Entrepreneurship Theories: Risk, Innovation, and Management

Risk Theory of the Entrepreneur

On the one hand, this is the risk theory of the entrepreneur, in which corporate profit is the reward for taking the risk of economic activity. The employer anticipates paying income by estimating the price at which they can sell their product.

• If decisions are sound, the entrepreneur will make a profit after deducting wages due by management.
• If decisions are wrong, the entrepreneur will suffer a loss when revenues fall below costs.

Schumpeter's Theory: The Entrepreneur and Innovation

The theory founded on the entrepreneur and innovation in Schumpeter posits that the real employer is the one able to innovate, finding new combinations of production media that result in new products or processes or improve existing ones.

Economic development stems from innovation, where the employer appears as the central figure, the engine of progress, and the generator of economic wealth.

The employer gains a temporary monopoly that provides a special benefit.

Entrepreneurial Profile

Business management suggests that the employer has a different profile from the rest of the population, often leading to more successful entrepreneurs. This can be summarized in several characteristics: need for independence, achievement motivation, internal control, moderate risk appetite, and tolerance for ambiguity and uncertainty.

Cultural and Institutional Approaches

Another group of theories falls under the so-called cultural or institutional approach. The creation of new firms is conditioned by external factors or the environment, where the sociocultural and institutional framework is essential in determining the enterprise and start-ups.

Management Approach

Another approach focuses on management, emphasizing the skills and expertise in the area of Management that lead to company creation.

Core Management Functions

There are three primary functions: planning, organization, and control.

Planning

Planning is the assessment of overall business objectives and determining the necessary lines of action to achieve them.

Organization

The organization consists of designing an appropriate organizational structure to achieve the objectives identified in the planning stage. It involves assigning tasks to people and determining who is responsible for realizing them. Furthermore, it assumes that tasks are coordinated in a way that achieves the objectives.

Control

Finally, control is the function that allows us to keep the organization within the limits that enable us to achieve our goals. It validates the quality of the objectives and the effectiveness of the organization in implementing the plans, or else proposes the precise arrangements needed to redirect the organization's objectives.