Sociologists have proposed a variety of theories to explain entrepreneurship and its impact on economic development. Sociological factors such as cultural values, ethical values, religious beliefs, and other sociological factors are believed to strongly influence entrepreneurship development.
Sociologists have also researched how different types of entrepreneurs may react differently to varying situations, thus impacting the development of entrepreneurship. Sociologists believe that understanding these factors can help entrepreneurs assess their own situations and create successful entrepreneurial activities.
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What is the Sociological theory of Entrepreneurship?
The sociological theory of entrepreneurship is the study of how people, groups, and organizations come together to identify and seize opportunities to start new businesses or ventures.
Sociologists have identified a range of factors that influence the formation and success of entrepreneurial activities, including attitudes toward risk-taking, levels of social capital, access to resources, and access to capital.
The Sociological Entrepreneurship research suggests that entrepreneurs need to be aware of these factors in order to be successful. Sociologists have also looked at how entrepreneurial attitudes, such as risk-taking and ambition, can influence the success of entrepreneurial ventures.
Types of Sociological Theories of Entrepreneurship Concepts
A. Classical Approach to Entrepreneurship
Max Weber’s Theory of Social Change
Max Weber, a German sociologist who lived in the early 1900s, proposed that ethical beliefs and attitudes within a particular community determine its entrepreneurial activity. He also suggested that religion plays an integral role in entrepreneurship.
Weber claims that the ethical values inherited from a person’s community can greatly impact their interest in certain economic activities. With this idea in mind, it becomes clear how integral religion is to determining someone’s financial decisions.
Some of the examples Weber used to illustrate his theory include the Protestant ethic and its impact on economic development in Europe. Weber argued that religious values influenced the development of new business practices, which then lead to economical growth.
Max Weber’s The Protestant Ethic and the Spirit of Capitalism explains that religions such as Hinduism and Buddhism hold no particular emphasis on material goods, consequently causing their members to shy away from capitalist activities. This is one major factor that caused the rise of Northern European capitalism due to its embracement of a work ethic similar to Protestantism.
America’s economic success was heavily influenced by Protestant immigrants from Europe (Gurtler, 2018), suggesting that religion may have a profound effect on financial decisions.
In the 1980s, Japan experienced a remarkable economic surge that many ascribe to its Shintoist roots (Gurtler, 2018). Additionally, one of the oldest and most successful capitalist societies in history is England – which predominantly follows Protestantism – and has been known to take control over various other nations.
Karl Marx’s Theory of Capitalism
Marx distinguished the entrepreneur as an affluent capitalist who acquires money and takes advantage of workers through economic means. He argued that although entrepreneurs look to maximize profits, they are not entitled to any extra value created in the process since it is generated by their exploited working-class employees (Tsaliki, 2006).
By critiquing the capitalist system, Marx inadvertently demonizes those who perceive themselves as entrepreneurs. His theory sheds light on why countless entrepreneurial companies are popping up around the world and offers a deeper understanding of their driving force.
People desire to work in an area they are passionate about and don’t want their control taken away by those who would reap the rewards of another’s labor.
Mark Zuckerberg, CEO of Facebook, adamantly stated that if he didn’t have total control of the company he founded himself, then it would be inevitable for him to get dismissed. He wouldn’t accept Yahoo’s offer in 2006 to purchase his business since this meant relinquishing authority — something which was out of the question as working a 9-5 job with fixed wages is unimaginably dull for him (CNBC 2019).
In the past half-decade, India has seen incredible growth in startups, boasting 14000 new business ventures and becoming the third biggest startup landscape after America and China (The Economic Times 2022). Indian students are choosing to pursue entrepreneurship over more traditional 9-5 employment due to a desire for greater autonomy.
B. Modern Approach to Entrepreneurship
Hoselitz’s Theory of Leadership
Contrary to the Marxist perspective, Hoselitz heavily emphasizes that management and leadership techniques are more essential than profit maximization in entrepreneurship. He suggests that control and guidance should be prioritized over other objectives when it comes to enterprise operations.
Hoselitz’s research indicates that many entrepreneurs come from a specific social class, often one with advantages of inherited wealth and power. Consequently, this privileged group is prone to receive proper training for the development of leadership skills. Therefore, as Hoselitz emphasizes, socio-cultural factors such as economic status or community play an indispensable role in understanding how likely individuals are to become entrepreneurs.
According to Hoselitz, minority groups can flourish in unpredictable scenarios and become successful entrepreneurs. This explains why communities of Chinese people in South Africa or Indians living in the Middle East have proven themselves as pools of talented businesspeople (Lounsbury & Glynn, 2001).
StarTribune (2005) reported that Gujarati people are now responsible for a staggering 30% of the hotel and motel industry in America.
Mccleland’s Need for Achievement Theory:
David Mccleland’s theory spotlights how psychological forces influence economic behavior. He maintains that entrepreneurship is driven by certain innate needs and these will ultimately decide the amount of entrepreneurial activity undertaken by a particular individual.
Achievement, power, and affiliation are the three basic needs that drive an individual’s motivation. People who have a strong need for achievement seek out difficult goals and ultimately turn to entrepreneurship tasks more so than those with moderate or low levels of motivation.
Those who crave control and power, as well as those wishing to build relationships with others while gaining recognition are likely inclined to become successful entrepreneurs. With their ambition and drive toward achieving social acceptance, these individuals will no doubt be future leaders in the business world.
Steve Jobs, the renowned CEO of Apple Inc., had an insatiable desire for achievement. Such was his ambition that he pursued perfection to the extreme (Murphy Jr, 2019). Other successful entrepreneurs such as Falguni Nayak and Jeff Bezos often emphasize how crucial ambition and passion are in entrepreneurship.
Cochran’s Cultural Theory of Entrepreneurship
Thomas Cochran accentuated the power of cultural values in both businesspersons’ and investors’ attitudes. He explained that entrepreneurs are significantly impacted by their culture’s view on certain aspects associated with entrepreneurship, like risk-taking attitude or career advancement difficulty.
The Parsi community, which is a small minority in India, has had an outsized impact on the country’s businesses and start-ups. In stark contrast to collectivist cultures, individualistic societies like those seen in the Western world tend to value creativity and entrepreneurship.
As such, there is significantly more entrepreneurial activity found in North America and Europe due to their ongoing emphasis on autonomy and personal achievement.
Schumpeter’s Theory of Innovation
Back in 1991, Schumpeter proclaimed that entrepreneurship is driven by creative thinking and innovation. He argued that revamping traditional processes related to products and services is the pinnacle of entrepreneurial activity.
Consequently, he declared that the debut of novel goods, fresh production techniques, ingenious acquisitions, new markets, and improved organizational structures would spark a great surge in entrepreneurial activities.
This concept establishes the principle that competition within a market will bring forth innovation, consequently leading to entrepreneurial activity. Countless examples illustrate this idea: Reliance Jio’s tremendous success is evidence of such an instance – they revolutionized internet connectivity in India by offering remarkably low prices for high-speed connections.
The intense rivalry between telecom providers sparked the development of unconventional and imaginative data plans in India. The speedy growth of Reliance Jio has earned it a position as the world’s fastest-growing mobile network, all thanks to its revolutionary strategies that outmaneuvered its competition.
EE Hagen’s theory of Social Change
EE Hagen’s groundbreaking theory of social change portrays how individuals can alter their perceived status in society and consequently garner the respect they deserve.
At the heart of this sociological concept is the idea that when people don’t feel respected, they will often find creative ways to restore their social standing and reclaim respect. The intent is to elevate themselves out of any perceived low-status position.
The urge to alter the existing social order can be manifested as an individual’s proclivity towards entrepreneurship. When someone loses their well-deserved social standing to another who has suddenly become the superior, it can be an overwhelming experience. This new power brings immense respect and admiration from peers, creating a difficult situation for those whose status is now inferior.
When an individual’s values and standing are unfairly disparaged by someone of higher authority, then defamation has occurred. When the existing social order transmutes into a new one, it can be difficult for an individual to accept and adjust to their newly acquired status (Hagen, 1963).
According to the theory, leaving one’s social rank can be a catalyst for obtaining entrepreneurial characteristics that enable an individual to become an entrepreneur (Hagen, 1963; Lehmann 2010). This suggests that withdrawing from their current status is often what motivates people into becoming entrepreneurs.
Theory of Frank Young’s
Frank Young’s revolutionary concept of entrepreneurship stands apart from other theories due to its refusal to subscribe to the notion that individual traits and beliefs play a role in entrepreneurial success.
Nee and Young (1991) and Pawar (2013) propose that individual-level qualities are insufficient for promoting entrepreneurial tendencies. Instead, it is crucial to understand the entire constellation of necessary characteristics when seeking out successful entrepreneurs.
According to the latest sociological theories of entrepreneurship, recognizing clusters of entrepreneurial qualities can be a driving force that motivates an individual toward success. By achieving these credibility goals and building their professional reputation as an entrepreneur, they will likely become successful in this field.
Nonetheless, the theory emphasizes that individual-level entrepreneurial traits must not be overlooked, and group-level patterns should take precedence if effective entrepreneurship qualities are to be nurtured (Pawar, 2013). This implies that a collective of individuals is more likely to reach success as entrepreneurs than those who operate individually.
Role of Sociology and Entrepreneurship in Economic Growth
Sociology and entrepreneurship are two powerful forces that can help drive growth. Sociological theories can provide insights into the entrepreneurial process, social institutions, and regional development.
Sociological perspectives on entrepreneurship explore why certain people become entrepreneurs and how they interact with their social context. This theory explains the motivations behind starting businesses, as well as the traits of successful entrepreneurs. Sociological analysis can also provide insights into the dynamics of entrepreneurial teams and the organizational forms that booming businesses take on.
Moreover, research has shown that immigrant entrepreneurs often play a key role in growth by creating innovative new products and services. Sociology can help us understand the motivations behind these decisions and how they contribute to regional development.
Finally, social entrepreneurial behavior is an important component of economic growth. Sociology can help us identify individuals and organizations that are working to solve social problems through innovative business models. By understanding the role of sociology in growth, we can better support entrepreneurs and their initiatives to improve our society.
By gaining insight into the relationship between Sociology and Entrepreneurship theories, we can craft an atmosphere that motivates creative business concepts, bolsters risk-takers, and advances sustainable growth. By understanding sociological theories, we can gain insight into why individuals decide to become entrepreneurs, as well as comprehend how entrepreneurial teams collaborate to create successful businesses.
The Sociological Theories of Entrepreneurship are a powerful tool that can help entrepreneurs understand the social dynamics of their businesses. It enables them to identify potential areas for improvement and allows them to create new strategies that leverage their existing resources more effectively.
By understanding the impact of culture, networks, and organizational structures on their operations, entrepreneurs are better equipped to create value for their customers, partners and employees.
Sociological Theories of Entrepreneurship can help entrepreneurs develop and succeed in an ever-changing environment where they must constantly adapt to new challenges. With the right knowledge and skills, entrepreneurs have the potential to create a competitive advantage that will allow them to stand out from their competitors.
Ultimately, Sociological Theories of Entrepreneurship provide entrepreneurs with the tools needed to build a successful and sustainable business. By leveraging their existing resources, understanding the social dynamics of their business, and creating new strategies, entrepreneurs can create value for all stakeholders.
What do you think? Are Sociological Theories of Entrepreneurship something that could help you on your journey as an entrepreneur? We’d love to hear your thoughts!
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