Schumpeter’s Theory on Entrepreneurship

The innovative theory is one of the most famous theories of entrepreneurship used all around the world.  The theory was advanced by one famous scholar, Schumpeter, in 1991.

Schumpeter believes that creativity or innovation is the key factor in any entrepreneur’s field of specialization.  He argued that knowledge can only go a long way in helping an entrepreneur to become successful. He believed development as consisting of a process which involved reformation on various equipment’s of productions, outputs, marketing and industrial organizations.

However, Schumpeter viewed innovation along with knowledge as the main catalysts of successful entrepreneurship. He believed that creativity was necessary if an entrepreneur was to accumulate a lot of profits in a heavily competitive market.

The concept of innovation and its corollary development embraces five functions:

  1. Introduction of a new good
  2. Introduction of a new method of production
  3. Opening of a new market
  4. Conquest of a new source of supply of raw materials and
  5. Carrying out of a new organization of any industry

Schumpeter represents a synthesis of different notions of entrepreneurship. His concept of innovation included elements of risk taking, superintendence and co-ordination.

According to Schumpeter

  • Development is not an automatic process, bur must be deliberately and actively promoted by some agency within the system. Schumpeter called the agent who initiates the above as entrepreneur
  • He is the agent who provides economic leadership that changes the initial conditions of the economy and causes discontinuous dynamic changes
  • By nature he is neither technician, nor a financier but he is considered an innovator
  • Entrepreneurship is not a profession or a permanent occupation and therefore, it cannot formulate a social class like capitalist
  • Psychological, entrepreneurs are not solely motivated by profit

Features of Schumpeter Theory

  • High degree of risk and uncertainty in Schumpeterian World
  • Highly motivated and talented individual
  • Profit is merely an part of objectives of entrepreneurs
  • Progress under capitalism is much slower than actually it is
  • It is leadership rather than ownership which matters.

Many business people support this theory, and hence its popularity over other theories of entrepreneurship.



One response

  1. Entrepreneurial profit is the expression of the value of what the entrepreneur contributes to production.

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