Theories of Entrepreneurship


As a proxy of business transformation, an entrepreneur organizes, supervises, and undertakes the risks of an enterprise. Therefore, entrepreneurship is the procedure for finding new techniques for homogenizing resources. A profit is realized when the market value created by this new coalescence of capital is higher than the one that can be generated by the assets elsewhere individually or in some other union. Calculation of profits is made possible because, in the competitive resource markets, a business person’s costs of production are ascertained by the charges needed to tender the requisite assets away from the alternative commercial purposes.

Entrepreneurs initiate trading startups because they understand the ventures they want to engage in and therefore they have a stake in them. A growing commercial entity will eventually depend on the effectiveness of the methodology by which new business proposals are quickly realized, implemented, and labeled as successes or non-fulfillments. Entrepreneurship is an art that requires precision, resilience, decision-making, and innovation to successfully manage an enterprise.

Research on entrepreneurship is pertinent to the economy both in presumption and application. Most importantly, entrepreneurs are regarded as advocates of social transformations and drivers of innovation in society. Certainly, the developed nations of the world attribute expansion of their economies to scientific and technological research as well as the innovativeness of their business people. The incredible developments can be inferred from the expertise of businesspeople to effect changes that adjust people’s occupational and living conditions. Consequently, successful innovations uplift living standards, generate wealth with commercial ventures, create employment opportunities, and contribute to an expanding economy.

Moreover, the new commercial goods developed by the business people can produce a descending effect where they invigorate associated commercial enterprises to reinforce the new enterprise, advancing economic growth. By presenting eccentric commodities and services, entrepreneurs shift from well-known practices and minimize reliance on outdated business techniques and automation processes. Truly, entrepreneurship provides a background for understanding the correlation between national economic growth and entrepreneurship itself.

The paper is going to discuss the nature of an entrepreneur and entrepreneurship by analyzing entrepreneurship skills. Through scrutiny of the available evidence, it is possible to decipher whether entrepreneurship is an innate or acquired behavior. Of all the skill sets of an entrepreneur, the prime ones will be identified and discussed at length. Moreover, key concepts are going to be discussed in explaining the nature of entrepreneurship. Economic theories of entrepreneurship will be elucidated in detail and also their relevance to understanding entrepreneurship. The theories to be investigated include but are not limited to Kirzner’s theory, Knight’s theory, Casson’s theory, and Shackle’s theory. Criticisms against the theories will also be addressed and personal views of entrepreneurship propagated. Therefore, the paper will attempt to explain the nature of entrepreneurs and pioneerdom.

Economic Theories of Entrepreneurship

Different economic writers have recognized the importance of entrepreneurship in economic growth. The theory of Schumpeter, otherwise known as the innovation theory, postulated that the worthwhile duty of an entrepreneur is to commission an innovation (Schumpeter, 2017). Accordingly, entrepreneurship surfaces because of specific mental factors such as determination, precognition, and placidity (Mazzarol and Reboud, 2020).

There are intellectual considerations that activate innovation just as Schumpeter claims and it is, therefore, apparent that creativity is not a hereditary human feature, but rather a heritable competence that makes entrepreneurship to be an adaptable attribute. However, the innovator’s theory is susceptible to errors because innovation has been aggrandized over many factors that cause recurrent undulations in a capitalistic economy (Caton, 2019). Innovation does not require such glorification as it has become a routine job for many entrepreneurs. Undoubtedly, innovation is not only a key special talent in entrepreneurship but also an inculcated peculiarity of a businessperson.

Secondly, there is an economic writer who has propagated the theory of the ability to notice an investment opportunity. This specific theory was brought forward by Kirzner (2018), whose hypothesis is based on the concepts of alertness and entrepreneurial disclosure from the conceited perspective. Particularly, this proposition advances the claims that entrepreneurial recognition methodology is related to the actor’s exposition structure, or the knowledge pool, which is obtained from daily life’s activities (Dhaliwal, 2016).

The argument that knowledge forms the background through which entrepreneurship thrives confirms the notion that entrepreneurship is an acquired skill. Nonetheless, Kirzner’s belief that entrepreneurial alertness cannot be acquired through education makes his proposition to be erratic because market research and customer recognition can lead to the realization of certain types of business opportunities (Kuratko, 2019). Notably, Kirzner singles out alertness as the only entrepreneurial activity, an act that exposes the myopic view of the nature of entrepreneurship from his theory’s perspective.

Additionally, Frank Knight came up with risk analysis in the field of economics. Knight (2012) differentiated between the risks and uncertainties by suggesting that the risks could be modeled probabilistically while uncertainties were referred to as the unknowable. This theory places greater responsibility on the entrepreneur to make decisions based on the future unknowns and this, therefore, means that there is a demand-side risk associated with the production of goods and services (Gupta, 2020). The theory of risk-taking is also having its flaws as any other presumption in economics. The limitation of this theory is that there exists little or no empirical evidence to prove that entrepreneurs earn more from risky commercial entities (Nielsen et al., 2017). The theory bases its arguments on the theoretical approach rather than the practical approach.

Besides Schumpeter’s, Kirzner’s, and Knight’s theories, and economic conjecture which talks about coordination as a function of an entrepreneur is Casson’s theory. Casson’s postulation unifies usable and emblematic definitions of an entrepreneur (Casson, 2003). The most important skill needed by an entrepreneur is to coordinate various factors of production to reduce the entrepreneur’s subjection to unpredictability through insurance and guesses (Kuratko, 2019). The entrepreneur might be faced with the dilemma of having to choose whether to maximize the profits or having to take a particular position in a certain situation (Casson, 2003).

In turn, this might affect proper decision-making as far as the enterprise is concerned. Remarkably, the judgmental nature of human beings might affect key decisions regarding business decisions, and this theory can suffer a setback when poor decisions are made concerning the economic venture.

A successful entrepreneur should exhibit the skill of creativity as postulated by George Shackle in his theory of economics. Entrepreneurs envision and advance economic worlds that would not subsist without their initiative (Shackle, 1991). Creativity allows the entrepreneur to link the efforts and the business venture to real-world possibilities (Shackle, 1991). The extent of entrepreneurial activity is, partially, a concomitant of demand for such creativity. This implies that the entrepreneurs may alter the existing waning collective commercial patterns to make them more amicable with the transposed environment (Nielsen et al., 2017).

From the analysis of Shackle’s theory, it can be seen that creativity is both an innate and acquired skill in entrepreneurship. The explanation from the theory is that the skill can be molded and reshaped as the business environment also keeps on changing. On the contrary, the theory fails to acknowledge the fact that some changes are imposed on the entrepreneur by the external environment and therefore creativity alone cannot suffice to remedy them. The thesis, however, is a great explanation for the important skill in entrepreneurial development.

Two Theoretical Approaches to Entrepreneurship

Furthermore, there are two theoretical approaches to entrepreneurship that are psychological and social-behavioral perspectives. The hypothetical approaches group different economic theories based on the personality characteristics and influence of the external environment on an entrepreneur. Analytically, individuals with a high need for achievement would always have entrepreneurial motives (McClelland, 2010). Moreover, the aplomb and internal locus of control have been associated with the plausibility of committing to entrepreneurial pursuit (Brockhaus, 1982). After identification of core traits linked with entrepreneurs, risk-taking is outlined as one of the important abilities in enterprise development (Knight, 2012).

The weaknesses of the psychological traits approach are that the theory tends to ignore the environmental factors but focuses on the mental aspects of an entrepreneur. The model also faces criticism as it ignores the roles played by learning, preparation, and fortuity. Due to the weaknesses of the psychological theories, another model of social behavior strategy has been developed.

Social behavioral approach theory is of great significance to entrepreneurship as it focuses on explaining the impact of the social environment on an entrepreneur. The social marginality theory contends that people who recognize a greater strength of detachment between their traits and their roles in the society, for example, the immigrants, will be motivated to entrepreneurship (McClelland, 2010).

Also, an advanced educational setting has a positive result on an individual impetus entrepreneurship objective and one’s intended entrepreneurship goal (Loarne-Lemaire et al., 2017). Gender has also been proposed as having an impact on the entrepreneurship aim of individuals. Generally, women have been viewed as having lower entrepreneurship goals compared to their male counterparts (Loarne-Lemaire et al., 2017). Despite the expositions, some criticisms have been brought forward to the social marginality model. For instance, dislocation, gender, and family background are not sufficient enough to prompt a business startup, as there are many factors at play (Loarne-Lemaire et al., 2017). Ultimately, the social behavioral theory explains the nature of entrepreneurship based on the external environment.


In summary, to appreciate the essence of entrepreneurship, the special talents of an entrepreneur need to be scrutinized from an economic perspective. It can be established that entrepreneurship is both a congenital and a learned business aspect. Furthermore, it can be determined that the key entrepreneurship skills form the background through which the theories on entrepreneurship are based. The concepts of risk-taking, innovation, and coordination of resources, which have been explained in entrepreneurship, are sufficient for its understanding. The economic postulations on entrepreneurship that have been investigated include the innovator’s theory of Joseph Schumpeter, and the theories of Kirzner, Knight, Casson, and Shackle. The findings of the review of the propositions clearly explain the nature of entrepreneurship.

According to Schumpeter, the most important skill in entrepreneurship is innovation. Innovator’s theory glorifies innovation at the expense of other factors that may be responsible for repeated fluctuations in a capitalistic economy. Another economist who analyzes the capability of an entrepreneur to recognize opportunity is Kirzner but the limitation of his theory is that he fails to establish the impact of education on his proposition.

Moreover, professor Frank Knight brought forward the hypothesis that an entrepreneur must be able to bear the risks and uncertainty. Knight discerns between the risks and uncertainties by claiming that the former can be modeled using probability functions as opposed to uncertainties. Other economic premises that have been clearly explained include the organizer of resource supposition, creativity speculation, and the two conceptual perspectives of psychological and social-behavioral viewpoints. The stepwise analyses of the surmises on entrepreneurship realize the fact that entrepreneurship is both an inborn and acquired trait.

From my viewpoint, economic theories make entrepreneurship a salient factor in economic growth. The study of entrepreneurship makes an entrepreneur the risk carrier and the decision-maker. However, the economic surmises fail to give an adequate analysis of either the responsibility of entrepreneurship or its substitute in business management. As well, the economic postulates on entrepreneurship emphasize the long-established idea about it as that of integrating different factors of production and coordinating productive activity. The traditional paradigm in which the theories advance is treating the entrepreneurial role as a managerial responsibility.

On reflection, entrepreneurs have been assigned the crucial role of maintaining effective economic growth. It means that the basic changes that need to be effected in economic growth are bestowed upon the entrepreneurs and this is the reason why entrepreneurship spurs economic growth. Entrepreneurs encourage capital generation by marshaling the unused resources from the public possession or private assets. Therefore, entrepreneurship thrives in society because the societal practices allow diverse choices based on the responsibility placed on the entrepreneur in managing the business.

Reference List

Brockhaus, R. (1982) “The psychology of the entrepreneur”. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. Web.

Casson, M. (2003) The entrepreneur. 2nd edn. Cheltenham: Edward Elgar Publishing.

Caton, J. (2019) “Creativity in a theory of entrepreneurship”, Journal of Entrepreneurship and Public Policy, vol.8(4), 442:469. Web.

Dhaliwal, A. (2016). “Role of entrepreneurship in economic development”, International Journal of Scientific Research and Management, vol.4(6), 4262:4269. Web.

Gupta, V. (2020) Great minds in entrepreneurship research: contributions, critiques, and conversations. London: Palgrave Macmillan.

Kirzner, I. (2018) The essence of entrepreneurship and the nature and significance of market process. Indianapolis: Liberty Fund.

Knight, F. (2012) Risk, uncertainty and profit. New York: Dover Publications.

Kuratko, D. (2019) Entrepreneurship: theory, process, practice. 11th edn. Southbank: Cengage Learning Australia.

Loarne-Lemaire, S., Maalaoui, A. and Dana, L. (2017) “Social entrepreneurship, age and gender: toward a model of social involvement in entrepreneurship”, International Journal of Entrepreneurship and Small Business, vol.31(3), 363:381. Web.

Mazzarol, T. and Reboud, S. (2020) Entrepreneurship and innovation. Singapore: Springer Publishing.

McClelland, D. (2010) The achieving society. Torrington: Martino Fine Books.

Nielsen, S. et al. (2017) Entrepreneurship in theory and practice: paradoxes in play. 2nd edn. Cheltenham: Edward Elgar Publishing.

Schumpeter, J. (2017) Essays: on entrepreneurs, innovations, business cycles, and the evolution of capitalism. New York: Routledge.

Shackle, G. (1991) Epistemics and economics: a critique of economic doctrines. New York: Routledge.

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