Thomas Cochran’s Theory of Cultural Values

 In Thomas Cochran's theory, he talks about 3 important factors: cultural values, role expectations, and social
sanctions.
o Cultural Values - These are the beliefs and ideas that a society considers important. Cochran
says that entrepreneurs reflect the values of society. So, how they act is shaped by what their
society values.

o Role Expectations - These are the behaviors and responsibilities that society expects from
certain roles, like being an entrepreneur. Cochran says that entrepreneurs perform based on
what society expects of them.

o Social Sanctions - These are the rewards or punishments that society gives for following or
breaking its rules. Cochran says that entrepreneurs are influenced by the approval or
disapproval they receive from society.

 He believes that entrepreneurs are like role models for society, and their actions are influenced by their
attitudes towards their work, what others expect of them, and what's needed for the job.
 Cochran also talks about how changes in things like population, technology, and institutions can affect the role
of entrepreneurs. For example, as technology changes, the skills and abilities that entrepreneurs need might
also change.
 He also notes that in many countries, entrepreneurs often come from specific socio-economic backgrounds. For
example, in Western countries, the Protestant work ethic is said to have contributed to the rise of industrialists.
Similarly, different communities and groups around the world, such as the samurai in Japan or the Parsees in
India, have been sources of entrepreneurship.

Exposure Theory of Entrepreneurship

 Many studies have found that being exposed to new ideas and opportunities sparks creativity and innovation,
which can lead to starting a new business. There's plenty of evidence to support this idea.
 Education also plays a big role in this. When people are educated, they're more likely to come across new ideas,
especially ones from the Western world, which can inspire them to start their own businesses.
 Different social groups respond differently to opportunities presented by government support for
industrialization. Some groups may be more motivated to start businesses when they see these opportunities,
leading to more entrepreneurship in society.
Political System Theory of Entrepreneurial Growth
 The government plays a big role in helping entrepreneurship grow. They can do this by providing things like:
o good infrastructure (like roads and utilities)
o making laws that support businesses
o having fair taxes
o giving incentives and subsidies to entrepreneurs
o ensure security for businesses and create policies that promote entrepreneurship
o set up systems to support people who want to start their own businesses

Leibenstein’s X-Efficiency Theory

 X-efficiency is a way to measure how well a company uses its resources. It looks at how much of the company's
potential to produce is actually realized. If there's a difference between what could be produced and what is
produced because of inefficiencies, that's called X-efficiency.
 Here are 2 main jobs for entrepreneurs according to this theory:
o Gap-filler
- This means that entrepreneurs step in to fill any gaps in the market where resources
aren't being used efficiently. For example, if there's a demand for a product but no
one is supplying it, entrepreneurs can step in to meet that demand.

o Input completer
- Entrepreneurs also work to provide inputs (like materials or technology) that can
improve the efficiency of production or help introduce new methods. They help
make sure that resources are used effectively and that businesses run smoothly.

 There are two types of entrepreneurship:

1. Routine entrepreneurship - involves handling regular business tasks like organizing and coordinating
activities within the business. It's about running things smoothly in a well-established market.

2. Innovative entrepreneurship - this type is more about being creative and thinking outside the box.
Innovative entrepreneurs create new businesses or ventures where markets aren't well-established
or clearly defined. They come up with new ideas and approaches to meet needs in the market that
haven't been addressed before.
Economic Theory of Entrepreneurship
 Economists like Papanek and Harris say that entrepreneurship and economic growth happen when certain
conditions in the economy are favorable for businesses to thrive. They believe that economic incentives, like the
potential to make money, are the main reasons people start businesses in any country.
 There are several economic factors that can either encourage or discourage entrepreneurship:
a. Availability of bank credit - Easy access to loans from banks can help entrepreneurs start or expand
their businesses.

b. High capital formation and savings - When people save money and invest it in businesses, it helps
fuel economic growth.

c. Lower interest rates - Lower interest rates make it cheaper for businesses to borrow money and
invest in growth.

d. Increased demand for goods and services - When people want to buy more things, it creates
opportunities for entrepreneurs to meet that demand.

e. Availability of resources - Having access to things like land, labor, and materials is important for
businesses to operate efficiently.

f. Effective economic policies - Good policies from the government, like tax and monetary policies, can
create a stable and supportive environment for businesses.

g. Communication and transportation - Having good communication and transportation networks

makes it easier for businesses to connect with customers and suppliers.

Hagen’s Theory of Entrepreneurship

 Hagen's theory of entrepreneurial behavior focuses on the idea of "withdrawal of status respect." According to
Hagen, when a group feels that they are not respected or valued by other groups in society whom they admire,
it can lead to the emergence of entrepreneurship.
 Hagen suggests that there are 4 types of events that can lead to "status withdrawal," where a group feels that
their values and goals are not respected:
1. Displacement of traditional elite - This happens when a group that traditionally held power and
status is replaced by another group through physical force or other means.

2. Denigration of valued symbols - When symbols that are important and respected by a group are
degraded or devalued by another group, it can lead to feelings of status withdrawal.

3. Inconsistency of status symbols - If the symbols of status that a group values no longer match
the changes in economic power and distribution, it can cause status withdrawal.

4. Non-acceptance in a new society - When individuals or groups migrate to a new society but are
not accepted or given the status they expected, it can lead to feelings of not being respected.
  Hagen suggests that when people feel their status is not respected, it leads to different reactions and
personality types:
o Retreatist - These entrepreneurs continue working but don't care much about their work or status.
o Ritualist: - They work according to society's norms but don't expect things to get better.
o Reformist - These entrepreneurs rebel against the status quo and try to change things for the better.
o Innovator - They are creative and set their own goals, striving to achieve them.

 Hagen believed that creativity often comes from disadvantaged groups. He used the example of the samurai in
Japan, who lost their high status but became more active and gave rise to many entrepreneurs to regain their
prestige.
 McClelland supported this idea, saying that suppressed communities often have more creativity. He explained
that groups like the Jains could become successful entrepreneurs because they were aware of their minority
status and had a strong drive to succeed. McClelland modified Hagen's thesis slightly, suggesting that the
subordination of a minority group could increase their motivation to achieve, depending on their initial level of
motivation and the resources available to them.

Innovation Theory of Schumpeter

 Schumpeter's Innovation Theory says that entrepreneurs make the economy change and grow by introducing
new ideas and ways of doing things. He called these changes "innovations." When entrepreneurs mix different
resources together in new ways, it creates innovation, which helps the economy to develop and improve.
 Schumpeter talked about innovation as a big part of entrepreneurship, along with taking risks and organizing
production. He said entrepreneurs are like creators who bring new things into the economy. If someone
introduces new products or services, they're seen as entrepreneurs. He believed that innovation is a tool for
entrepreneurs to make things better and grow the economy. Entrepreneurs find chances to introduce new
products, explore new markets, find new suppliers, or change how industries work.
 He described 5 main ways innovation happens:
o Bringing a new product to customers who haven't seen it before, or improving an existing product.
o Trying out a new way to make things, even if it's not a brand-new idea.
o Entering a market that the industry hasn't been in before, even if the market already exists.
o Finding new places to get materials for making products.
o Changing how an entire industry is organized.

 Schumpeter says people are important for economic growth.

 Entrepreneurs are key in making the economy grow.
 Their main job is to come up with new ideas or ways of doing things.
 Schumpeter makes a clear difference between innovators and inventors.
 An inventor discovers new methods or materials.
 An innovator takes those discoveries and creates something new.
 An inventor focuses on the technical side, while an entrepreneur turns ideas into economic growth.
 Innovators not only come up with ideas but also figure out how to make money from them.

 Wilken added more ideas about what changes entrepreneurs bring:

o Entrepreneurs make more goods or products available, so there's more to choose from.
o They help make things more efficient by improving how money, workers, and materials are used.
 o Entrepreneurs come up with new ways to produce things, like using better technology or changing
how work is done, and this helps people work better.
o They also find new ways to sell products, like targeting different kinds of customers or reaching out
to new areas where they haven't sold before.

 Schumpeter thinks entrepreneurs are driven by a desire for power. They have a special ability to make good
decisions, work hard, think differently from others, and handle challenges from society. He believes that the
right environment helps people become entrepreneurs by understanding important facts.

 This theory focuses on the "innovating entrepreneur," who has been crucial in making modern capitalism grow.
However, some critics say the theory is one-sided because it mainly talks about innovation and ignores the risks
and organization needed in entrepreneurship. Entrepreneurs not only need to come up with new ideas but also
gather resources and use them effectively.

 Schumpeter didn't talk much about the risk-taking side, which is also very important. When entrepreneurs try
new things, there's always a chance they might not work out.

 Despite its flaws, the theory encourages entrepreneurs to be creative and innovative. Creating new things adds
value to resources and helps create wealth, according to Drucker. Schumpeter's ideas are especially useful in
developing countries where new ideas are needed to grow.

Max Weber’s Theory of Entrepreneurial Growth

 Max Weber, in his theory, says that religion can affect how entrepreneurship develops. He thinks that some
religions encourage making money more than others. He calls this the "spirit of capitalism" for religions that
encourage money-making, and the "adventurous spirit" for those that don't focus on it as much.
 Weber believes that when a society's attitude is supportive of capitalism, it creates a spirit of capitalism. He says
that religious beliefs from outside sources can drive people to work hard, plan carefully, and save money.
 According to Weber, certain religions like Hinduism, Buddhism, and Islam don't push people to be entrepreneurs
as much. However, many sociologists disagree with his ideas and challenge them.

 Max Weber's theory was liked by the colonial rulers because it supported their goal of promoting European
entrepreneurship in India. However, later researchers criticized Weber's theory. They pointed out that it was
based on wrong assumptions:

(a) Weber assumed that there is only one set of Hindu values.

– This means that he believed all Hindus followed the same beliefs and values. However,
Hinduism is a diverse religion with many different traditions and interpretations, so it's not
accurate to say that there is only one set of Hindu values.

(b) He thought that all Indians adopted these values and followed them in their daily lives.

– He believed that Hindu values were deeply ingrained in Indian society and influenced how
people behaved every day. However, India is a multicultural country with people following
various religions and belief systems, so not everyone necessarily follows Hindu values in
their daily lives.
 (c) He believed that these values didn't change even when faced with outside influences.

– Weber thought that Hindu values remained constant and unaffected by external factors
such as colonial rule or modernization. However, history has shown that cultures and belief
systems can change over time, especially when influenced by outside forces.

 Some people agree with Weber's idea that there's a connection between religious beliefs and how much
entrepreneurship grows. But not everyone thinks this way.
 Samuelson disagreed with Weber. He said that capitalism grew in places where Protestant beliefs weren't
common. So, he thought religion might not be the main reason for entrepreneurship.
 Hoselitz added that even if Protestants were in a place, like France, where they didn't have political security,
they might not be able to start businesses. This means other factors, like politics, could also affect
entrepreneurship.
 Carroll said that ethical values can play a part in entrepreneurship growing, but it's not the only thing. Other
factors matter too.

Need for Achievement Theory of McClelland

 McClelland talks about 2 main qualities of entrepreneurs:
o Doing things in a new and better way - Entrepreneurs are good at coming up with fresh ideas
and improving how things are done.
o Making decisions when things are uncertain - Entrepreneurs often have to make choices without
knowing all the outcomes. They're good at handling uncertainty.

 McClelland thinks the most important quality for entrepreneurs is having a strong desire to achieve things. This
means they're not just focused on making money or getting rewards from outside. Instead, they care more
about achieving their goals and feeling successful.
 For people with high achievement orientation (N-Ach), making a profit is just one way to measure their success.
They're not as motivated by money compared to people with low achievement. Instead, they see profit as a sign
that they're doing well and are competent in what they do.
 Professor David McClelland wrote a book called "The Achieving Society" where he shared his theory about
entrepreneurship. He said that what drives people to become entrepreneurs is their motivation. In particular, he
talked about something called the need for achievement (N-Ach). This is a strong desire to do things well and get
things done.
 McClelland believed that this need for achievement comes from experiences we have when we're growing up,
especially from how our families teach us. He said that when families encourage high standards, warmth,
independence, and don't stress too much authority, it can lead to a strong need for achievement in people.

 According to McClelland, everyone develops three main needs in life based on their experiences:
o Need for Achievement - This is the desire to do well, improve, and grow.
o Need for Power - This is the desire to have control or influence over others and situations.
o Need for Affiliation - This is the desire for close and friendly relationships with others.

 McClelland noticed that some societies had a lot of people who were driven by a strong need for achievement.
He said that individuals, as well as entire societies, with this need for achievement tend to have better economic
conditions than those without it.
 He also identified five main parts of the need for achievement:

a) Taking responsibility for solving problems

– People with a high need for achievement like to tackle challenges and find solutions
on their own.
b) Setting goals
– They are good at deciding what they want to achieve and setting clear objectives for
themselves.

c) Working hard to reach their goals

– They put in a lot of effort to accomplish what they set out to do.

d) Using feedback
– They pay attention to feedback from others and use it to improve their
performance.

e) Taking moderate risks

– They are willing to take some risks, but not too many. They prefer a balance
between safety and taking chances.

 The individual with high levels of need achievement is a potential entrepreneur. The specific characteristics
of a high achiever (entrepreneur) can be summarized as follows:
a. Setting moderate, realistic, and achievable goals - High achievers, including entrepreneurs, don't
set goals that are too easy or too difficult. They aim for targets that they believe they can
realistically reach.

b. Taking calculated risks - Entrepreneurs are willing to take risks, but they don't do so blindly.
They carefully assess the potential outcomes and weigh the risks against the potential rewards
before making decisions.

c. Preferring personal responsibility for problem-solving - High achievers like to take charge and
solve problems on their own. They feel a sense of satisfaction when they can tackle challenges
independently.

d. Needing concrete feedback - They value feedback on their performance. They want to know
how well they're doing and where they can improve. This helps them stay on track and make
adjustments as needed.

e. Finding satisfaction in personal accomplishment - For high achievers, the drive to succeed comes
from within. They are motivated by the sense of personal fulfillment and accomplishment rather
than external rewards like money or recognition from others.

 According to McClelland, 3 things work together to encourage entrepreneurship: motivation, abilities, and a
supportive environment. He believed that since motivation and abilities to become an entrepreneur are
influenced by long-term social factors, it's important to focus on creating a positive political, social, and
economic environment to support entrepreneurship in underdeveloped and developing countries.
Risk Bearing Theory
 The Risk Bearing Theory, proposed by Professor Knight, says that one of the main things entrepreneurs do is
take risks. Knight, along with John Stuart Mill, thought that bearing risks was a crucial part of being an
entrepreneur.
 Some important features of this theory are as follows:
i. Risk creates Profit - According to this theory, entrepreneurs make money because they take
risks. The more risks they take, the more money they can make.

ii. More Risk More Gain - Different industries have different levels of risk. Entrepreneurs choose
how much risk they're willing to take based on their skills and interests. The theory suggests that
riskier businesses should make more profit.

iii. Profit as Reward and Cost - Profit is what entrepreneurs earn as a reward for taking risks. But it's
also seen as a normal part of doing business.

iv. Entrepreneur’s Income is Uncertain - Entrepreneurs deal with situations where they can't
predict outcomes. This uncertainty makes it hard to know how much profit they'll make. Knight
says that profit comes from handling these uncertainties. He suggests that businesses can
reduce uncertainty through "consolidation," which is like pooling resources to manage risk
better.

Theory of Change in Group Level Pattern

 Young says that entrepreneurs often share certain characteristics, and these traits can be found in small groups
where people develop as entrepreneurs. He reached this conclusion through a study called the Thematic
Appreciation Test (TAT), which involved examining groups of entrepreneurs.
 In the test, Young noticed that entrepreneurs tended to see situations as problems to be solved. They were
aware of the effort needed to solve these problems and were confident in their ability to do so. They also had a
habit of considering each person's perspective before suggesting a solution.
 Young's theory focuses on how society changes when certain groups become more active. He calls these groups
"reactive subgroups." A group becomes reactive when 3 conditions happen together:
o They're not allowed to connect with important social networks.
o They don't get much recognition or respect.
o They have better resources than other groups at the same level in society.