Top 5 Theories Of Entrepreneurship

Top 5 Theories Of Entrepreneurship

“Theory helps us to bear our ignorance of facts”  by George Santayana

We have already known that an entrepreneur is a person who settles a business and Accepts the associated risk to form a profit. A universal fact is that entrepreneurship plays an important role in economic development.

Entrepreneurship development depends upon various models and theories have been prepared for development purpose.  But theories evaluate critical situations.  Already we have an ample number of theories, but all of them drop into one of five main categories

#1. Innovation Theory

This theory was given by J A Schumpeter. In this theory, J A Schumpeter states that an entrepreneur is basically an innovator and inventor is one who identifies and introduces new combinations.

Limitations which this theory faced are:

  1. Excludes individuals who operate traditional businesses
  2. Innovative Entrepreneurs be entitled to the most vigorous type of enterprise
  3. it ignores the risk-taking aspect.

#2. An Economic Theory

This theory was given by Mark Casson in his book The Entrepreneur- An Economic Theory. According to Mark Casson, Demand for Entrepreneurship arise from the need to change and the supply of entrepreneurship is limited. Entrepreneurship complete depends on economic conditions and it takes growth when economic conditions are favorable. The main motivators are Economic incentives like taxation policy, industrial policy, sources of finance and raw material, Infrastructure Availability, etc.

He described four Qualities of an Entrepreneur in his theory i.e.,

  1. Good Decision Making (Judgemental Decisions)
  2. Co-ordination of insufficient Resources
  3. Self Motivation
  4. Natural Imagination


#3. Sociological Theory

In this theory, entrepreneurship depends on social factors. The entrepreneurial activities are studied from social status hierarchy and values. It is likely to get a raise in a certain social culture. The behavior of an entrepreneur in society is  influenced by:

  • Social-political environment factors
  • Social attitudes
  • Society values and beliefs

The entrepreneur should reach the expectations of society.

According to Jean Baptiste (An aristocratic Industrialist), the factors of production like land, labor, capital, and entrepreneurship combines to produce a product.

#4. Psychological Theory

This theory developed by David Mc Clelland as an Achievement motivation theory. Doing innovative things in s efficient manner and Decision making under uncertainty are more likely to become a successful entrepreneur. Mc Clelland suggested that there are three needs for personal acquirements and that is the Achievement, affiliation, and power.

It is possible when the existing entrepreneur improves their performance through imparting proper training and education. As per entrepreneurial personality emphasized by Economic and social development. An entrepreneur tries to find internal factors like human values and motives that lead to making opportunities, to grab advantageous trade conditions.

#5. Leadership theory

This theory propounded by Hoselitz, Entrepreneurship is a function of managerial and leadership skills. An individual must have the ability to lead and manage his group.  In business, there are normally three types of leadership follows- merchant money lenders, Entrepreneurs, and managers.


Every theorist has viewed the entrepreneur and entrepreneurship on the basis of their perception. Theories of entrepreneurship are created into economical, sociological, psychological, cultural, political and managerial threads. An Entrepreneur is the risk taker and works under uncertainty.

Need Any help??

Our firm helps entrepreneurs to know the proper utilization of resources and management. If you need more information or any professional advice.

Anytime you can contact us:

Phone: +91 958-740-6557 (India)

email address: