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Abstract:
In his book "Invention," Professor Norbert Wiener (1993), commenting on the relative importance accorded to individuals and institutions in historical narratives of science and inventions, asks us to imagine Shakespeare's "Romeo and Juliet" without either Romeo or the balcony. The story is just not the same. He likens much of the study of the economic history of science and accounts of inventions as "all balcony and no Romeo." The balcony for Norbert Wiener captures the context in which the story unfolds?the culture, the institutions, the constraints, and the catalysts that move the plot forward and thicken it. Romeos, for Wiener, play the leading parts in the story, because there is a strong fortuitous element to inventions and there is no inevitability that a possible discovery will be made at a given time and space. Take away either one, Romeo or the balcony, and the whole story falls apart. In a similar vein, we would liken studies of strategic management to "all balcony and no Romeo." But if we accuse strategic management of being "all balcony and no Romeo," strategic management scholars could legitimately accuse entrepreneurship of being "all Romeo and no balcony."

Abstract:
What are the characteristics, habits, and behaviors of the species entrepreneur? Is there such a thing as "entrepreneurial thinking"? Is there a learnable and teachable "core" to entrepreneurship? This case examines the problem-solving process of 30 entrepreneurs from a variety of industries whose companies range in value from $200 million to $6.5 billion. Careful analysis reveals a distinct thought process: "effectual reasoning." Using U-Haul as an example, the case delineates the way in which entrepreneurs factor in affordable loss, strategic partnerships, and leveraging contingencies. Thinking entrepreneurially, as opposed to managerially or strategically, means believing in a yet-to-be-made future that can be shaped by human action and realizing that, to the extent that such action can control the future, one need not expend energy trying to predict it. It is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence.

Abstract:
Is new market creation a search and selection process within the theoretical space of all possible markets? Or is it the outcome of a process of transformation of extant realities into new possibilities? We draw upon Goodman's (1983) Grue paradox to explain the dynamics of a new network of stakeholders. The network is initiated through an effectual commitment that sets in motion two concurrent cycles of expanding resources and converging constraints that result in the new market. The dynamic model was induced from two empirical investigations, a cognitive science-based investigation of entrepreneurial expertise, and a real time history of the RFID industry.

New market creation, exploration and exploitation, effectuation, social networks, entrepreneurship, opportunism, opportunity costs, decision making, pragmatism

Abstract:
Accounts of economic change recognize that markets create selective pressures for the adaptation of technologies in the direction of customer needs and production efficiencies. However, non-adaptational bases for technological change are rarely highlighted, despite their pervasiveness in the history of technical and economic change. In this paper the concept of exaptation - a feature co-opted for its present role from some other origin - is proposed as a characteristic element of technological change, and an important mechanism by which new markets for products and services are created by entrepreneurs. Exaptation is shown to be a missing but central concept linking the evolution of technology with the entrepreneurial creation of new markets and the concept of Knightian uncertainty.

Exaptation, Entrepreneurship, Knightian Uncertainty, New Markets

Abstract:
This technical note explores a framework by which entrepreneurs can evaluate their ideas before going forward based on who they are, what they know, and whom they know. Drawing on frameworks presented in textbooks, trade books, journal articles, periodicals, and on Web sites that claim to predict the feasibility and value of new venture ideas. Figure 1 depicts a simple and useful summary of four key concepts at the heart of many of these frameworks: Is it doable? Is it worth doing? Can I do it? Do I want to do it? These questions address feasibility from a technical, market, financial, organizational, and motivational standpoint.

entrepreneurship, new venture

Abstract:
This note reflects a new focus on "effectuation," the logic behind entrepreneurial expertise, which consists of tacit as well as learnable and teachable aspects of experience that are related to high performance in specific domains. Instead of taking either traits or circumstances as inputs and trying to explain variance in performance, the expertise lens focuses on understanding commonalties across a variety of experts in a single domain, given high levels of performance. Effectuation matters, not merely because expert entrepreneurs prefer an effectual logic over a causal one, but because of the details it offers of a comprehensive alternative frams for tackling entrepreneurial problems. Which fram entrepreneurs use influences how they formulate problems; what alternatives they perceive and generate; which constraints they accept, reject, and/or manipulate and how; and why they heed certain criteria over others in fabricating and implementing new solutions. Logical framing matters because it makes a real difference in the world and makes a world of difference in the reality entrepreneurs perceive and make possibel or impossible.

decision making, entrepreneurship, innovation management

Abstract:
This note examines the pros and conss of two ways to build new ventures. The former is called causal or predictive, because it depends on accurate predictions and clear goals. The latter is effectual or nonpredictive, and it is extremely stakeholder-dependent and means-driven. It is very tempting to jump to the conclusion that the latter is the better way since it is overwhelmingly preferred by expert entrepreneurs. But is that really so?

decision making, entrepreneurship, new venture

Abstract:
The case chronicles the development of Lumni, Inc., an international start-up offering innovative mechanisms for financing higher education. It focuses on: the details of decision making required to transform an idea into a viable business; building partnerships; the challenge associated with raising venture capital; and the challenges of creating a new market where human capital can be traded to finance higher education.

financing, decision making, entrepreneurship, leadership, strategy, innovation

Abstract:
Ideal for a study of entrepreneurship as a phenomenon, this note explores the difference between causal models and effectuation. Whereas causal models focus on maximizing returns by selecting optimal strategies, effectuation begins with a determination of how much one is willing to lose and leveraging limited means in creative ways to generate new ends as well as new means. The effectuator then uses the very process of building the venture to bring other stakeholders on board and creatively leverages slack resources available in the world. At each stage of the process he or she chooses options that create more options in the future.

risk management, new venture

Abstract:
A theory of entrepreneurship is developed based on the concepts of effectuation and near-decomposability to explain the creation of high growth firms. Entrepreneurship is seen as a "science of the artificial." Key ideas are developed from Herbert Simon's book "The Sciences of the Artificial." Effectuation is defined as a process of generating alternatives in a situation and simultaneously discovering and assessing desirable and undesirable qualities of several possible ends. It involves design, not just choice. As opposed to a causal approach, in which the entrepreneur begins with a defined market, the effectual model suggests the entrepreneur should seek out customers and partners. Near-decomposability, a term adopted from Simon, is a feature of a complex system that is comprised of a number of interconnected subsystems in way that any subsystem elements interact more with each other than to elements belonging to different subsystems. Nearly-decomposable systems contain failure as local events. In "Sciences of the Artificial," Simon shows that the artificial is local and contingent in both structure and movement; artifacts are usually only locally adaptive. Hence, both effectuation and near-decomposability exploit locality and contingency in the evolution of the artifact. Together they explain the creation and growth of real-world firms. Entrepreneurship is thus a science of the artificial.Implications of four key ideas from the "Sciences of the Artificial" are offered. (1) Entrepreneurs can build effectual artifacts by focusing on what one can, not ought to, do. (2) Entrepreneurs should design without final goals in mind. (3) Contingencies (misfortunes) should be viewed as opportunities. (4) Enduring firms are likely to result from effectual processes that exploit locality and contingency through interdependence and independence of parts.(TNM)

Locality, Cognition, Contingency management, Decision models, Decision theory, Effectuation, Firm growth, Systems design

Abstract:
This essay connects four key ideas from Herbert Simon’s 'Sciences of the Artificial' to recent research on entrepreneurial expertise: (1) natural laws constrain but do not dictate our designs; (2) we should seize every opportunity to avoid the use of prediction in design; (3) locality and contingency govern the sciences of the artificial; and, (4) near-decomposability is an essential feature of enduring designs. The essay is based on a series of conversations and emails with Simon about the empirical findings of my doctoral dissertation that involved a protocol analysis study of expert founder-entrepreneurs.

Abstract:
Because it fails to incorporate the task ofimagination within its domain, economics has yet to develop a useful theory ofentrepreneurship.Equally unsuccessful is entrepreneurship research, whichhas allowed the quest to define entrepreneurial success to interfere withefforts to construct a coherent theory.A philosophically pragmaticapproach allows for the introduction of new meanings and uses for threeconcepts in entrepreneurial economics. First, the tidiness of the success/failure dichotomy is replaced with thenotion that the entrepreneurial process is a continual stream of successes andfailures.Such a notion implies that entrepreneurship is primarily amatter of failure management.Second, the "natural" connectionbetween the entrepreneur and the firm is dissolved, along with the concept ofthe "successful entrepreneur."Third, a contingent notion ofaspirations that places imagination at the center of economics isintroduced.Finally, the story of AES, a young entrepreneurial venture, ispresented using both the standard and the proposed entrepreneurial economicsvocabulary.The two versions illustrate that an economics withoutentrepreneurship will remain an economics incapable ofimagination.(SAA)

Entrepreneurial process, Idea generation, Creativity, Economics

Abstract:
Studies the theory of effectual reasoning with focus on the creation of firms in nonexistent or not-yet-existent markets. Effectuation takes "a set of means as given" and focuses "on selecting between possible effects that can be created with that set of means." The effectuation process is actor dependent whereas the causation process is effect dependent. Some key characteristics of effectuation are: selection criteria based on affordable loss or acceptable risk, excellence at exploiting contingencies, and explicit assumption of dynamic, nonlinear, and ecological environments. The theoretical works of March, Mintzberg, and Weick are explored to identify connections between their work and the proposed theory of effectuation. Recent empirical works that fall outside of the traditional causation models are also discussed. The four principles of effectuation are affordable loss, strategic alliances, exploitation of contingencies, and control of an unpredictable future. Based on these principles, a series of testable hypotheses are presented. The hypotheses consider the role of effectuation at different levels including the economy, the market or industry, the firm, and the founders/decision makers. The theory of effectuation advanced in this analysis concludes that the essential agent of entrepreneurship is the effectuator. (SRD)

Causation, March, James G., Mintzberg, Henry, Weick, Karl E., Reasoning, Decision making, Individual control, Cognition, Risk management, Strategic alliances, Uncertainty, Effectuation, Causation, Contingency management

Abstract:
Current theories of the firm provide no explanation for entrepreneurial success except in terms of firm success. Even when the focus is on the entrepreneur, s/he is entirely cast as a bundle of traits/behaviors or heuristics/biases that serves to explain firm performance. In this article, I suggest putting the entrepreneur center stage, adopting an instrumental view of the firm. Drawing upon the work of Simon in symbolic cognition and Lakoff in semantic cognition, I explore how we can go beyond explanations based on economic forces and evolutionary adaptation to entrepreneurial effectuation; I end with specific research questions pertaining to firm design.

Abstract:
Both history of science and creativity research have shown that reformulating the questions we ask can lead to breakthroughs more often than trying harder to search for more rigorous answers. In such a spirit of creative play, I suggest we throw away our obsession with dividing the world into entrepreneurs and non-entrepreneurs and focus instead on categories within entrepreneurs. In particular, (a) those who want to become entrepreneurs but do not suggest compelling research questions about barriers to entrepreneurship; while, (b) those who do become entrepreneurs need to develop expertise, impelling our research to focus on the rubric of design.

Abstract:
Human artifacts lie on the interface between their inner environments and their outer environments. Organizations, therefore, are apt subjects to be studied through a science of the artificial. Furthermore, organizational design happens at two interfaces: first, at the interface between organizational founder(s) and the firms they design, and second, between the firms and the environments in which they operate. We use recent developments in the study of entrepreneurial expertise to show why an effectual logic of design is necessary at the first interface, and what its consequences are for designing at the second. In particular, we use the exemplar case of Starbucks to codify three key characteristics of the design problem at the first interface - namely, Knightian uncertainty, goal ambiguity and environmental isotropy. We then use an 'alternate histories' method to trace four strategic options - namely, planning, adaptation, vision and transformation - for designing at the second interface. In the final analysis, organizational design is important because effectuators using transformational approaches not only design organizations, but concurrently end up designing the environments we live in.

Abstract:
In an excellent recent paper on Ludwig Lachmann’s contributions to entrepreneurship, Chiles, Bluedorn and Gupta draw parallels between Lachmann’s work and later contributions in the entrepreneurship literature, including Sarasvathy (2001), suggesting that, ‘Sarasvathy’s economic approach to entrepreneurship is decidedly Lachmannian’ (Chiles et al. 2007: 487). Our purpose in responding to the Chiles et al. article is twofold. First, our interpretation about how effectuation works differs in certain ways from the interpretations placed on it by these authors; we therefore wish to clarify our views on these matters. Second, we view the relationship between effectuation and Lachmann’s perspective on entrepreneurship somewhat differently than Chiles et al.; in this note we lay out this alternative view. The crux of our presentation is that, although Lachmann and Sarasvathy have much the same starting point (entrepreneurial action in the face of true uncertainty) and several overlaps in terms of the overall implications for dominant economic theories, there are crucial differences that draw upon recent developments in our understanding of how the human mind works and what knowledge is constituted of.

Abstract:
This article outlines why highly confident entrepreneurs of focal ventures are better positioned to start and succeed with another venture; and therefore why overconfidence in one's capabilities functionally persists and pervades amongst entrepreneurs. By combining cognitive perspectives on confidence in decision making with Fredrickson's [Fredrickson, B.L. 1998. What good are positive emotions? Review of General Psychology, 2, 300-319; Fredrickson, B.L. 2001. The role of positive emotions in positive psychology: the broaden-and-build theory of positive emotions. American Psychologist, 56, 218-226; Fredrickson, B.L. 2003. The value of positive emotions. American Scientist, 91: 330-335] ‘broaden-and-build’ theory of positive emotions, this paper elaborates the manner in which such entrepreneurs can develop emotional, cognitive, social and financial resilience that can be marshaled and mobilized for a subsequent venture.

Abstract:
Venture investing plays an important role in entrepreneurship not only because financial resources are important to new ventures, but also because early investors help shape the ventures' managerial and strategic destiny. In this study of 121 angel investors who had made 1038 new venture investments, we empirically investigate angel investors' differential use of predictive versus non-predictive control strategies. We show how the use of these strategies affects the outcomes of angel investors. Results show that angels who emphasize prediction make significantly larger venture investments, while those who emphasize non-predictive control experience a reduction in investment failures without a reduction in their number of successes.

Abstract:
In A Behavioral Theory of the Firm (BTF), Cyert and March [Cyert, R.M., March, J.G., 1963. A Behavioral Theory of the Firm. Prentice-Hall, Englewood Cliffs, NJ] present a clutch of ideas for explaining the behavior of established firms within an environment of well-defined markets, stakeholder relationships, technologies, and so on. In this paper, we outline a behavioral theory of the entrepreneurial firm that emphasizes transforming environments rather than acting within extant ones. In particular, we explicate three ideas that parallel key concepts in BTF: (1) accumulating stakeholder commitments under goal ambiguity (in line with a political conception of goals), (2) achieving control (as opposed to managing expectations) through non-predictive strategies, and (3) predominately exaptive (rather than adaptive) orientation.

Abstract:
In modern societies entrepreneurship and innovation are widely seen as key sources of economic growth and welfare increases. Yet entrepreneurial innovation has also meant losses and hardships for some members of society: it is destructive of some stakeholders’ wellbeing even as it creates new wellbeing among other stakeholders. Both the positive benefits and negative externalities of innovation are problematic because entrepreneurs initiate new ventures before their private profitability and/or social costs can be fully recognized. In this paper we consider three analytical frameworks within which these issues might be examined: pre-commitments, contractarianism, and an entrepreneurial framework. We conclude that the intersection of stakeholder theory and entrepreneurial innovation is a potentially rich arena for research.

Abstract:
In support of theory, this study demonstrates that entrepreneurial experts frame decisions using an “effectual” logic (identify more potential markets, focus more on building the venture as a whole, pay less attention to predictive information, worry more about making do with resources on hand to invest only what they could afford to lose, and emphasize stitching together networks of partnerships); while novices use a “predictive frame” and tend to “go by the textbook.” We asked 27 expert entrepreneurs and 37 MBA students to think aloud continuously as they solved typical decision-making problems in creating a new venture. Transcriptions were analyzed using methods from cognitive science. Results showed that expert entrepreneurs framed problems in a dramatically different way than MBA students.

Abstract:
In their article on entrepreneurship, effectuation, and over-trust, Goel and Karri suggest relationships between effectuation, over-trust, and certain psychological characteristics of entrepreneurs. In this response we debate their article. Goel and Karri are correct in claiming that effectuation supposes over-trust. However, we argue that effectual logic works in a different way than they presented because it neither predicts nor assumes trust. Goel and Karri's article also draws attention to the behavioral assumptions underlying constructs such as over-(under) trust. Our suggestion is that effectuation is based on alternative behavioral assumptions that open up interesting avenues for future research in entrepreneurship.

Abstract:
Two prescriptions dominate the topic of what firms should do next in uncertain situations; planning approaches and adaptive approaches. These differ primarily on the appropriate role of prediction in the decision process. Prediction is a central issue in strategy making due to the presumption that what can be predicted can be controlled. In this paper we argue for the independence of prediction and control, that the pursuit of successful outcomes can occur through either predictive or control oriented approaches. We further develop and highlight control oriented approaches to open new avenues for dealing with the uncertainty inherent to the question of what organizations should do next. These approaches significantly impact the costs and risk of firm strategy as well as their innovative efforts.

Strategy Making, Uncertainty, Decision Making, Market Creation, Construction, Effectuation

Abstract:
Several years ago Professor March pointed out that rational choice involves two guesses, a guess about uncertain future consequences and a guess about uncertain future preferences, and called for the development of a technology of foolishness to complement the technologies of intelligence that have been developed to improve the first guess. In this essay we use empirical data from two separate studies of entrepreneurial expertise, one involving the creation of new ventures (Sarasvathy, 1998) and the other the birth of a new industry (Dew, 2003) to identify three logics that constitute working elements of a technology of foolishness: (1) the logic of identity, as opposed to the logic of preferences; (2) the logic of action, as opposed to the logic of belief; and, (3) the logic of commitment, as opposed to the logic of transaction.

Entrepreneurship, effectuation, goal ambiguity, decision-making, preference formation, identity, Bayesian inference, stakeholder commitments, new markets