Effectual Reasoning: What Makes Entrepreneurs Entrepreneurial

Saras Sarasvathy at the University of Washington has written one of the clearest, most original academic papers on entrepreneurship I've read. It is a stellar breakdown of the characteristics of the entrepreneurial mind. I highly recommend it for anyone in the ecosystem.

Her phrase to describe the entrepreneurial reasoning process is "effectual." Effectual is the inverse of "causal."

Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal…alternative to achieve the given goal….

Effectual reasoning, however, does not begin with a specific goal. Instead, 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.

Effectual thinkers are like explorers setting out on voyages into uncharted waters….

All entrepreneurs begin with three categories of means

  1. Who they are – their traits, tastes,and abilities;
  2. What they know – their education, training, expertise, and experience
  3. Whom they know – their social and professional networks.

Sean Murphy, a wise man in Silicon Valley whose post elaborates on the paper, summarizes another part that lays out key differences between effectual reasoning and traditional start-up management models:

  • Risk taking
    • Traditional: expected return, work the plan to deliver results to your investors (“Ready Aim Fire” can become “Aim–not big enough–Aim–not big-enough–Aim…”).
    • Effectual: affordable loss, make many small mistakes as early and cheaply as possible to speed learning (“Ready Fire Steer“)

  • Focus:
    • Traditional: competition
    • Effectual: strategic partnership (especially with early customers)

  • Value Creation
    • Traditional: rely on pre-existing knowledge to aim for a known market you can dominate and exploit
    • Effectual: leverage contingencies; create opportunities as you map a new market

Read the whole thing.

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