Entrepreneurship is influenced by four distinct factors: economic development culture, technological development and education. In areas where these factors are present, you can expect to see strong and consistent entrepreneurial growth.
Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate especially upon psychological factors. These are as follows:
(1) Need Achievement
The most important psychological theories of entrepreneurship were put forward in the early 1960s by David McClelland. According to McClelland ‘need achievement’ is a social motive to excel that tends to characterize successful entrepreneurs, especially when reinforced by cultural factors. He found that certain kinds of people, especially those who became entrepreneurs, had this characteristic. Moreover, some societies tend to reproduce a larger percentage of people with high ‘need achievement’ than other societies. McClelland attributed this to sociological factors. Differences among societies and individuals accounted for ‘need achievement’ being greater in some societies and less in certain others.
The theory states that people with high need-achievement are distinctive in several ways. They like to take risks and these risks stimulate them to greater effort. The theory identifies the factors that produce such people. Initially, McClelland attributed the role of parents, especially the mother, in mustering her son or daughter to be masterful and self-reliant. Later he put less emphasis on the parent-child relationship and gave more importance to social and cultural factors. He concluded that the ‘need achievement’ is conditioned more by social and cultural reinforcement rather than by parental influence and such related factors.
(2) Withdrawal of Status Respect
There are several other researchers who have tried to understand the psychological roots of entrepreneurship. One such individual is Everett Hagen who stresses the psychological consequences of social change. Hagen says, at some point many social groups experience a radical loss of status. Hagen attributed the withdrawal of status respect of a group to the genesis of entrepreneurship.
Hage believes that the initial condition leading to eventual entrepreneurial behaviour is the loss of status by a group. He postulates that four types of events can produce status withdrawal:
- The group may be displaced by force;
- It may have its valued symbols denigrated;
- It may drift into a situation of status inconsistency; and
- It may not be accepted the expected status on migration in a new society.
Other psychological theories of entrepreneurship stress the motives or goals of the entrepreneur. Cole is of the opinion that besides wealth, entrepreneurs seek power, prestige, security and service to society. Stepanek points particularly to non-monetary aspects such as independence, person self-esteem, power and regard of the society. On the same subject, Evans distinguishes motive by three kinds of entrepreneurs.
- Managing entrepreneurs whose chief motive is security.
- Innovating entrepreneurs, who are interested only in excitement.
- Controlling entrepreneurs, who above all otter motives want power and authority.
Finally, Rostow has examined inter gradational changes in the families of entrepreneurs. He believes that the first generation seeks wealth, the second prestige and the third art and beauty.
Thomas Begley and David P. Boyd studied in detail the psychological roots of entrepreneurship in the mid-1980s. They came to the conclusion that entrepreneurial attitudes based on psychological considerations have five dimensions:
First came ‘need-achievement’ as described by McClelland. In all studies of successful entrepreneurs, a high achievement orientation is invariably present.
The second dimension that Begley and Boyd call ‘locus of control’ This means that the entrepreneur follows the idea that he can control his own life and is not influenced by factors like luck, fate and so on. Need-achievement logically implies that people can control their own lives and are not influenced by external forces.
The third dimension is the willingness to take risks. These two researchers have come to the conclusion that entrepreneurs who take moderate risks earn higher returns on their assets than those who take no risks at all or who take extravagant risks.
Tolerance is the next dimension of this study. Very few decisions are made with complete information. So, all business executives must have a certain amount of tolerance for ambiguity.
Finally, here is what psychologists call ‘Type A’ behaviour. This is nothing but “a chronic, incessant struggle to achieve more and more in less and less of time” Entrepreneurs are characterized by the presence of ‘Type A’ behaviour in all their endeavours.