ECU302 LECTURE THREE

APPROACHES TO ENTREPRENEURSHIP
There are broadly four approaches to the study of Entrepreneurship:
1. Sociological Approach
2. Psychological Approach
3. Political Approach
4. Composite Approach

The Sociological Approach

The sociological approach to the study of entrepreneurship deals with social and cultural factors
responsible for the nature and growth of entrepreneurship development in a society. It attempts
to understand as to why a social structure and culture facilitate or inhibit entrepreneurial
development. It believes that laws of development lie in the social structure and culture of a
region.
It tries to seek an answer to the question, of why one segment of social structure produces a
larger number of entrepreneurs than the other. For example, it is mainly the Samurai community
that could rise to entrepreneurship during the Meiji regime in Japan. Indian entrepreneurship,
from the very beginning, has been dominated by three communities: the Parsis, the Gujaratis,
and the Marwaris. They, however, continue to dominate the business sector even today.

The Psychological Approach

It is clear by now that the entrepreneur is not a common person. He has a typical personality with
creative, managerial, and imaginative skills and can innovate and contribute positively to an
industrial project. This kind of personality develops in a person who has a strong motivation for
achievement.
David McClelland, the greatest exponent of the psychological approach to entrepreneurship, is of
the view that the genesis and performance of entrepreneurs require strong motivation for
achievement. The achievement motivation, according to McClelland, is a function of child
rearing practices in a society.
Unlike the sociological approach which asserts that the existing social structure determines
entrepreneurship and economic development, the psychological approach seeks to find out how
the social structure affects the attitude of the people of a society. Areas like entrepreneurial
commitments, the tendency of saving and investment, and business management have been
usually covered by the studies carried out by psychologists.

1
Collins, Moore and others have examined a sub-category of business leaders. Their study of
innovating entrepreneurs revealed that many of their subjects had experienced childhood poverty
and disrupted family lives which stimulated strong motivations for personal achievements.
Joseph Schumpeter, the first to offer a systematic interpretation of entrepreneurship, had a
psychological perspective in his mind when he said that the entrepreneur possesses the energy of
will and mind to overcome fixed habits of thought and the capacity to withstand social
opposition.
The Political Approach
The political approach to entrepreneurship deals with the issues involved in relationships
between entrepreneurship development and the state, particularly in the context of the role of the
latter in the development of entrepreneurs. The role of the government is crucial in deciding the
nature and rate of development.
The rapid growth of industries and the good pace of economic development largely depend on
the merit of the economic policies of the government. Democratic and relatively stable
governments are supposed to be conducive to economic development.
Entrepreneurial supply would be greater in a state which believes in the ideology of capitalistic
liberalism and provides requisite credit facilities, appropriate training opportunities,
technological and scientific knowledge, and adequate incentives.
Composite Approach
Entrepreneurship is a complex phenomenon. None of the approaches discussed above has been
able to explain the entrepreneurial dynamics fully. Due to their non-holistic nature, they have
failed to offer precise laws of supply and the success of entrepreneurship.
It has been observed that entrepreneurial behaviour is an outcome of the interplay of multiple
social, cultural, economic, political and psychological factors. No single factor is entirely
responsible for the supply of successful entrepreneurs.
Variables like business acumen, motivation for achievement, modern and progressive value
orientation, minimum necessary capital, technical knowledge, adequate market and favorable
political conditions need to exist together for the development of a milieu conducive to
entrepreneurial supply and industrial development.
In a comparative study of the historical roots of industrial entrepreneurship in India and Japan, it
was observed that the emergence, performance and perception of entrepreneurs can be
understood by an integrated approach that would take into account all the possible sociological,
psychological, economic and political factors contributing to the increase in entrepreneurial
behaviour.
COMPETENCIES OF SUCCESSFUL ENTREPRENEURS

2
Generally, competency is an underlying characteristic of a person which leads to his/her superior
performance in a job. Thus, entrepreneurial competencies are the underlying characteristics of an
entrepreneur which result in superior entrepreneurial performance.
1. Personal competencies:
Creativity, determination, integrity, tenacity, emotional balance and self-criticism.
2. Interpersonal competencies:
Communication, engagement/charisma, delegation, respect.
3. Business competencies:
Business vision, resource management, networking, negotiating skills.
Attitudinal Competency Attributes
An attitude is a hypothetical construct that represents an individual’s degree of like or dislike for
something. Attitudes are generally positive or negative views of a person, place, thing, or event.
Attitudes are judgments of an individual.
Behaviour in a given situation can be viewed as a function of the individual’s attitude towards
the situation.
 Self Confidence
Self-confidence is an essential trait in an entrepreneur because he is regularly called upon to
perform tasks and make decisions that require great amounts of faith and belief in himself to
achieve the predetermined goals.
 Self Esteem
Self-esteem of an entrepreneur represents his ability to develop healthy confidence and respect
for himself.
 Dealing with Failures
Entrepreneurship is about getting up whenever the business fails, and learning from that failure.
An entrepreneur believes that failure is part of the entrepreneurial process, and often without it,
success would not be possible.
 Tolerance for Ambiguity
In the entrepreneurial process tolerance for ambiguity refers to the ability of an entrepreneur to
perceive ambiguous situation as desirable, challenging, and interesting.
 Concern for high quality
An entrepreneur has a concern for high quality of his products and services to meet or surpass
existing standards of excellence in a faster, better and cheaply way.

3
  Locus of Control (LOC)
Locus of control is the system of belief of an individual who perceives the outcome of an event
as being either within or beyond his personal control. Entrepreneurs tend to believe in their own
ability to control the outcomes to their efforts by influencing the existing environment, rather
than leave everything to luck.
Behavioral Competency Attributes
Behavioral competency of an entrepreneur refers to the underlying characteristics of having
casual relationship with effective or superior performances in the process of carrying on his
business activities.
 Initiatives
Initiative of an entrepreneur refers to his behavior with a preference for taking action on different
responsibilities or assignments.
 Sees and Acts on Opportunities
Sees and acting on opportunities refers to the unique entrepreneurial behaviour which helps him
to be alert to information and ability to process it in order to identify and recognize the potential
business opportunities even before his competitor.
 Persistence
Persistence of an entrepreneur denotes the ability which keeps him constantly motivated even
when he is confronted by obstacles and willing to keep trying when things go wrong.

13 Assertiveness
Assertiveness of an entrepreneur is about his rights or point of view without either aggressively
threatening the rights of others (assuming a position of dominance) or submissively permitting
others to ignore
 Need for achievement
Successful entrepreneurs are characterised by a need for achievement which motivates them to
take up responsibilities for finding solutions to problems.
 Need for autonomy
The need for autonomy of an entrepreneur is characterized by a drive to control and influence
others, a need to win arguments, a need to persuade and prevail.
 Risk-taking
Entrepreneurs are essentially persons who take decisions under uncertainty and therefore they are
willing to bear risk.

4
  Innovation
Innovation refers to characteristic of an individual who has interest and desire to seek
changes in techniques and ready to introduce such changes into his operations
 Creativity
An entrepreneur is said to be creative when he is able to identify a gap in the market and think up
a product or service to meet that gap. The creativity of an entrepreneur also implies the ability to
do old thinks in a new way or able to give new solutions.
Managerial Competency Attributes
Managerial Competency of an entrepreneur is the ability to direct his staff and define the
expected outcomes clearly and finally to get things done at the best and cheapest ways and
means.
 Information seeking
An entrepreneur has an urge to look for the required information in order to make an informed
decision, for example, selecting, starting and successfully managing the desired business
 Systematic planning
An entrepreneur is expected to have systematic planning which will help him to prepare an
action plan for every area of operation in order to achieve the pre-determined goals.
 Problem solving
Problem solving refers to the application of appropriate knowledge and skills in order to solve a
problem arising while carrying on the business
 Persuasion
Persuasion in entrepreneurship refers to the ability of entrepreneurs to link, convince and
influence other individuals, groups, agencies, creditors, debtors, customers and even competitors
in order to create a contact and maintain good rapport.
 Goal setting & Perseverance
Goal setting refers to the ability of an entrepreneur to set clear and specific goals and objectives.
Successful entrepreneurs are able to achieve great things only by overcoming the obstacles that
stand in their way. Therefore, they need to have perseverance which implies commitment, hard
work, and patience, endurance apart from being able to bear difficulties calmly and without
complaint
 Communication Skill
Communication skill refers to the ability of an entrepreneur to transfer ideas, plans, policies and
programmes to employees, debtors, creditors, customers and everyone who is connected with the
business in order to inform, influence and to express his feelings.

5
  Technical knowledge
An entrepreneur needs to address the rapid technical changes in the industry. Higher levels of
technology must be introduced in the production methods in order to achieve productivity
demands.
 Social skill
Social skill of entrepreneurs includes social perception (the ability to perceive others accurately),
expressiveness (the ability to express feelings and reactions clearly and openly), impression
management (skill in making favorable first impressions on others), and social adaptability
(proficiency in adapting one’s actions to current social contexts) in the process of managing his
business.
Other Competencies
Opportunity competencies: Competencies related to recognizing and developing market
opportunities through various means.
Relationship competencies: Competencies related to person-to-person or individual-to-group-
based interactions, e.g., building a context of cooperation and trust, using contacts and
connections, persuasive ability, communication and interpersonal skill.
Conceptual competencies: Competencies related to different conceptual abilities, which are
reflected in the behaviors of the entrepreneur, e.g., decision skills, absorbing and understanding
complex information, and risk-taking, and innovativeness.
Organizing competencies: Competencies related to the organization of different internal external
human, physical, financial and technological resources, including team-building, leading
employees, training, and controlling
Strategic competencies: Competencies related to setting, evaluating and implementing the
strategies of the firm.
Commitment competencies: Competencies that drive the entrepreneur to move ahead with the
business.