Joseph Schumpeter, an eminent economist published many works on entrepreneurship. His theory of entrepreneurship directly says that entrepreneurship is innovation. Schumpeter pointed out that ordinary economic behaviour is more or less automatic, entrepreneurs on the other hand has always to think innovative. He opined that when entrepreneur innovates extraordinary things, he needs fresh guidance to proceed further.
Schumpeter's first typology says that entrepreneurs create new products, new modes of production, finds new source of supply of raw materials, creates new markets and also develops new industrial organization. According to Schumpeter's economic theoretical analysis, the idea of capitalist process can be stated that circular flow is disturbed and altered by innovators and their imitators. One of the key points in the Schumpeter's theory is that aggressive entrepreneur breaks the circular flow and strengthen the idea of innovation and succeeds against obstacles of established firms.
All significant changes in the economy are introduced by entrepreneurs according to Schumpeter's new economic theory. This theory of Schumpeter's is completely different from what earlier economists have said. Schumpeter said that changes in the economy initiated by entrepreneurs gradually work at their own through the economic system forming business cycle.
He attempted to develop number of economic theories including capital, credit and business cycle interconnecting them to the theory of entrepreneurship. By this, he explained that entrepreneurship can be stated as forming new combinations of already existing materials and forces.
Schumpeter's second typology is about the motivation of entrepreneurs. He opines that there are three important elements that motivate entrepreneur. First one is the dream and desire to find out a private kingdom, second one is the will to conquer it and the last one is the joy of creating something new. He says that motivation comes under the field of psychology and is not related to the economic theory. Money is not sufficient to motivate an entrepreneur, according to his works.
In the later years of his career, Schumpeter's views shifted from economic theory of sociology when he analysed that effect of institutional structure of society on entrepreneurial function. He said that many institutional factors weakened the entrepreneurship and is leading to stagnation of capitalism. But society rationalizes with entrepreneurship. More and more big enterprises are appointing special teams to develop innovative technology. People are also more prone to change resulting in lesser opposition to entrepreneurship.
However, Schumpeter's works are based on the assumptions that there is a positive environment for becoming a entrepreneur like existence of sufficient capital, developed banking system and high level technology. In general sense, Schumpeter's entrepreneurship is more relatable in developed economies than in the underdeveloped economies.