How entrepreneurs think
Foundations of Entrepreneurship
1
How entrepreneurs think
• Causal processes – a process that starts with a
desired outcome and focuses on the means to
generate the outcome
• Effectuation processes - a process that starts
with what one has (who they are; what they
know; and whom they know) and selects
among possible outcomes
2
Example – The chef in the kitchen
Causation
• Chef picks out menu
• Chef identifies
ingredients, shops for
them, and cooks meals
• Customers presumably
will pay to eat what’s on
menu
Effectuation
• Chef looks through
cupboard to see what’s
there
• Imagines possible
menus based on
ingredients and utensils
• Prepares the meal
3
5 principles of effectuation
4
5 principles of effectuation
• Patchwork quilt: create something new with what
you have on hand
• Affordable loss: commit in advance to what
you’re willing to lose instead of calculating
expected returns
• Bird-in-hand: negotiate with stakeholders to
commit resources to project
• Lemonade: use surprises to create benefits
instead of problems
• Pilot-in-the-plane: use people as prime driver of
opportunity, not resources external to individual
5
These 5 principles…
• Put entrepreneurs in control of their new
ventures (instead of pre-programmed plans)
to shape environment and exploit unexpected
events
• Help entrepreneurs think in an environment of
high uncertainty – environments are complex,
dynamic, and characterized by rapid,
substantial, and discontinuous change
6
Entrepreneurial mindset
• The ability to rapidly sense, act, and mobilize,
even under highly uncertain conditions
• Individuals attempt to (1) make sense of
opportunities in the context of constantly
changing goals, (2) constantly questions one’s
“dominant logic,” and (3) revisit deceptively
simple questions about what we believe to be
true about markets and the firm
• Requires “cognitive adaptability”…
7
Cognitive adaptability
• “The extent to which entrepreneurs are dynamic,
flexible, self-regulating, and engaged in the process
of generating multiple decision frameworks focused
on sensing and processing changes in their
environments and acting on them.”
• More simply: “an individual’s ability to reflect upon,
understand, and control one’s thinking and
learning”*
• Requires us to “think about our thinking” to reflect,
be strategic, plan, have a plan in mind, know what to
do, and to self-monitor
* Schraw & Dennison, 1994
8
Survey
9
Cognitive adaptability
Arises by asking ourselves questions related to:
1. Comprehension questions to increase
understanding of environment before
addressing an entrepreneurial challenge
2. Connection tasks in which entrepreneurs
think about current situation in terms of
similarities and differences with previously
face/solved situations
10
Cognitive adaptability
Arises by asking ourselves questions related to:
3. Strategic tasks to stimulate entrepreneurs to
think about which strategies are appropriate
for solving the problem
4. Reflection tasks to stimulate entrepreneurs
to think about their understanding and
feelings as they progress through the
entrepreneurial process
11