UNIT I: THEORIES OF

ENTREPRENEURSHIP
Economic, Sociological, Psychological,
Opportunity-based and Resource-based

INTRODUCTION
 Entrepreneurship is a well acknowledged component in economic progress. An
entrepreneur takes risks and operates in an unpredictable environment. However,
economists made no attempt to develop a coherent theory of entrepreneurship. In this
module, there are many entrepreneurships or entrepreneur that can contribute in the
business world.

Learning Objectives
After going through this unit, you are expected to:
1. Define entrepreneurship.
2. Define the different theories of Entrepreneurship.
3. Identify the different theories of entrepreneurship.
4. Explain the different theories of entrepreneurship.
5. Distinguish the importance of the different theories of entrepreneurship.
6. Explain the connection of the different theories of entrepreneurship.

Pre - test

1. What is Entrepreneurship?
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2. Give different theories in Entrepreneurship. And Explain.
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3. How Entrepreneurship contributes to business?

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4. Does Entrepreneurship help in your daily life? Give an example.
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Pre – activity
Direction. Fill out the KWL chart.

THEORIES OF WHAT I KNOW WHAT I WANT WHAT I HAVE

ENTREPRENEURSHI ….? TO KNOW …? LEARNED …?
P

ECONOMIC

SOCIOLOGICAL

PSYCHOLOGICAL

OPPORTUNITY -
BASED

RESOURCE – BASED
 1
LESSON
ECONOMIC

Learning Objectives
At the end of this lesson, you are expected to:
0. Define what is Economic Theory of Entrepreneurship
b. Identify the 3 different types of Economic theories of Entrepreneurship
c. Identify the difference of the 3 types of economic theories of entrepreneurship

PRETEST

1. What is Entrepreneurship?
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2. What is Economic Entrepreneurship?

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3. What are the 3 economic theories of Entrepreneurship?

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The economic theories carry illustrious and a long-established pedigree relating to the
study of entrepreneurship. Furthermore, entrepreneurship can be broadly defined as the
ability and the readiness to develop, organize and run the business along with handling
the uncertainties in order to make the profits. In economics, entrepreneurship is closely
related to the land, labor, natural resources and capital that can help to generate profit.

Economic theories help in examining and exploring economic factors that affect or
enable entrepreneurial behavior. Economic theories of entrepreneurship can be divided
into three different time periods: 

1. classical, 
2. neo-classical and, 
3. Austrian market process.

The classical, neo-classical and the Austrian market processes are different approaches
in explaining entrepreneurship. Classical theorists confined the role of an entrepreneur
to producers and distributors of goods in the marketplace. Neo-classical theorists, on
the other hand, described an entrepreneur as the people who, along with the production
and the distribution of goods, undertake business risk, identify new opportunities, and
simultaneously reduce costs for a business. 

Finally, the Austrian market process theorists focused on human actions based on their
knowledge regarding the economy. These theorists defined an entrepreneur as the one
who is creative and imaginative in his work and one who sees a profitable opportunity.

Classical economic theories of entrepreneurship 

Classical theories of entrepreneurship majorly focused on the virtues of free trade,
competition and specialization. These theories defined the role of an entrepreneur in
terms of production and distribution of goods in a competitive marketplace (Tiryaki,
2013).
Neoclassical economic theories of entrepreneurship  
The neo-classical theories emerged as a result of the criticism levelled against the
classical theories. The neoclassical theory maintains the impact of diminishing marginal
utility and entrepreneurial response to them as another major aspect which was missing
in the classical works (Gimmnez Roche, 2017).
Austrian market process theories of entrepreneurship  
The Austrian market process theories were proposed in order to provide answers to
questions that remained unanswered in the neo-classical school of thought regarding
entrepreneurship. These theories mainly focus on human actions based on their
knowledge regarding the economy.

Post – Test

1. What are the differences between the 3 economic Theories of

Entrepreneurship?
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2. As an entrepreneur? How will you use the economic theories of

entrepreneurship in your business? 
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 LESSON
SOCIOLOGICAL
2
Learning objectives

At the end of the lesson, the students should be able to;

0. Define what is Sociological Theory of Entrepreneurship
a. Identify the different theories of Sociological Entrepreneurship
b. Identify the difference of the Sociological Theory of Entrepreneurship

Pre - test

1. What is sociological Theory?

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2. What are the Sociological theory of entrepreneurship?

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Sociological theories are different from other theories because they analyze
entrepreneurial activities from the standpoint of social contexts and corresponding
processes and effects. They subscribe to the notion that construction of
entrepreneurship is narrowly a purposive action that leads to the formation of a new
formal organization. They also broadly indicate various efforts that help introduce robust
innovations in routines, technologies, organizational structures and social institutions
(Ruef and Lounsbury, 2007).
The identifying feature of sociological entrepreneurship theories is that they focus on the
social context of entrepreneurship development (Simpeh, 2011). Among some of the
prominent theories include Max Weber’s theory of social change, EE Hagen’s theory,
Theory of Frank Young, Cochran theory, and Attention-Motivation Theory of McClelland.
Some of them are discussed in this section.

Cochran theory of entrepreneurship

The Cochran theory was introduced by Thomas Cochran in 1965. This theory explains
the entrepreneurial approaches of an individual from standpoints like occupational
hazards that he encounters and expectations he has from his own profession (Pawar,
2013; Otaghsara and Hosseini, 2014). It explains that entrepreneurship is determined
by variables like cultural values, role expectations, and social sanctions. This theory
also proposes that entrepreneurs are not supernormal individuals. Rather, they are
people who represent the modal personality of the society. ‘Modal personality’ is the
term used by the anthropologist Cora DuBois in order to indicate behavioural traits few
individuals develop in response to psychological, neurological and cultural factors (Birx
and Fogelson, 2012). Thus, if a person performs like an entrepreneur, their performance
is shaped by factors such as: 
● the attitude of the person towards their profession, 
● their societal role expectations that are held by sanctioning groups and, 
● the operational requirements of the job he is engaged with (Pawar, 2013). 
EE Hagen’s theory of social change
EE Hagen introduced the theory of social change as an endeavour to explain how
individuals change their social status in order to gain societal respect. The core notion
that drives this sociological theory is that when individuals feel that they are no longer
respected by the society, they tend to implement innovative ways by means of which
their social status can get positively transformed. The aim is to regain their lost status. 
This desire to change the prevailing social status can be indicated as the acquired
tendency of an individual to become an entrepreneur. This happens in three situations:
● When the individual loses their existing social status to someone who has
suddenly regained superiority and enhanced social respect. 
● If there is any form of defamation of the values and position of the individual by
someone superior to him. 
● If the individual is unable to accept the newly acquired social status due to the
transformation of the existing society into a new social order (Hagen, 1963).  
Thus, this theory emphatically shows that withdrawal from existing social status acts as
a driver which influences entrepreneurial qualities in an individual. Eventually, this
transforms an individual from an ordinary person to an entrepreneur (Hagen, 1963;
Lehmann, 2010).
Max Weber’s theory of social change
The theory of social change was proposed in the 1980s by the most socially compelling
thinker of his time, Max Weber. The major basis of this theory is religion and social
change. Thus, in order to explain this theory elaborately, the scholar indicates that
religious beliefs have a strong influence on the process of development of
entrepreneurship. 
This sociological theory proposes that the entrepreneurial qualities of an individual or a
group remain ingrained within the society the person belongs to. This perspective of the
society is in turn influenced by religious and ethical beliefs it subscribes to (Jackson,
1983; Rao and Singh, 2018). In addition to this, the Weberian theory of social change
also talks about the integral role of capitalism in the process of developing
entrepreneurial qualities in an individual (Beetham, 2018). 
Weber particularly extended his theory on entrepreneurship to Indian society and
explained that the religious belief of Hinduism that exists in India lacks the spirit of
capitalism. Moreover, the ethical values prevalent in India are mostly concentrated
towards individuals rather than the Hindu society at large. Hence, it fails to excite the
feeling of entrepreneurship in the country (Pawar, 2013). Thus, in explaining the
emergence of modern entrepreneurship traits in an individual, this theory shows that his
religious and ethical approaches serve as the major determinant. Furthermore, the
theory also explains that if the individual belongs to a society where capitalistic
approaches dominate, they will possess entrepreneurial qualities. 
Theory of Frank Young 
The entrepreneurial theory that was proposed by Frank Young is distinct from many
other theories of entrepreneurship because it objects to the idea that individual-level
calibre and beliefs help in developing entrepreneurship. According to this theory, paying
attention to individual-level qualities will never be conducive for developing
entrepreneurship tendencies (Nee and Young, 1991; Pawar, 2013). Rather,
entrepreneurship can only develop when groups or individuals are able to identify and
appreciate clusters of qualities that are needed for developing such a quality. 
In terms of modern sociological theories of entrepreneurship, this theory suggests that
the identification of clusters of entrepreneurial qualities act as a motivation that
influences an individual to accomplish these credibility goals so that they can become a
successful entrepreneur. However, the theory emphasizes that individual-level
entrepreneurial characteristics should always be understood and group level patterns
should be preliminarily emphasized if successful entrepreneurship qualities are to be
developed (Pawar, 2013). This shows that a group of individuals have more propensity
to become successful entrepreneurs than individuals.
In the modern entrepreneurial setting, several sociological factors are undergoing a
change. For instance, digitalisation is picking pace rapidly, penetrating almost every
sector of business. The startup culture facilitated by various governments is also
bringing about a change in attitudes and aspirations of an entrepreneur to drive bigger
changes in society. However, some instances of modern entrepreneurship are radically
different from those that existed during the nineteenth and twentieth centuries,
warranting a new class of sociological elements in societies. Therefore, newer
sociological theories of entrepreneurship need to be developed that encompass these
factors and build upon their relevance.

POSTTEST

1. What are the differences of the Sociological Theories of Entrepreneurship?

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Among the 4 theories of Sociological Entrepreneurship, what is more helpful to

you as an entrepreneur?
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As an entrepreneur? How will you use the Sociological theories of entrepreneurship in

your business?  
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LESSON
3 Psychological
 Psychological theories of entrepreneurship put emphasis on the emotional and
mental aspects of the individuals that drive their entrepreneurial activities (Baum, Frese,
& Baron, 2014). This theory of entrepreneurship focuses on the individual and the
mental or emotional elements that drive entrepreneurial individuals. According to this
theory, entrepreneurship is important to emerge when the society has sufficient supply
of individuals possessing particular psychological elements.

Learning Objectives
At the end of this lesson, you are expected to:
1. Define Psychological Theory in Entrepreneurship.
2. Identify the three popular Psychological Theories of entrepreneurship
3. Explain the views of the popular psychological theories of entrepreneurship

Pre - test

Before moving on this module, let us discover first on how great you’re learning in this
topic. Define the PSYCHOLOGICAL in your own way. Follow the given format

THEORY
PSYCHOLOGICAL

Three of the most popular psychological theories of entrepreneurship today that

have expressed their opinion about psychological factors affecting entrepreneurship
include: McCelland’s theory, Rotter’s locus of control theory and Action regulation
theory.

Key Points
A theory put forward by psychologist David McCLelland, a Harvard
emeritus professor, offers that entrepreneur possess a need for achievement
that drives their activity.  
Julian Rotter, professor emeritus at the University of Connecticut, put
forward a locus of control theory.
Rotter’s theory holds that people with a strong internal locus of control
believe their actions can influence the external world and research suggests
most entrepreneurs possess trait.

Three of the most popular psychological theories of entrepreneurship:

McClelland Theory
David McClelland, a Harvard psychologist formulated the
Theory of Achievement Motivation in 1967. McClelland through his
theory had tried to outline why few communities are more
economically booming as compared to others. Furthermore,
according to him, entrepreneurs are classified on the basis of their
need for achievement which is the driving factor for their economic
growth (Miner, Organizational behavior 1: Essential theories of
motivation and leadership, 2015). David C. McClelland has given a
particular concept of entrepreneurship. According to him, the need
for high achievement is an essential feature of entrepreneurial behavior. According to
McClelland, “Burning desire for achievement attracts an entrepreneur for
activities.”
The primary basis of the development of an entrepreneurship is achievement
orientation. The capacity of becoming an entrepreneur develops due to desire to reach
heights of excellence and specific performance. For achieving heights of excellence and
specific performances, an entrepreneur needs rational thinking, new combinations,
deep thinking, power etc. The achievement motive is uncalculated through child rearing
practices, which stress standards of excellences, material warmth, self-reliance training
and further dominance. Individuals with high achievement motives tend to take keen
interest in situations of high-risk desire for responsibility and a desire for a Concrete
measure of task performance.

His views can be expressed by means of the following points:

a. Ideological Values,
b. Family Socialisation,
c. Need for Achievement,
d. Entrepreneurial Behaviour.
The following elements which are focused by McClelland are as follows:
a. Achievement Orientation,
b. Height of Excellence,
c. Imagination Power,
d. New Combination.
According to McClelland, needs for high achievement drives individual towards
entrepreneurial activities. High achievement need can be developed through child
rearing and schooling practices. People with high achievement need are not motivated
by monetary rewards only, such people regard profit as a measure of success whereas
people with low achievement needs are motivated by monetary rewards.
People with a high need for achievement derive satisfaction from achieving
goals. High achievers want immediate feedback on their power performances. He has
been able to establish the desirability of high need for achievement for entrepreneurial
success in the economic development of country.
A drive to influence others and situations. It refers to one’s desire to influence
and dominate other through use of authority. Goal’s achievement is less important than
the means by which goals are achieved. McClelland and his associates have found that
people with high power needs have a great concern for exercising influence and control.
Rotter’s locus of control theory

Rotter’s locus of control has garnered prominent attention

amongst personality theories of entrepreneurship (Lefcourt,
2014).  This theory was formulated in 1954 by Julian Rotter.
Furthermore, locus of Control offers people the belief that control
resides within them i.e. internally or can be created externally.
 Figure 2: Locus of control theory of entrepreneurship; Source: (Lefcourt, 2014)

High internal locus of control: In this case, people believe that they are in charge
of their actions and fortune. Events would be determined on the basis of their qualities
and conduct. High external locus of control: In this scenario, individuals believe that
outcomes are out of their control and it completely depends on external factors such as
fate, change etc.
Individuals who have a high tendency towards risks are more likely to become an
entrepreneur (Bodill & Roberts, 2013). Furthermore, risk-taking is the most elementary
action that entrepreneurs do to achieve high-level performance and success. Therefore,
this theory manages to explain that entrepreneurs with internals locus believe that
emergence of success is due to their capabilities and actions. While entrepreneurs with
external locus assume chances of success or survival are driven by institutional and
external forces.
Rotter’s theory critics
Like McClelland’s theory, this theory too faced criticism with time mainly
methodological and theoretical. In methodological limitations, the flaws in scales of
measurement of the theory were pointed out. Whereas, in theoretical aspect,
researchers pointed out that other personality dimensions such as self-efficacy have
been ignored (Üzümçeker, 2016).
Action regulation theory
Michael Frese outlines the application of Action theory with
relation to entrepreneurship. It is elaborated as the meta-theory
which regulates the goal-directed behavior (Baum, Frese, & Baron,
2014). This theory explains how individuals control their cognitive
behavior with the help of cognitive processes which consist of
selection and development, orientation, monitoring and planning
and processing feedbacks.
In order to examine human action according to this theory there are three dimensions:
● sequence highlights the path taken from goals to feedback.
● focus extends from activities to self and,
 ● structure outlines the level of actions which are often regulated.

The basic application of this theory to entrepreneurship is seen in terms of planning.

In order to describe entrepreneurial planning behavior, four action processes have been
suggested; opportunistic, complete planning and review (Baum, Frese, & Baron, 2014).
Based on Frese’s theory, early-stage entrepreneurs are likely to observe a new task.
Also, this occurs repeatedly and this occurrence of the action is likely to feature in the
coming few years. Furthermore, it highlights the fact cognitive ability is much more
crucial to entrepreneurs. Compared to the other two theories, this theory is significantly
less criticized.

Post – Test

Direction: Before moving on this module, let us discover first on how great you’re
learning in this topic. Give your answer briefly.
1. What is the importance of the 3 Psychological Theories of Entrepreneurship?
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2. Why is Psychological Theory influencing entrepreneurship?
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3. Choose one Psychological Theory and reflect in your daily life. Explain briefly.
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LESSON
4 Opportunity - Based
 An opportunity-based approach provides a wide-ranging conceptual
framework for entrepreneurship research (Fiet, 2002; Shane, 2000). Peter Drucker in
his theory stated that “this defines entrepreneur and entrepreneurship, the entrepreneur
always searches for change, responds to it and exploits it as an opportunity”. Peter
Drucker and Howard Stevenson focused on a wide-ranging conceptual framework of
entrepreneurship and hence contradicted Schumpeter’s theory which stated
entrepreneurship as change.

Learning Objectives
At the end of this module, you are expected to:
1. Define Opportunity-based entrepreneurship theory
2. identify the different elements of opportunity
3. Distinguish the importance of Opportunity based Entrepreneurship Theory to
entrepreneurship/entrepreneur.

Pre – test

Before moving on this module, let us discover first on how great you’re learning in
this topic. Answer the following questions briefly.
1. In your own ideas, how can you define Opportunity based Entrepreneurship
Theory?
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2. What do you think is the importance of Opportunity based Entrepreneurship

Theory to an entrepreneur?
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Opportunity Based Theory

 Prolific business management author, professor
and corporate consultant, Peter Drucker put forward an
opportunity-based theory. Drucker contends that
entrepreneurs excel at seeing and taking advantage of
possibilities created by social, technological and cultural
changes.
For example, where a business that caters to senior
citizens might view a sudden influx of younger residents to a neighborhood as a
potential death stroke, an entrepreneur might see it as a chance to open a new club.
Entrepreneurs do not cause change (as claimed by the Schumpeterian or Austrian
school) but exploit the opportunities that change (in technology, consumer preferences
etc.) creates (Drucker, 1985). He further says, “This defines entrepreneur and
entrepreneurship, the entrepreneur always searches for change, responds to it, and
exploits it as an opportunity”. What is apparent in Drucker’s opportunity construct is that
entrepreneurs have an eye more for possibilities created by change than the problems.
Stevenson (1990) extends Drucker’s opportunity-based construct to include
resourcefulness. This is based on research to determine the differences between
entrepreneurial management and administrative management. He concludes that the
hub of entrepreneurial management is the “pursuit of opportunity without regard to
resources currently controlled”.
Elements of Opportunity
Based on literature review and very careful observation of the entrepreneurial
environment the following elements of opportunity are identified.
1. Opportunities Are Often Tied to Specific Purposes
Opportunities are tied to specific purposes and circumstances. There is a
specific purpose for every opportunity and in a given location. People have to
meet certain individuals, read books, listen to radio or tapes and do several other
things in given locations. The privatization and commercialization processes in
Nigeria open up investment opportunities based on current circumstances.

2. Opportunities Are Endless

Just like waves of the sea, life is a succession of opportunities (Dangote 2005).
The opportunities that come in individuals or organization’s way may determine
the rate of his/its growth or progress. They are arranged as interjections that
terminate a phase and open up the next. The Nigerian Enterprises Promotion
Decree 1972 opened up wide opportunities for Nigerians to venture into
entrepreneurial careers. On the other hand, the1986 Structural Adjustment
Programme (SAP) created many hardships and blocked several areas of
opportunities for entrepreneurs.
3. Greatness or Success is a Product of Opportunity
Abioye (1996) noted that every greatness is a product of opportunity. That there
were great names that had made marks in the generations who would never
have been mentioned if it was not for an opportunity that came their way.

4. An Opportunity opens up to another

An opportunity well utilized opens up to another. Opportunities are in sizes and
phases. Just as in the home, an outer door leads to an inner one so it is with
opportunities. Dangote (2005) as pointed out above illustrates this point.

5. Opportunity Elevates people and organization

Abioye (1996) observed that opportunity does not reduce people rather it
increases them. He illustrated it with the Biblical parable of a man with five
talents. For utilizing the opportunity of five talents he received the opportunity to
use ten.

6. Opportunities have Companions

Another aspect of the concept of opportunity is its features of companionship.
Opportunities are often enveloped in challenges. To refuse to rise up to
challenges or not to see it when it comes one’s way is to allow opportunity pass
by unattended to (Batty, 1974).

7. Opportunities involves risk taking

Risk in this sense relates to deliberate departure from the known to the unknown.
The individual forsakes what he/she has in the hope of getting a better one that
awaits him or her (Schumpeter, 1934, Drucker 1985 and Tushman and Nelson,
1991).

8. Opportunity involves facing opposition

There is the fact of opposition to opportunity which is failure to utilize it. The
reason why some live better than the others is their attitude to opportunities that
come their way. Some embrace theirs while others despise and toy with theirs.
The key to success is to learn to emphasize one’s advantages and de-
emphasize what looks like disadvantages. (Kilby, 1971 and Inegbenebor, 1995).

9. Opportunity may be in form of Luck

People often say that an element of lack is involved in entrepreneurship. This,
others call destiny. However, any destiny not given an appropriate drive will lie
dormant and impotent. Every destiny is to be driven to its destination (Batty,
1974).

10. Exploitation of opportunity involves discipline

 This relates to having a sense of denial and control. Discipline places a
nonnegotiable and uncompromising demand on people. By discipline, one
responds to issues of life not as he or she wants or likes it to be, but as they are
required or needed to be done. One refuses to respond to emotions in order to
face the realities of life (Abioye, 1996). It requires disciplines in man, money and
material management (Stevenson and Sahlman, 1990).

11. One should expect opportunity always

To look for opportunity as a matter of necessity is a normal thing to do. It is
entrepreneurship. This is because opportunity is to be expected always. It is this
expectation that translates pictures into reality. What you do not expect you
cannot see. Therefore, one should always expect business opportunities
(Meredith, Nelson and Neck, 1990).

How well do you remember (Post-Test)

Before this lesson ends let’s test how well you remember our lesson.
1. What is Opportunity-based Entrepreneurship Theory?
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2. What are the different elements of opportunity?
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3. On the different elements of opportunity, which one do you prefer if you will be an
entrepreneur someday? Explain your answer.
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4. What is the importance of Opportunity based Entrepreneurship Theory to
entrepreneurship/entrepreneur?
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 LESSON
5 Resource – Based

According to this theory, entrepreneurs require resources to set up and operate

their businesses. Money and time alone are sufficient for a thriving company; so,
entrepreneurs want resources to make their efforts profitable. Furthermore, the theory's
major focus is on emphasizing the relevance of financial, social, and personal resources
in order to improve an individual's talents.

Learning Objectives
After going through this module, you are expected to:
 1. Define resource-based theory.
2. Identify the three classes of theories under the resource-based entrepreneurship
theories.
3. Distinguish the importance of resource-based theory in entrepreneurship.

Pre - test

Direction: Before moving on this module, let us discover first on how greater you’re
learning in this topic. Answer the following questions briefly. Write your answer on the
space provided.
1. What do you think is the importance of Financial Capital/Liquidity Theory in
resource-based Entrepreneurship Theory? What are their functions in resource-
based Entrepreneurship Theory?
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2. What do you think is the importance of Social Capital or Social Network Theory in
resource-based Entrepreneurship Theory? What are their functions in resource-
based Entrepreneurship Theory?
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3. What do you think is the importance of Human Capital Entrepreneurship Theory

in resource-based Entrepreneurship Theory? What are their functions in
resource-based Entrepreneurship Theory?
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Resource-based theories focus on the way individuals leverage different types of

resources to get entrepreneurial efforts off the ground. Access to capital improves the
chances of getting a new venture off the ground, but entrepreneurs often start ventures
with little ready capital. Other types of resources entrepreneurs might leverage include
social networks and the information they provide, as well as human resources, such as
education. In some cases, the intangible elements of leadership the entrepreneur adds
to the mix operate as resources that a business cannot replace.
The Resource-based theory of entrepreneurship argues that access to resources by
founders is an important predictor of opportunity-based entrepreneurship and new
venture growth (Alvarez & Busenitz, 2001). This theory stresses the importance of
financial, social and human resources (Aldrich, 1999). Thus, access to resources
enhances the individual’s ability to detect and act upon discovered opportunities
(Davidson & Honing, 2003). Financial, social and human capital represents three
classes of theories under the resource –based entrepreneurship theories.

THREE CLASSES OF RESOURCE – BASED THEORY

1. Financial Capital/Liquidity Theory

Empirical research has shown that the founding of new firms is more
common when people have access to financial capital (Blanchflower et al, 2001,
Evans & Jovanovic, 1989, and Holtz-Eakin et al, 1994). By implication this theory
suggests that people with financial capital are more able to acquire resources to
effectively exploit entrepreneurial opportunities, and set up a firm to do so
(Clausen, 2006).
However , other studies contest this theory as it is demonstrated that most
founders start new ventures without much capital, and that financial capital is not
significantly related to the probability of being nascent entrepreneurs
(Aldrich,1999, Kim, Aldrich & Keister, 2003, Hurst & Lusardi, 2004, Davidson &
Honing, 2003).This apparent confusion is due to the fact that the line of research
connected to the theory of liquidity constraints generally aims to resolve whether
a founder’s access to capital is determined by the amount of capital employed to
start a new venture Clausen (2006). In his view, this does not necessarily rule out
the possibility of starting a firm without much capital. Therefore, founders’ access
 to capital is an important predictor of new venture growth but not necessarily
important for the founding of a new venture (Hurst & Lusardi, 2004).

2. Social Capital or Social Network Theory

Entrepreneurs are embedded in a larger social network structure that
constitutes a significant proportion of their opportunity structure (Clausen, 2006).
Shane and Eckhardt (2003) says “an individual may have the ability to recognize
that a given entrepreneurial opportunity exists, but might lack the social
connections to transform the opportunity into a business startup. It is thought that
access to a larger social network might help overcome this problem” (pp.333)
In a similar vein, Reynolds (1991) mentioned social networks in his four stages in
sociological theory. The literature on this theory shows that stronger social ties to
resource providers facilitate the acquisition of resources and enhance the
probability of opportunity exploitation (Aldrich & Zimmers, 1986).Other
researchers have suggested that it is important for nascent founders to have
access to entrepreneurs in their social network, as the competence these people
have represents a kind of cultural capital that nascent ventures can draw upon in
order to detect opportunities (Aldrich & Cliff, 2003., Gartner et al, 2004., Kim,
Aldrich & Keister, 2003).

2. Human Capital Entrepreneurship Theory

Underlying the human capital entrepreneurship theory are two factors,
education and experience (Becker, 1975). The knowledge gained from education
and experience represents a resource that is heterogeneously distributed across
individuals and in effect central to understanding differences in opportunity
identification and exploitation (Anderson & Miller, 2003, Chandler & Hanks, 1998,
Gartner et al, 2005, Shane &Venkataraman, 2000).Empirical studies show that
human capital factors are positively related to becoming a nascent
entrepreneur(Kim, Aldrich & Keister, 2003,Davidson & Honing,2003, Korunka et
al, 2003), increase opportunity recognition and even entrepreneurial success
(Anderson & Miller, 2003,Davidson & Honing,2003).

(Post-Test)
Before this lesson ends let’s test how well you remember our lesson.
1. What are the 3 classes Theory under the resource-based Entrepreneurship
Theory?
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 2. How are they related to resource-based Entrepreneurship Theory?
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3. What are their functions in resource-based Entrepreneurship Theory?
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References:

Lesson I.

● https://www.projectguru.in/the-economic-theories-of-entrepreneurship/

Lesson II.

● https://www.projectguru.in/sociological-theories-of-entrepreneurship/

Lesson III.

● https://www.economicsdiscussion.net/entrepreneurship/theories-of-
entrepreneurship/31823
● https://www.projectguru.in/psychological-theories-entrepreneurship/

Lesson IV.

● https://forum.daffodilvarsity.edu.bd/index.php?topic=32286.0
Lesson V.

● https://yourbusiness.azcentral.com/theories-entrepreneurship-23795.html
● https://www.google.com/search?q=opportunity-
based+entrepreneurship+theory&source=lmns&bih=758&biw=412&client=ms-android-
samsung-gj-rev1&prmd=inv&hl=fil&sa=X&ved=2ahUKEwj67reF-
674AhVsTPUHHSFeCgUQ_AUoAHoECAAQAw