to provide
unique and localised stays for travellers. Airbnb's success stemmed from capitalising on the
opportunity to disrupt the traditional hospitality sector.

6. Resource-based Entrepreneurship theory

This theory states that entrepreneurs need resources to start and carry their businesses. Money
and time alone are not sufficient for a blooming startup; hence Entrepreneurs require resources
to make their efforts productive. Also, the theory’s main focus is on showing the importance
of financial, social, and human resources and in the process enhance an individual’s abilities.

Jeff Bezos' journey with Amazon exemplifies this theory. Bezos started the company as an
online bookstore, capitalising on his background in computer science. With a relatively modest
initial investment, Bezos used his technical knowledge to create a scalable online platform that
eventually evolved into the e-commerce behemoth we know today.

7. Anthropological Entrepreneurship theory

It relates to the cultural model of entrepreneurs. Anthropologists study the human aspects
within the past and present. This makes them good observers of society and hence according
to them, to have a successful venture, entrepreneurs should consider the social and cultural
contexts. Entrepreneurs can find possibilities that present themselves as difficulties because of
the social aspects of business activities (social or environmental). It pushes them to come up
with new ways to solve difficulties, or at the very least contribute to their solutions.

The rise of street food vendors in various cultures exemplifies this theory. These vendors offer
local delicacies and traditional foods, reflecting the unique tastes and preferences of their
communities. The entrepreneurial activities of these vendors are intricately intertwined with
the cultural fabric and culinary traditions of their respective societies.

8. Process of stage Entrepreneurship theory

This theory is once again divided into five stages describing the development journey of an
entrepreneur. It is a widely accepted theory by Venkat Rao. The five steps of entrepreneurship
development according to this theory are:-

1. Simulation for stimulation of entrepreneurship

2. Identifying abilities and capacities of entrepreneurship

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 3. Expansion and development stage
4. Publicity foundation/Promotion
5. Feedback

Mark Zuckerberg's journey with Facebook serves as a comprehensive example of this theory.
Zuckerberg initially developed the platform as a way for university students to connect and
communicate. As the platform gained traction, Zuckerberg navigated through various stages,
including user acquisition, securing funding, and expanding the platform's features. This theory
underscores the systematic approach entrepreneurs take as they move from idea conception to
sustained growth.