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Introduction
As a fascinating and sophisticated concept, entrepreneurship has captured the interest of scholars across various disciplines, including economics, psychology, and sociology. This essay aims to explore and discuss how these three academic domains define and approach entrepreneurship and entrepreneurial behavior, critically analyzing the distinctions and overlaps between each school. The objective is to combine examples of entrepreneurs and insights, drawing from academic sources to construct a comprehensive argument.
1. Risk and Opportunity: The Economic Lens
Entrepreneurship has garnered the attention of many economists due to its highly relevant connection with the economic world. Below are some commonly discussed economic theories of entrepreneurship: Richard Cantillon’s theory, Knight’s Risk Theory of Profit, Schumpeter’s Innovation theory, Kirzner’s Alert Entrepreneurship, and Shackle’s theory.
In 1732, the Irish economist Richard Cantillon provided one of the earliest contributions to the economic dimension of entrepreneurial thought, significantly shaping our understanding of entrepreneurship. He defined entrepreneurship as individuals’ willingness to engage in forms of arbitrage, entailing financial risk in new ventures (Minniti and Lévesque, 2008). Cantillon associated the ‘risk-bearing’ function in the economy with entrepreneurship, a concept later connected to The Risk Theory of Profit proposed by the American economist Frederick Hawley and The Uncertainty Theory of Profit by the American economist Frank H. Knight.
According to Hawley, profit serves as the reward for the risk-taking involved in business (Hawley, 1893). In this perspective, the primary function of an entrepreneur is considered to be risk-taking. Oprah Winfrey, who decided to risk her financial security by securing a deal to host her own television program demonstrates that calculated risk-taking can lead to significant rewards, even if success requires multiple attempts: “Do the one thing you think you cannot do. Fail at it. Try again. Do better the second time. The only people who never tumble are those who never mount the high wire,” she said (Partners in Leadership, 2018).
As for Knight, he defines entrepreneurship as the function of bearing uncertainty and taking responsibility for decisions in a business enterprise. According to Knight, an entrepreneur is a risk-taker who navigates the market with special skills and knowledge, contemplating over uncertainty. He believes that entrepreneurs play a vital role in the economy by identifying and exploiting profit opportunities that others have overlooked or are unable to pursue (Knight, 1921), a perspective shared by Kirzner’s Alert Entrepreneurship.
Kirzner asserts that an entrepreneur is someone who identifies a profitable opportunity (Walia and Chetty, 2020). “Choose a booming market, and if you don’t do that, then choose one that’s going to explode sometime soon,” says Ben Taylor, an award-winning entrepreneur and 3D Online Founder (Corecom Consulting, 2021). It may be the prospect of profit that serves as the major stimulus for entrepreneurship.
Moreover, Cantillon’s theory emphasized the importance of entrepreneurship in driving economic growth and development (Cantillon, 2015). The American economist William J. Baumol shares a similar opinion regarding the recognition of the entrepreneur as a key factor in resource allocation, risk-taking, and their influence on economic development. However, Baumol also acknowledges the role of entrepreneurs in driving innovation and creating new products and services (Baumol, 1990), a perspective that differs from Cantillon’s and Kirzner’s statements. Cantillon argued that an entrepreneur is not necessarily an innovator; their role doesn’t involve altering demand and supply trends. Instead, they are distinguished by their perceptiveness, intelligence, and willingness to take risks, primarily playing a role in bringing together the two sides of the market. (Parker, 2018).
Kirzner’s viewpoint also diverges from Baumol’s, suggesting that profit comes from recognizing profitable opportunities rather than innovation. In other words, it entails identifying where the market has undervalued something, and the entrepreneur’s role is to realize its true value (Langlois, 2002). “Entrepreneurship is an economic phenomenon involving a nexus of two phenomena: the presence of lucrative opportunities and the presence of enterprising individuals” (Shane and Venkataraman, 2000).
Another scholar who shares a similar viewpoint to Baumol concerning the importance of innovation and creativity in entrepreneurship is the Austrian political economist Joseph A. Schumpeter. Schumpeter’s concept of creative destruction has significant implications for entrepreneurship. He viewed entrepreneurs as the driving force behind the process of creative destruction, introducing new products, technologies, and business models that disrupt existing markets and create new ones (Schumpeter, 2006). “The best way to predict the future is to create it.” – Austrian American management consultant Peter Drucker. This highlights the importance of continuous innovation and adaptation to changing market conditions. Successful entrepreneurs are those who recognize the need to constantly challenge the status quo, introduce new ideas, and be willing to disrupt existing industries to create value and drive economic progress (Walia and Chetty, 2020).
However, in the author’s opinion, Schumpeter’s theory suffers from limitations – it excludes individuals who operate an established business without performing innovative functions. Moreover, it assumes an entrepreneur is a person who owns a large-scale business by creating innovation, which, in practice, entrepreneurs usually struggle to survive from the very beginning.
George L. S. Shackle, an English economist, presented entrepreneurs’ education levels, personal backgrounds, experiences, and attitudes were highlighted as significant factors that tend to shape and influence their imagination and creativity. (Smith and Chimucheka, 2014). Economics illuminates how the macro structure of a region or country influences the character and scale of entrepreneurial behaviours.
2. Intention and Motivation: The Psychological Approach
Despite decades of research, scholars currently possess only a restricted understanding of the factors and decision processes that drive an individual to pursue entrepreneurship (Markman, Balkin, & Baron, 2002). To delve into entrepreneurship from a psychological perspective, I will discuss three psychological theories highly relevant to the factors contributing to entrepreneurial behavior — Locus of Control Theory, Theory of Motive Acquisition, and Theory of Planned Behavior.
In 1966, Julian B. Rotter introduced the concept of ‘Locus of Control.’ Locus of control refers to a psychological concept that describes the degree to which individuals perceive they have control over the consequences of their actions. Individuals with an internal locus of control believe that their actions and decisions directly impact the outcomes they experience, attributing success or failure to their own abilities, efforts, and choices. Conversely, individuals with an external locus of control believe that external forces, such as luck, fate, or powerful others, shape the outcomes in their lives. They may attribute success or failure to luck, chance, or the actions of others (Rotter, 1966).
Entrepreneurs typically exhibit a more pronounced internal locus of control compared to non-entrepreneurs. Considering the risks and initiative required to start a business, self-confidence plays a crucial role in affecting entrepreneurial behavior. “Out of being a generally positive person, you can make positive things happen.” Says Richard Branson. This implies that entrepreneurs may be more inclined to believe that their personal actions and decisions play a direct role in influencing the success of their ventures (Rotter and Mulry, 1965). “Personal responsibility is a strength if you own up to where you’re at in life,” says Brian Robben, CEO of Robben Media in Cincinnati. “It empowers you to know that if my actions create my reality, and if I then put in major actions toward a goal, I can achieve that goal. Those who blame others are victims, and victims are never successful in their pursuit of happiness or success.” (Carosa, 2022).
The author considers Locus of Control relevant to Knight’s theory concerning the ability to take responsibility for one’s decisions. “If you’re going to be a successful entrepreneur, you are going to have to take responsibility for your actions,” says Andrew Taylor, Director and Founder of Net Lawman in the UK. “You cannot blame others—even if it has worked out for you. It is important because you need to be able to learn from your mistakes, so you do not make them again. If you believe it was someone else’s fault, you won’t learn anything.” (Carosa, 2022)
However, entrepreneurs with these characteristics may also be at risk of being too arrogant. They might sometimes be too confident in their own decisions and make significant mistakes. For instance, last month, Elon Musk, the CEO of SpaceX and Tesla, left a controversial comment on a post accusing ‘Jewish communities’ on X. After his advertising partners pulled their support for X, he told one of the advertising partners, the CEO of Disney Bob Iger, to “Go fxck yourself.” X has seen a decline in valuation from $44 billion to $19 billion since Musk took over (Levin, 2023). It is doubtful if he made wise decisions or not.
The Theory of Planned Behavior, proposed by Icek Ajzen, is a psychological theory aiming to predict and explain human behavior. Research has shown that entrepreneurial intentions are influenced by attitudes towards entrepreneurship, subjective norms, and perceived behavioral control (Linán and Chen, 2009). In simpler terms, an individual’s intention to become an entrepreneur is influenced by their personal evaluation of entrepreneurship, the social pressures they perceive from important others, and their perceived ability to start and run a business (Ajzen, 1985).
The contextual concept can be found in previous theories like Rotter’s. Locus of control is not only an individual trait but has also been identified as a cultural characteristic, varying among different countries (Mueller and Thomas, 2001). The author considers this relevant to Shackle’s view on how personal background influences entrepreneurship. Additionally, Schumpeter’s emphasis on the role of entrepreneurs in driving economic change underscores the importance of fostering an environment that encourages and supports entrepreneurial activity (Schumpeter, 2006).
David C. McClelland discusses the importance of developing the ‘Need for Achievement (N-Ach).’ N-Ach refers to the need for achievement, a concept related to the motivation and drive for personal accomplishment and success. Entrepreneurs with a high level of N-Ach exhibit a strong drive to excel, tackle challenging objectives, and obtain feedback on their performance. They are highly self-motivated, inclined to pursue tasks that present a moderate level of difficulty, and take personal responsibility for achieving success (McClelland, 1965).
One example is Elon Musk, known for his ambitious goals and his drive to push the boundaries of what is possible in the fields of space exploration and sustainable energy. His motivation to achieve and excel in his entrepreneurial pursuits has been a driving force behind his success in these industries (Miklaszewicz, 2023).
3. Context and Culture: The Sociological Viewpoint
Sociologists offer a distinct perspective on entrepreneurs and entrepreneurship. Rather than concentrating on the individual, sociologists examine the situation and its impact on the person. They analyze entrepreneurial behavior by considering the social contexts, processes, and associated effects, exploring how environments influence entrepreneurship. The two theories below are among the most commonly discussed in sociology that relate to entrepreneurial behavior – Cochran’s theory of entrepreneurship and Everett E. Hagen’s theory of social change.
In 1965, Thomas Cochran introduced the Theory of Entrepreneurship, arguing that the potential entrepreneurs and the expectations of sanctioning groups are culturally determined. This theory posits that entrepreneurship is influenced by variables such as cultural values, role expectations, and social sanctions (Cochran, 1965). Cochran examined historical cases, including the entrepreneurial prominence of various groups such as Protestants in America, Samurais in Japan, the Kikuya in Kenya, Christians in Lebanon, and the Halai Memon in Pakistan. He observed that each of these cases could be viewed as interpretations shaped by cultural biases (Chetty, 2020).
From the author’s perspective, Cochran’s theory could be highly relatable to the cultural characteristic in Rotter’s Locus of Control and Shackle’s theory, which states that the macro structure of a region or country can influence entrepreneurial behaviors. Additionally, Ajzen’s view on intentions influenced by attitudes towards entrepreneurship and Schumpeter’s emphasis on the environment influencing entrepreneurial activity can both be seen in similar social and cultural contexts.
Everett E. Hagen introduced the theory of social change to explain how individuals alter their social status to gain societal respect. At the core of this sociological theory is the idea that when individuals perceive a decline in societal regard, they tend to employ innovative means to positively transform their social standing, aiming to regain lost status. This inclination to change one’s social status is identified as the acquired tendency of an individual to become an entrepreneur (Chetty, 2020).
From the author’s perspective, this theory is related to the Locus of Control, in which individuals believe they have control over the consequences of their actions, and to Ajzen’s theory about how individuals behave through the social pressures they perceive.
4. Vision as the Missing Piece in Entrepreneurship
Each scholar from the three disciplines provides their own studies and opinions, offering diverse perspectives on the study of entrepreneurship. From the author’s viewpoint, one crucial characteristic that appears to be neglected by the scholars above is long-term vision. While it may sound similar to innovation, there are key differences.
Steve Jobs’ success is attributed to his capability not only to inspire but also to possess a clear vision, he saw the future and built achievements through technology. We can also observe this feature in Elon Musk. Whether he’s defending the price of Tesla stock or the need to colonize Mars, Musk doesn’t flinch. “It’s a paradox that Elon is working to improve our planet at the same time he’s building spacecraft to help us leave it,” Richard Branson wrote. “But true vision is binocular — and Elon Musk is clearly a man who can see many things at once.” (Woods and GOBankingRates, 2017).
5. Conclusion
Through critical comparison and analysis of the examples of entrepreneurs, it becomes evident that entrepreneurship cannot be defined by just one single theory. Many of the exemplified entrepreneurs exhibit various characteristics and motives across different schools of thought. If we were to unify the definition of entrepreneurship, the author believes that by combining all the theories discussed in this essay, entrepreneurship can be understood as a spirit marked by the willingness to take risks and responsibility in order to exploit profitable opportunities. This is achieved through various means of value creation — whether by introducing innovative products and services or optimising existing ones — with the ultimate aim of fulfilling purposeful intention.
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