Becoming an Entrepreneur

Effectuation: How Entrepreneurs Think

Written by Scott Scheper for Gaebler Ventures

Is effectuation the key to entrepreneurial success? Studies on the entrepreneurial mind suggest that the best entrepreneurs embrace effectual thinking, especially during the early stages of starting a company.

Many studies have been conducted on the secrets of the entrepreneurial mind.

A recent study by Dr. Saras Saravasthy on the process of effectuation provides an in-depth look at the entrepreneurial mindset.

Effectuation, or effectual thinking, is the inverse of causal thinking.

Dr. Saravasthy's theory is that effectual thinkers will tend to outperform causal thinkers in the early stages of entrepreneurship.

Causal Thinking

So what's causal thinking?

"Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal - fastest, cheapest, most efficient, etc. - alternative to achieve the given goal," notes Dr. Saravasahthy.

In other words, it means making a plan, putting the plan into action to achieve a specific end.

This does not mean inflexibility; the person may select a number of creative ways to do what he wants.

The goal, however, remains the same.

Effectual Thinking

Effectual thinking is completely different.

Dr. Saravasthy writes that "It begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with."

In contrast to causal thinking, the goal is not specific at the start of the process.

The goals depend on what the person has, which is to say: 1) who they are--their traits, tastes and abilities; 2) what they know--their education, training, expertise, and experience; and, 3) whom they know-their social and professional networks.

Causal Thinking Versus Effectual Thinking

The difference between the causal and effectual thinker is much like two different writing styles of authors.

Causal writers plot out their stories rigidly from Point A in order to reach the eventual, projected end of Point B.

Effectual writers, however, are more like chess players: they take stock of their characters, understand the situation and the complication involved, and from there select from any number of possibilities available.

What drives the story therefore is not by plot but character and circumstance. The outcome is entirely dependent on what is, not on what should be. More often than not, the result is something completely unexpected, which can be exciting for audience and author alike.

There is another difference between causal and effectual schools of thought. While causal thinkers prepare elaborate planning followed by action, effectual thinkers are for the most part all about action.

"Plans are made and unmade and revised and recast through action and interaction with others on a daily basis," writes Dr. Saravasthy.

How Entrepreneurs Think

This is not to say that entrepreneurs do not use causal thinking at all.

The best in business know how to use both kinds of reasoning.

However, at the start of a new venture, where resources are few and finite, talented entrepreneurs prefer to use effectual reasoning.

Saravasthy adds that "arguably, most entrepreneurs do not transition well into latter stages requiring more causal reasoning."

How Does Effectual Thinking Benefit Entrepreneurs?

Entrepreneurs who have innate talents at effectual thinking or who cultivate their effectuation talents over time will benefit in two distinct ways:

  • First, effectual thinking is utterly creative. Whereas casual thinkers may find themselves banging their heads against the proverbial wall trying to reach their intended goal, effectual thinkers may find many ways to go over, under, around and through it, perhaps even ignore the path altogether. Because effectual thinkers are not shackled to a single goal, they may find success in an unexpected time and direction.
  • Second, effectual thinking embodies the attributes that make entrepreneurs successful: creativity, resilience, good use of limited resources, and pure and simple guts. Effectual entrepreneurs do not try to predict the future; through sheer human will, they attempt to create it.

Field Marshall Helmuth von Moltke once wrote that "Plans never survive the first engagement with the enemy."

Successful entrepreneurs recognize and accept this truism. Through effectuation, they adapt on the fly to achieve ever-changing goals.

Scott Scheper is a venture finance enthusiast and serial entrepreneur hailing from Orange County, CA. Scott recently graduated from Chapman University where he was a Cheverton Fellow and graduated with honors in Finance, Management and Marketing.

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Conversation Board

What's your opinion on how entrepreneurs think? Is the entrepreneurial mind unique in some way? We welcome your comments.

  • Student posted on 3/2/2010
    THANK YOU FOR THIS ARTICLE. Sarasvathy's "Making it Happen" lost me on the second page. You made it so clear!!
  • Entrepreneur In the Making posted on 5/25/2010
    Entrepreneur In the Making
    Great and very concized review of Saravasthy's work. Thank you for making it so easy to understand.

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