9 Pages Posted: 21 Oct 2008
This case is designed to train students to recognize the characteristics of entrepreneurial thinking. The author studied the problem-solving process of 30 entrepreneurs from a variety of industries whose companies ranged in value from $200 million to $6.5 billion. Careful analysis revealed a distinct thought process which has been termed "effectual reasoning." The way in which entrepreneurs factor in affordable loss, strategic partnerships, and leveraging contingencies are delineated. Thinking entrepreneurially 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 energies 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.
Rev. Apr. 10, 2015
What Makes Entrepreneurs Entrepreneurial?
Professionals who work closely with them and researchers who study them have often speculated about what makes entrepreneurs entrepreneurial. Of course, entrepreneurs also love to hold forth on this topic. But while there are as many war stories and pet theories as there are entrepreneurs and researchers, gathering together a coherent theory of entrepreneurial expertise has until recently eluded academics and practitioners alike.
What are the characteristics, habits, and behaviors of the species entrepreneur? Is there a learnable and teachable core to entrepreneurship? In other words, what can today's entrepreneurs such as Larry Page and Jeff Bezos learn from old stalwarts such as Josiah Wedgwood and Leonard Shoen? Or even within the same period in history, what are the common elements that entrepreneurs across a wide variety of industries share with each other? In sum, is there such a thing as entrepreneurial thinking that can be applied across space, time, and technology?
In 1997, I set out on a rather perilous but exhilarating journey to investigate this question. Traveling across 17 states in the United States over several months, I met with 30 founders of companies ranging in value from $ 200 million to $ 6.5 billion and spanning a variety of industries including steel, railroad, teddy bears, semiconductors, and bio-tech. The idea behind the study was not merely to interview these founders but to get behind their stories and understand how they reason about specific problems in transforming an idea into an enduring firm. The entrepreneurs worked their way through a 17-page problem set for two hours, talking aloud continuously as they each solved the same 10 decision problems to build a company starting from the same product idea. Rigorous analyses of transcribed tapes of their comments led to rather surprising but eminently teachable principles. This set of principles, when put together, rested on a coherent logic that clearly established the existence of a distinct form of reasoning and thinking that we have all long recognized intuitively as entrepreneurial. For reasons that will become clear in the next section, I have termed this type of rationality “effectual reasoning.”
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Keywords: effectuation, psychology, start-up, innovation, vision, entrepreneur, manager
Suggested Citation: Suggested Citation
Sarasvathy, Saras D., What Makes Entrepreneurs Entrepreneurial?. Darden Case No. UVA-ENT-0065. Available at SSRN: https://ssrn.com/abstract=909038
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