For a long time, researches in entrepreneurship have studied the characteristics that differentiate entrepreneurs from managers (Fisher, 2012) and Sarasvathy’s effectuation theory (2001) has drawn a lot of attention recently. This concept is consistent with the idea of emergent strategies (Chandler, DeTienne, McKelvie and Mumford, 2009). It is to be contrasted with causation that considers that calculations and statistical inference can predict the distribution of outcomes (Sarasvathy, 2001) and is therefore in line with the idea of deliberate strategy formation.
Managers tend to follow a causal reasoning approach: they make plans to reach a
pre-determined goal. To do so, they select the appropriate means in their control or build new means that will enable them to reach their objective (Sarasvathy, 2008).
Entrepeneurs, on the other hand, usually think more effectually, focusing on their actual means and gradually converging towards an opportunity through execution. Instead of considering the unexpected events that differ from what was planned as the exception, entrepreneurs rather see them as the norm (Sarasvathy, 2001).
Effectuation revolves around five key principles.
- Bird-in-Hand: effectual entrepreneurs start with their means (who they are, what they know and who they know) and then they envision a myriad of opportunities that could derive from them(Dew, Read, Sarasvathy and Wiltbank, 2009). This diverges from the pre-set goals suggested by causal reasoning.
- Affordable Loss:whereas causal reasoning tries to maximize return given a certain level of acceptable risk, effectual entrepeneurs mitigate their risk by focusing on the maximum downside they can afford. Based on this, they draw actions for which they believe there is an upside potential (Sarasvathy, 2001).
- Lemonade: instead of seeing surprises as worst-case scenarios (causal approach), effectual entrepreneurs embrace them and consider them as contingencies they can leverage. Any new information that is made available to them directs them in their quest(Sarasvathy, 2001).
- Patchwork Quilt: effectual entrepreneurs tend to form partnerships as they go in order to reduce the uncertainty around their venture and co-create rather than compete (competitive analysis in causal approach) with the players in their market(Sarasvathy, 2001).
- Pilot-in-the-plane: causal thinkers believe that inevitable market trends shape the future.Effectual entrepreneurs though, consider it is their actions that influence the future and they can therefore control the outlook of their venture (Sarasvathy and Venkataraman, 2011).
Sarasvathy, S. D. (2001). Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency. The Academy of Management Review, 26(No. 2 (Apr., 2001)), 243-263.
Dew, N., Read, S., Sarasvathy, S. D., & Wiltbank, R. (2009). Effectual Versus Predictive Logics In Entrepreneurial Decision-making: Differences Between Experts And Novices. Journal of Business Venturing, 24(4), 287-309.