We tend to believe that entrepreneurs have started their ventures with a great insight into the future when the fact is that many of them started small and built their businesses gradually to the dimensions they exist right now by reshaping the initial idea.
The perfect example of this is the story of Amazon – Jeff Bezos started his business with the idea to sell books and now Amazon dominates the retail industry.
“I sell books.” versus “I sell whatever the fuck I want.” $AMZN pic.twitter.com/j0TTnE7wFc
— Kyle (@dissruption) July 14, 2017
The power of entrepreneurial thinking is an interesting topic that has been studied by scientists and researchers for a long time. Saras D. Sarasvathy, a professor at the University of Virginia’s Darden School of Business, worked with Nobel Prize in Economic winner Herbert A. Simon on designing a study on how expert entrepreneurs think, design and act.
Over 30 proven in their fields entrepreneurs took part in the study What Makes Entrepreneurs Entrepreneurial? that was conducted in 1997. The 30 expert entrepreneurs were given 17-page long problem set, including 10 typical decisions that happen in a startup, and they were asked to think aloud continuously on solving the given problems.
During her TEDxMidAtlantic 2010 Talk, Associate Professor Saras D. Sarasvathy shares with the audience the insights they discovered in the study. By analyzing the way entrepreneurs approach problem-solving, the team of researchers has discovered the main difference between “casual reasoning” and “effectual reasoning”.
The difference between these two is quite simple to comprehend. While the people, who approach decision making with “casual reasoning”, focus on determining a clear goal and the most efficient and effective ways to achieve that goal, the people, who use “effectual reasoning”, tend to start without any clear goal and, by following their curiosity, let the goals emerge over time.
Saras D. Sarasvathy introduces the principle “effectuation” as a specific way of thinking that is typical for entrepreneurs, who take decisions understanding the uncertainty of the future. In such situations of uncertainty, the future cannot be predicted therefore the setting of clear goals is impossible.
She explains that the expert entrepreneurs start development of their ideas with self-awareness: Who they are?, What they know? and Whom they know? They focus on what they can do and begin talking about it before even they have a ready product, emphasizing on the power of networking.
In the talk below and in her book Effectuation: Elements of Entrepreneurial Expertise, Saras D. Sarasvathy explores new horizons of understanding what makes entrepreneurs entrepreneurial. It is very valuable talk and very interesting book that may change the way you approach your business strategy. Stay curious!
