Causal vs. Effectual Thinkers in Business

February 10, 2011 10:29 AM

What distinguishes great entrepreneurs? "Discussions of entrepreneurial psychology typically focus on creativity, tolerance for risk, and the desire for achievement—enviable traits that, unfortunately, are not very teachable." So Professor Saras D. Sarasvathy (Caution, autoplaying video) of the University of Virginia’s Darden School of Business created a case study to try to determine how they think, "with the goal of transferring that knowledge to aspiring founders."

Sarasvathy concluded that master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don't start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning. They set a goal and diligently seek the best ways to achieve it. Early indications suggest the rookie company founders are spread all across the effectual-to-causal scale. But those who grew up around family businesses will more likely swing effectual, while those with M.B.A.'s display a causal bent. Not surprisingly, angels and seasoned VCs think much more like expert entrepreneurs than do novice investors.

Here's a single-page version of the article.

posted by zarq (10 comments total)

Good article. I don't think there are any earth shattering revelations for entrepreneurs, but it certainly rings true for me.

A good read for anyone thinking about starting their own business. The main take away is - just go start it already!
posted by Long Way To Go at 10:56 AM on February 10, 2011 [1 favorite]

THanks zarq! That was reassuring in a way.
posted by Mister_A at 11:58 AM on February 10, 2011

Don't forget that heaping pile of dumb luck.
posted by digsrus at 12:11 PM on February 10, 2011 [5 favorites]

As alluded to by disgrus, it looks like she didn't interview entrepreneurs who were absolute failures, which is a problem.
posted by r_nebblesworthII at 12:25 PM on February 10, 2011 [6 favorites]

I love it when "risk tolerance" is portrayed as an unalloyed good personal trait. Of course, "risk tolerance" also leads to massive failures, broken families, addiction, injuries, and social costs not borne by the "risk-taker."
posted by sonic meat machine at 1:27 PM on February 10, 2011 [6 favorites]

Have to agree with sonic meat machine. Successful entrepreneurs may just be an example of survivorship bias.
posted by Jacqueline at 3:20 PM on February 10, 2011 [2 favorites]

she didn't interview entrepreneurs who were absolute failures,

Both Madonna and Lady Gaga have said they always knew that they would be someone someday. I wonder what the ballpark figure is for people who always knew they'd be someone, but aren't.
posted by StickyCarpet at 7:03 PM on February 10, 2011 [5 favorites]

Very interesting. I'm find that I am clearly one of the 'causal' business thinkers. Yet, somehow I still have managed to launch successful businesses.
posted by borges at 9:21 PM on February 10, 2011

And great short stories.
posted by ersatz at 11:42 AM on February 11, 2011 [1 favorite]

fwiw...

Peter Thiel: 21st Century Free Radical - "Never mind enormous yachts: Peter Thiel is spending his billions on space travel, life extension, artificial intelligence, and paying top students not to go to college."

Are our best days behind us? "The diminishing returns to work in existing research trajectories will ultimately kindle interest in other, riskier, but potentially more revolutionary lines of inquiry. But it probably wouldn't hurt to give science a nudge. It's these highly uncertain lines of work that the market is least likely to support on its own—who knows whether discoveries of any sort, let alone monetisable ones, will result. Unfortunately, it's also difficult to make a case to voters, particularly in a time of austerity, that it's worth throwing money at research in fields that are far from producing practical innovations. But that may be just what the present, 'stagnant' times demand."
posted by kliuless at 12:12 PM on February 11, 2011