THEORIES OF

ENTREPRENEURSHIP

PRESENTATED BY :-
ABHIJIT NAYAK
(20IMBA020)
(53209V200601)
ENTREPRENEUR(SHIP)
An entrepreneur is defined as someone who has the ability and desire to establish,
administer and succeed in a startup venture along with risk entitled to it, to make
profits.

The processes carried out by the entrepreneurs as a whole is termed as

entrepreneurship.
 THEORIES OF
ENTREPRENEURSHIP
• Theories of entrepreneurship refer to the different perspectives and frameworks
that attempt to explain how and why entrepreneurs create and grow successful
businesses.

• These theories are developed through research and observation of successful

entrepreneurs, and they aim to provide a deeper understanding of the
entrepreneurial process
TYPES OF
…….THEORIES

Sociological Economic Psychologica

theories theories l theories
These theories talk about the social This theory talks about the economic These theories explain the
aspects of entrepreneurship. aspects of entrepreneurship which focuses psychological features that affect the
If an entrepreneur considers all the on the idea “entrepreneurship is a driving supply of entrepreneurs in a society.
social aspects such as social taboos, force behind the growth and development
customs, culture, and other religious of the economy” which in turn motivates
beliefs, they might have a well- the entrepreneurs to undertake the
established business that is up to mark venture.
with every consumer’s expectation.
SOCIOLOGICAL THEORIES

o Theory of religious belief (Max Weber)

o Theory of entrepreneurial supply (Thomas Cochran)

o Theory of social change (E.E. Hagen)

o Theory of group level pattern (F. Young)

 PAGE 09

Theory of religious belief

• Max Weber proposed the theory of religious belief.

• According to this theory entrepreneurship is a function of religious belief and

the impact of religion shapes the entrepreneurial culture.

• He emphasized that the entrepreneurial energy are provided as a result of

religious believes.

• There are four different elements of theory of religious belief which are :-
(a) spirit of capitalism
(b) adventurous spirit
(c) Protestant ethics
(d) Inducement of profit.
MAX W EBER
(A) SPIRIT OF CAPITALISM
• In capitalist economy the emphasis is on the private sector and economic freedom.
• The spirit of capitalism directs the entrepreneur to perform such functions that can continuously increase the profit ratio of the
business. This drive in an entrepreneur to gain increasing profits and his zeal to succeed, motivates the entrepreneur to
commence new business ventures.
• It basically states that the spirit of capitalism is the guiding factor which guides the entrepreneur to get engaged in activities
that can bring about more and more profit.

(B) ADVENTUROUS SPIRIT

• The adventurous spirit motivate an entrepreneur to have freedom of thoughts and to experiment with innovative ideas
• The adventurous spirit is closely connected with the spirit of capitalism as entrepreneur culture is managed by both these
factors.
• However, while the adventurous spirit is confined only to the outlook of an individual the spirit of capitalism is dependent on
the outlook of the whole society.

(C) PROTESTANT ETHICS

• The protestant ethics refers to the culture of the society, which is independent of individual’s background and personality and
customs lead by society.
• This independence of cultural background and custom favours capitalism
• According to Weber, attitude can be provided by protestant ethic irrespective of cultural background, personality type and
experiences in the society.
• He also adds that, Hinduism lacks this sort of mental attitude which acts as a stumbling block in their way to entrepreneurship.

(D) INDUCEMENT OF PROFIT

• The inducement of profit refers to the concept of low prices and height on hours which helps an entrepreneur to gain huge
profits in the business.
• Based on the spirit of capitalism and profit-oriented business Weber redefine the concept of entrepreneur.
• This resulted in a total makeover of the private industrial sector
 LIMITATIONS

The following are the criticisms and limitations of theory of

religious belief :-

• There is only one system of Hindu value.

• The Indian community internalized those values and

translated them in to daily routine.

• These values remained immune to and insulated against

external pressures and change.
 PAGE 09

Theory of entrepreneurial

supply

• Thomas Cochran proposed theory of entrepreneurial supply

• According to this theory, the basic problem in the field of economic

development are related to the sociological factors involving
entrepreneurial supply and not with the economical factors.

• Cochran emphasized on some important sociological factors such as

cultural background, social limitations and role in society that influence
the supply of entrepreneurs.

• The basic elements of Thomas Cochran theory are :-

(a) Entrepreneur as a society’s modal personality

THOM AS COCHRAN (b) Modal personality as a derivative of social conditioning
(c) role expectations and entrepreneurial role
(d) the type of upbringing, schooling and its influence on intrinsic
character of an entrepreneur.
(e) model of dynamics of entrepreneurs and thrust upon the social
factors for the major changes
(A) ENTREPRENEUR AS A SOCIETY’S MODAL PERSONALITY
• According to Thomas Cochran, an entrepreneur is defined as a role model of a society having the model personality
• The society’s modal personality represents the general tendencies or patterns of personality characteristics that is the most
frequently appearing personality characteristics in the society and is not necessarily similar to the personality of any one
member of the society.
• The personality of an entrepreneur representing such society will be a combination of his competence, style and aim.

(B) MODAL PERSONALITY AS A DERIVATIVE OF SOCIAL CONDITIONING

• Cochran describes an entrepreneur as a role model of a society having model personality.
• An entrepreneur is developed as a role model through the society’s model personality conditioning.
• The model personality of a society is derived from social conditioning of the particular generation of the society.
• Along with society’s modal personality conditioning, innovative ideas and adventurous spirit help develop an
entrepreneur as a role model.

(C) ROLE EXPECTATIONS AND ENTREPRENEURIAL ROLE

• In an organization, the role of an entrepreneur is defined by the senior managers and Board of Directors who are also known as
defining groups.
• The senior managers and Board of Directors specifically shape the role of an entrepreneur.
• According to Cochran, the basic requirements of the role to be carried out by an entrepreneur in an organization and cultural
and social factors should be considered while defining the role of an entrepreneur

(D) THE TYPE OF UPBRINGING, SCHOOLING AND IT’S INFLUENCE ON INTRINSIC CHARACTER OF
AN ENTREPRENEUR
• According to Cochran the intrinsic or inner character of an entrepreneur is shaped by the way he is brought up as also his
schooling.
• The intrinsic character of an entrepreneur is determined by the entrepreneur’s own personality, the society’s expectations and
its influence in diverging the personality of an entrepreneur based on social norms and functional requirements
of an organization
(E) MODEL OF DYNAMICS OF ENTREPRENEURS AND THRUST UPON THE SOCIAL
FACTORS FOR THE MAJOR CHANGES

• According to this model of dynamics of entrepreneurs, social factors are mainly responsible for the
changes in the characteristics of an entrepreneur.

• This model is formed on the basis of American economic history, which states that during 19th century
various social factors influenced entrepreneurial dynamism and as a result key changes occurred in
American economy.

• Those key changes are as follows:-

(a) Introduction and easy adaptation of mechanical devices in 19th century.
(b) Extensive implementation of mass production techniques in the 19th century.
(c) Development of professional management in the late 19th century.

• Therefore the characteristic of an entrepreneur is affected by the following social factors:-

(a) Personality of an entrepreneur
(b) The society’s expectations and its influence on entrepreneur
(c) The functional requirement of entrepreneur’s occupation.
 PAGE 09

Theory of social change

• E.E. Hagen proposed theory of social change

• According to this theory the changes occur in the society along with time,
as a traditional society acknowledges and allows technical advancement to
take place.

• Also the skills and attitude of an entrepreneur place a major role in the
transformation of society and economical growth

• The key features of E.E. Hagen’s theory are as follows:-

(a) Presentation of the general model of the society
(b) Economic growth-product of social and political change
(c) Rejection of follower’s syndrome
(d) Historic shift as a factor of indicating change
E.E. HAGEN (e)withdrawal of status respect as the mechanism for rigorous
entrepreneurial activity
(A) PRESENTATION OF THE GENERAL MODEL OF THE SOCIETY
• This theory explains the general believe and perception of the society, according to which physical environment, social
structure, personality and culture are interrelated

(B) ECONOMIC GROWTH – PRODUCT OF SOCIAL AND POLITICAL CHANGE

• According to Hagen, an entrepreneur is a creative personality who brings out solutions to the problems of the society.
• This results in social and political changes in society and its continuous economic development.

(C) REJECTION OF FOLLOWER’S SYNDROME

• Hagen rejected the idea of the following Western technology to bring economic development in our society.
• Therefore, an entrepreneur pursuing the follower’s syndrome is discouraged.
• That technological advancement of any society is the result of that society’s value and culture and the development suits that
particular society imposing the technological advancement of one society on to another society might not be successful.

(D) HISTORIC SHIFT AS A FACTOR OF INTIMIDATING CHANGE

• According to Hagen, historic shift is the important factor that has bought about a lot of social and technological changes in
the society.
• These changes have resulted in the surfacing of entrepreneurial class from various classes of the society.
• Due to the historic shift, people who have reached at the high level of social hierarchy or those who are respected and
revered in the society start venturing into entrepreneurship
(E) WITHDRAWL OF STATUS RESPECTS AS THE MECHANISM FOR RIGOROUS
ENTREPRENEURIAL ACTIVITY

• Unlike in historic shift, in withdrawal of status respect, the people who have been discouraged or who
have not been able to prove their worth for society venture into entrepreneurship

• When withdrawal of status respect happens it results in 4 reactions and the formation of four different
personality types specifically:-
(a) Retreatist, is the one who regularly does his work in the society but is un interested in this position
(b) Ritualist, is one who has a defensive personality and its constantly trying to put on a behaviour
which is accepted by the society. This kind of personality is not progressive and is content with the present
scenario
(c) Reformist, is the one who ascertains a new order and starts rebellion in the society
(d) Innovator, is one who transforms all available probabilities and prospects into opportunities and
creates new ideas for his business development
 PAGE 09

Theory of group level pattern

• Frank young proposed the theory of group level pattern.

• This theory is based upon the micro-sociological interpretation of

entrepreneurship, which denotes that entrepreneurial instigation is due to the
role of group level pattern.

• He emphasized on a fact that shared aims and team spirit of a group help in
improving its representative position and enables the members to become
entrepreneurs.

• The main features of the theory of group level pattern are:-

(a) Deficiency in psychogenic radiation model
(b) Solidarity groups
(c) Disregarding single-handed concept of entrepreneurship
ALFRED F. YOUNG (d) Reduction of complex economic problems
(e) Incorporation of reactive sub groups
(A) DEFICIENCIES IN PSYCHOGENIC MEDIATION MODEL
• Before giving his Micro sociological model, young discusses the shortcomings of psychogenic model.
• According to him. “Of entrepreneurs in particular imitative time taken by the development process is sum of the demerits of
psychogenic interpretation of entrepreneurship

(B) SOLIDARITY GROUPS

• Frank young proposed that solitary groups are important for building entrepreneurship.
• According to him of these groups those who show a certain reactiveness or solidarity define the degree to which members
create and maintain a coherent definition of the situation that size upon the rhetoric of religion or politics as a vehicle for
expressing their deviation view of the world.

(C) DISREGARDING SINGLE-HANDED CONCEPT OF ENTREPRENEURSHIP

• Young says that entrepreneurs do not work solely.
• Entrepreneurial activity according to young is the product of family background, experience and exposure or the individual
member of the group as a reflection of general values.

(D) REDUCTION OF COMPLEX AND ECONOMIC POBOEMS

• To reduce economic problems solitality entrepreneur groups try to use such remedies like higher standards of labour,
effective management, recombining factors lead to production and investigation of new markets and resources

(E) INCORPORATION OF REACTIVE SUBGROUPS

• young pointed out that a group becomes reactive when three crucial situation coincide.
• They help in the entrepreneurial supply.
• The situations are follows:-
(a) when low status is found in a group
(b) when permission to social network is not given
(c) when the group poses better institutional resources than other in the society at the same level
ECONOMIC THEORIES

o Schumpeter ’s theory of innovation

o Leibenstein’s theory of X-efficiency

o Mark Casson’s theory

o Papanek and Haris’ theory

o Harvard School Theory

o M. Kierzner ’s theory

o David McClelland’s theory of achievement

o Frank H. Knight’s theory of profit

o Friedrich Hayek’s theory of market equilibrium

 Schumpeter ’s theory of innovation

• Schumpeter’s concept of entrepreneurship explains that an entrepreneur is

one who detects innovative opportunities.

• According to him the concept of innovation resulting from new combination

covers the following 5 cases
(a) The introduction of new goods
(b) The introduction of new methods of production
(c) The opening of New Market
(d) The conquest of new source of supply of a raw material
(e) The carrying out of new organization

• In the view of the above, the key features of Schumpeter’s theory are as
follows:-
(a) Distinction between invention and innovation
(b) Emphasis on entrepreneurial functions
SCHUM PETER (c) Presentation of disequilibrium situation through entrepreneurial activity
(d) Entrepreneurship and relation to 3 corresponding pairs of opposites
(e) Characteristics motives of the entrepreneurial conduct
(f) Entrepreneurial dream and the will to create a private Kingdom
(A) DISTINCTION BETWEEN INVENTION AND INNOVATION
• Schumpeter held that invention and innovation differ from each other.
• Invention means to make new things and innovation means to use new things practically.
• Inventor is one who invests or produces the idea and innovator is one who implements the invented ideas practically for
profit maximization.

(B) EMPHASIS ON ENTREPRENEURIAL FUNCTIONS

• According to Schumpeter, entrepreneur has to perform important functions in economic development.
• Entrepreneurs are for him a motivated intellectual class of people and the main movers of economic development.
• They possess foresight and constantly try to exploit opportunities.
• They mobilize resources which are known as 5Ms in modern management, i.e. Man, Material, Money, Machine and Method.
• For a high ratio of profits and economic growth all this 5Ms must be properly harmonized by the entrepreneur.

(C) PRESENTATION OF DISEQUILIBRIUM SITUATION THROUGH ENTREPRENEURIAL ACTIVITY

• Schumpeter pointed out that ‘While he swims with the stream in the circular flow, which is familiar to him, he swims against
the same if he wishes to change its channel.
• What was formally help becomes a hindrance.
• What was form formerly datum becomes an unknown.
• Where the boundaries of the routine stop, many people can go no further and the rest can only do so in highly variable
manner’.
• Hence carrying out new combinations is an object of special kind of function.
(D) ENTREPRENEURSHIP IN RELATION TO THREE CORRESPONDING PAIRS OF OPPOSITE
• According to Schumpter, entrepreneurship and entrepreneurial character are different from each other by 3 pairs:-
(a) By opposing two real process - Firstly the circular flow or tendency towards equilibrium; secondly, changing channels of
economic routine.
(b) By opposing 2 important apparatus - Statistics and Dynamics.
(c) By opposing two types of conducts i.e. individuals viz: managers and entrepreneurs.

(E) CHARACTERISTIC MOTIVES OF THE ENTREPRENEURIAL CONDUCT

• Schumpeter tried to show the psychology of an entrepreneur.
• According to him however none of the results to which our analysis is intended to lead, stands of false with psychology of
entrepreneur or could vitiated by any errors and it.

(C) ENTREPRENEURIAL DREAM AND THE WILL TO CREATE A PRIVATE KINGDOM

• Entrepreneurial motives of inventing and applying things into practice encourages the entrepreneur to follow innovation.
• According to Schumpeter ‘Dream and the will to found a private Kingdom, will to conquer and finally ‘the joy of creating
and getting things done or simply of exercising once energy and ingenuity are the motives inspiring the innovative
entrepreneur to undertake innovation.
 LIMITATIONS

The following are the criticisms and limitations Schumpeter’s theory:-

• This theory is considered narrow because successful business

organizations lack innovation.

• This theory lays lot of stress on the innovation instead of risk taking
which is equally important for developing an enterprise
• .
• Schumpeter’s entrepreneurs are large scale businessman who invest
large amount of money and adopt new technology for production but in
under develop countries, entrepreneurs who are not having excess
money and technology to start their business on a small scale.

• Schumpeter also does not explain why some economy have good
entrepreneurial talent. This point of Schumpeter is
unrealistic and uncertain
 Leibenstein’s theory of X-Efficiency

• Harvey Leibenstein propounded the theory of X-Efficiency which is

popularly called Gap Filling Theory.

• According to Leibenstein, entrepreneurial functions are determined by

the X-efficiency which means the degree of inefficiency on the use of
resources within the firm.

• The basic features of Leibenstein’s theory are as follows

(a) Routine entrepreneurship
(b) New entrepreneurship
(c) Twin rules of entrepreneur
i.) Gap filing
ii.) Input Completing
HARVEY LEI BENSTEI N (d) X-Efficiency factor
(A) ROUTINE ENTREPRENEURSHIP
• Leibenstein discovered two types of entrepreneurship, one is called routine entrepreneurship and the other is known as new
entrepreneurship. Routine entrepreneurship refers to that which is intertwined with the important functions of management.

(B) NEW ENTREPRENEURSHIP

• New entrepreneurship is the second type of entrepreneurship which is characterized by aggressive assembly of information
and analysis of results derived from sound combination of factors.

(C) TWIN RULES OF ENTREPRENEUR

• According to Leibenstein, there are two main functions of an entrepreneur, specifically:-
i.) Gap Filling
ii.) Input Completing
• An entrepreneur has to perform these functions by proper allocation of resources to increase the effectiveness of the present
of production to earn profit.

(D) X-EFFICIENCY FACTOR

• It is the degree of efficiency in the use of inputs within the fIrm.
• it helps to measure the extent of deficiencies in the organization due to wastage and improper utilization of
available resources
 Mark Casson’s Theory

• Mark Casson was of the opinion that it is quite fashionable nowadays

to be an entrepreneur.

• His theory of entrepreneurship is concerned with the functional

behaviour of the entrepreneur and those qualities that are vital for
entrepreneurial success.

• Mark Casson’s theory has the following features

(a) Demand supply relationship
(b) Identification of qualities

• According to Mark Casson, an entrepreneur is a person who

MARK CASSON specialises in taking judgemental decisions about the coordination
of scarce resources.
(A) DEMAND-SUPPLY RELATIONSHIP
• He describes his theory by using the two economic forces demand and supply.
• According to Mark Casson, demand originates from wants of change and supply of
entrepreneurship is limited by the scarcity of the desired personal features

(B) IDENTIFICATION OF QUALITIES

• Mark Casson pointed to important characteristics that an entrepreneur should have.
• He pust forth the example of quality that is right upper for the success of an entrepreneur that
is the quality of imagination
 Papanek and Harris’ Theory

• This theory explain that entrepreneurship and economic growth is possible

under appropriate economic conditions.

• The principle features of this theory are mentioned below:-

(a) Economic incentive - Economic incentive constitute entrepreneurial

development. This basic trade encourages the entrepreneur to perform
entrepreneurial activities for the success of the organization.

(b) Link between economic gains and the inner urge - For the success of
entrepreneurial activities there should be a link between one’s inner urge and
the desired economic gains. It urges and entrepreneur to seek the pecuniary
benefits that are further lead to entrepreneurial development.

(c) Economic gain- sufficient condition - According to this theory

economic gains motivate the entrepreneur naturally to undertake different
entrepreneurial activities for enterprise.
 Harvard School Theory

• This theory holds that entrepreneurship involves any such activities that instigate,
maintain and maximize profit and distribution of goods.

• Activities which are inconsistent with internal and external forces

• In other words, Harvard School Contemplated that entrepreneurship involves any

deliberate activity that initiates, maintains and grows a profit-oriented enterprise for
production or distribution of economic goods or services, which is inconsistent with
internal and external forces.

• the key elements of this theory are mention below

(a) Internal forces
(b) External forces
(c) Emphasis on two types of entrepreneur activities
i.) Entrepreneurial functions
ii.) Decision making functions
(A) INTERNAL FORCES
• These forces comprise the internal qualities of an individual life skills, knowledge and experience that
affect the said person’s entrepreneurial activities

(B) EXTERNAL FORCES

• These forces include those external forces like social political and cultural factors that affect the
entrepreneurship growth and development.

(C) EMPHASIS ON TWO TYPES OF ENTREPRENEURIAL ACTIVITIES

• This theory emphasize on two types of entrepreneurial activities
(a) Entrepreneral functions - To properly allocate the resources in the enterprise
(b) Decision making functions - Responsibility of taking proper decisions to create suitable
environment in the enterprise
 M. Kirzner ’s Theory

• According to Israel Kirzner’s theory, entrepreneurs need to be alert to

tackle any dis equilibrium in the market.

• His theory is characterized by the following features:-

(a)Aadjustment of price - Adjusting price in the market is the

important task of the entrepreneur according to Kirzner prevalence of
wrong price in the market may reduce the profit. In this case the buyer
may pay higher price or the seller accept a lower price which will lead to
opportunities for profit.

ISAREL M. KI RZNER (b) Alertness to disqualibrium - Alertness to dis equilibrium K

pointed out that the entrepreneur should always be alert to the
equilibrium this enables entrepreneur to intervene in the market price by
changing the price which results in economic gains.
 David McClelland’s Theory of achievement

motivation

• David McClelland’s theory of achievement motivation is considered as one of the

best theories of entrepreneur development.

• this theory revolves around the entrepreneurial behaviour and needs.

• it focuses on 3 aspects

(a) Need for achievement - This need place an important role and determining the
success of activities done in the enterprise. According to McLelland, economic
behaviour can be described through achievement orientation McLelland wrote need
for achievement is a desire to do well not so much for the sake of social recognition of
prestige but for the sake of an inner feeling of personal accomplishment

DAVID M CCLELLAND (b) Need for power - This refers to the desire of a person to be influential in the
group this need offers direct satisfaction and authority to managers

(c) Need for affiliation - This need helps in maintaining a personal relationship

with the subordinate people with high need of affiliation or more desperate about love
relationships and functions they love others and expect others to love them
(A) TWIN CHARACTERISTICS OF ENTREPRENEURSHIP
• David McClelland proposed the twin characteristics of entrepreneurship which are his follows:-
(a) Performing activities in a brilliant manner.
(b) Decision making under uncertainty.

(B) BELIEF IN PERSONAL ACCOMPLISHMENT

• According to this theory need for achievement means an individual need for personal success through
excellence.
• such persons enjoy taking responsibility and they take moderate risks and try to come out
winners all the time

(C) PSYCHOLOGICAL FACTORS FOR ENTREPRENEURIAL MOTIVATION

• Need for achievement encourages the individual to take risk.
• Psychological factors that are responsible for entrepreneurial motivation are as follows:-
(A) Risk bearing
(B) Goal orientation
(C) Desire to achieve success
(D) Willingness to take responsibility
(E) Anticipate possibilities
(F) Feeling of personal accomplishment
(G) concrete measures of task performance
 Knight’s Theory of Profit

• According to FH Knight entrepreneurs are a specialised group of

persons who beer risk and deal with uncertainty.

• The basic features of Knight’s theory are as follows:-

(a) Pure profit
(b) Situation of uncertainty
(c) Risk bearing capability
(d) Guarantee of specified sum
(e) Identification of socio economic and psychological factors
(f) Use of consolidation technique to reduce business
uncertainty 
(g) Self confidence

F.H. KNI GHT

(A) PURE PROFIT
• According to Knight theory, entrepreneurs are the receivers of their profit.
• Pure profit means the reward for bearing the cost of uncertainty.

(B) SITUATION OF UNCERTAINTY

• Uncertainty is situation when there is a doubt in near future and no solution can be offered by way of prior reasoning and
statistical analysis.

(C) RISK BEARING CAPACITY

• Knight pointed out that an entrepreneur is one who willingly bears risk of the future incidents that is loss and profit and
enterprise are readily undertakes activities which are neither insured nor salaried.

(D) GUARANTEE OF SPECIFIED SUM

• Entrepreneur has to guarantee some specified amount to lender, to employee and to landlord while taking the responsibility of the
business.
• However, entrepreneur supplier demands on the following factors
(a) Entrepreneur aptitude
(b) Entrepreneur enthusiasm
(c) The power to extend guarantee to others

(E) IDENTIFICATION OF SOCIO-ECONOMIC AND PSYCHOLOGICAL FACTORS

• Socio economic and psychological factors affect the supply and so they should be combined for entrepreneurial development.

(F) USE OF CONSOLIDATION TECHNIQUE TO REDUCE BUSINESS UNCERTAINTY

• knight pointed out that uncertainty of the business could be determined by using consolidation technique to increase the profit
consolidation implies the activity where individual instances get pooled and total and uncertainty is reduced.

(G) SELF-CONFIDENCE
• Self-confidence is important quality for the entrepreneurs for bearing risk and determining the rate of profit.
 Hayek’s Theory of Market

Equilibrium

• This theory is associated with market equilibrium.

• The basic points of Hayek’s theory are follows:-

• Postulate of full equilibrium - According to Hayek’s postulate of full

equilibrium resembles the postulate of full information. If full information is
available then there is no need of other information to change the decision

• Acquisition and communication of knowledge - Acquisition and

communication of knowledge is essential for the adjustment with equilibrium.

• Market as the medium of communication – Hayek pointed out that market is the
HAYEK best medium for entrepreneurs to convey a message to people. However, they
reach the target sales and equilibrium
PSYCHOLOGIC THEORIES

o Theory of personal resourcefulness

o Theory of entrepreneurial supply

 Theory of Personal Resourcefulness

• Personal resourcefulness is crucial for the growth and development of an

entrepreneur.
• The basic points of this theory are as follows:-

(a) Cognitive function - This theory is about cognitive mediated behaviour

like emotions, sentiments, thoughts and actions of the entrepreneur.

(b) Human aspects of psychology – According to different authors there are

different aspects of human psychology. In Schumpter’s words entrepreneurship
is influenced by two things
* will to Power 
* will to conquer
 Theory of Entrepreneurial Supply

• John H. Kunkel coined the theory of entrepreneurial supply.

• According to him, entrepreneurism depends on the following structures :-

• Demand structure - This structure is about changes in the economic development

and growth due to economic demand.

• Limitation structure - In this theory, an entrepreneur is considered to be an

extraordinary individual of the society and hence the society goes against the
activities that affect all the members of the society.

John H. Kunkel
• Labour structure - It means supply of enthusiastic labour. Factors like racial
stock and mobility of labour control this structure.

• Opportunity structure - This structure controls the supply of entrepreneurs. it is

about the managerial skills, capital supply and market analysis