How Entrepreneurs Really Think........

By Belinda Kolb, MBA - Manager, LCCC Entrepreneurship Program

Recently, I read some interesting new research that attempts to shed better light on how entrepreneurs really think and deal with the highly uncertain environments in which they make decisions.  The research by Dr. Saras Sarasvathy points to an alternative thinking mode that often describes how entrepreneurs think about opportunities. Sarasvathy describes this alternative style as effectual thinking or an effectuation process. Simply stated, the effectuation process describes the phenomena when an entrepreneur starts with what they have and selects among many possible outcomes. This is in contrast to the more familiar causal process or thinking style in which one starts with a desired outcome and then focuses energy and effort on generating that outcome. With effectuation, the definition of “what one has” is just who they are, what they know and whom they know. It is easy to identify with this type of self-assessment or taking stock of ones position and identifying what opportunities, solutions and innovations germinate from that analysis.  The entrepreneurial mindset and entrepreneurial thinking are not limited to the challenging application of starting a new business. There are applications of this effectual thinking or effectuation to the areas of problem solving and creativity. The next time you are considering an idea or opportunity it might be interesting to see which thinking style you really incorporate. What are your first thoughts? Do you run through a mental list of whom you know, what you know and how well your personality and interest align with the idea?(effectual process) Or, do you immediately have a desired outcome in mind and are creating a checklist in your mind of tasks to produce the outcome?(causal process).  I have taken the liberty to condense and otherwise paraphrase five basic principles that Dr. Sarasvathy believes describe the way that entrepreneurs effectuate or often really think.

1. Patchwork quilt principle: essentially creating something new with existing means, the patches of the quilt are the “who I am”, “what I know” and “whom I know”, the importance lies in what the entrepreneur does with their patches not necessarily the patch itself.
2. Affordable loss principle: identifying in advance what one is willing to lose rather than focusing on expected returns.
3. Bird-in-hand principle: involves negotiating with all stakeholders willing to make actual commitments to the project and therefore help to shape the new venture.
4. Lemonade principle: leveraging surprises rather than trying to avoid or overcome them thus  being able to run with emerging situation and create value.
5. Pilot-in- the plane principle: recognizes people as the prime driver of opportunity and the entrepreneur thinking effectually will be concerned with aspects of the future they can control with their own actions thereby removing the need to predict the future. 

I hope you find some value in this interesting research.

For more information you can visit the effectuation website.  www.effectuation.org

This topic and others are typical of some of the material we discuss in the Successful Entrepreneurship course ENTR 1500 taught at LCCC. 

Comments

[Deniz]

Thank you for your insights on this matter. I guess we all could learn and benefit from the way entrepreneurs think. The principles you outlined will serve as a good guide for us.

Can I tell you about the Young Entrepreneur Society from the www.YoungEntrepreneurSociety.com? Additional entreprenurial info on the site.