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How entrepreneurs think

Foundations of Entrepreneurship

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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

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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

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5 principles of effectuation

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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

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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

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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”…

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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

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Survey

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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

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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