There has always been a consensus that entrepreneurs think differently than the average Joe; however, it was not until fairly recently that the root of this “entrepreneurial thinking” was identified.
Saras D. Sarasvathy, in her study, “What Makes Entrepreneurs Entrepreneurial?” examined the reasoning of 30 founders of companies, ranging in size from $200 MM to $6.5 B. What Sarasvathy found was that these founders shared a distinct form of rationality that we have always intuitively recognized as “entrepreneurial”. She termed this type of rationality “effectual reasoning”.
Effectual vs. Causal Reasoning
The word “effectual” is the inverse of “causal” and It is causal reasoning that most of use throughout our professional lives. What is causal reasoning? Causal reasoning involves making the optimal choice, given a set of means and a pre-determined goal. An example of a causal reasoning decision would be the “build vs. buy” choice in production.
Sometimes causal reasoning does involve the creation of additional alternatives to reach a given goal. This form of creative causal reasoning is sometimes referred to as strategic thinking.
Effectual reasoning, however, is quite different, as Sarasvathy explains:
“Effectual reasoning… does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with. While causal thinkers are like great generals seeking to conquer fertile lands (Genghis Khan conquering two thirds of the known world), effectual thinkers are like explorers setting out on voyages into uncharted waters (Columbus discovering the new world).” – Saras D. Sarasvathy
Sarasvathy postulates that “while both causal and effectual reasoning call for domain-specific skills and training, effectual reasoning demands something more –imagination, spontaneity, risk-taking, and salesmanship.
Why Should You Care?
If you are interested in entrepreneurship or in working with an entrepreneur, understanding how you approach problems is vital. While I believe some elements of effectual reasoning can be learned, entrepreneurship may not be the best path for you if you find you naturally think causally or strategically.
Instead, you might be perfectly matched to work with an entrepreneur. Furthermore, if you are an effectual reasoner and have your own business, it is important to know when to step aside or ask for assistance. Entrepreneurs are often poor at managing their businesses after they mature.
We use our decision-making skills every day but we rarely examine how our minds frame the situation. If you are thinking of starting your own business, taking the time to understand how you reason may be the best choice you’ll ever make.
If you like Goldy, go ahead and check out his personal blog, GoldyWorld, where he talks about absolutely nothing important and has fun doing it.