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What makes entrepreneurs entrepreneurial?
2001
Saras D. Sarasvathy
University of WashingtonSchool of Business, Box 353200Seattle WA 98195VM:(206) 221-5369FAX:(206) 685-9392Email:saras@u.washington.edu
Revised June 21, 2001For submission to:
Harvard Business Review
 
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2001 Saras D. Sarasvathy, University of Washington
2
What makes entrepreneurs entrepreneurial?
Professionals who work closely with themand researchers who study them have oftenspeculated about what makes entrepreneurs“entrepreneurial”. Of course, entrepreneurs alsolove to hold forth on this topic. But while thereare as many war stories and pet theories as thereare entrepreneurs and researchers, gatheringtogether a coherent theory of entrepreneurialexpertise has thus far eluded academics and practitioners alike.What are the characteristics, habits, and behaviors of the species
entrepreneur 
? Is therea learnable and teachable “core” toentrepreneurship? In other words, what cantoday’s entrepreneurs such as Rob Glaser andJeff Bezos learn from old stalwarts such asJosiah Wedgwood and Leonard Shoen? Or evenwithin the same period in history, what are thecommon elements that entrepreneurs across awide variety of industries share with each other?In sum, is there such a thing as “entrepreneurialthinking” that can be applied across space, timeand technology?In 1997, I set out on a rather perilous butexhilarating journey to investigate this question.Traveling across 17 states in the US over severalmonths, I met with 30 founders of companiesranging in size from $200 M to $6.5 B andspanning a variety of industries from steel andrailroad to teddy bears and semiconductors and bio-tech. The idea behind the study was notmerely to interview these founders, but to get behind their stories and understand how theyreason about specific problems in transformingan idea into an enduring firm. The entrepreneursworked their way through a 17-page problem setover two hours, talking aloud continuously asthey each solved exactly the same ten decision problems to build a company starting withexactly the same product idea. Rigorousanalyses of the transcribed tapes led to rather surprising but eminently teachable principles.This set of principles, when put together, restedon a coherent logic that clearly established theexistence of a distinct form of rationality that wehave all long recognized intuitively as“entrepreneurial”. For reasons that will becomeclear in the next section, I have termed this typeof rationality “effectual reasoning”.
Effectual reasoning: The problem
The word “effectual” is the inverse of “causal”. In general, in MBA programs acrossthe world, students are taught causal or  predictive reasoning – in every functional areaof business. Causal rationality begins with a pre-determined goal and a given set of means,and seeks to identify the optimal – fastest,cheapest, most efficient, etc. – alternative toachieve the given goal. The make-vs.-buydecision in production, or choosing the targetmarket with the highest potential return inmarketing, or picking a portfolio with the lowestrisk in finance, or even hiring the best person for the job in human resources management, are allexamples of problems of causal reasoning. Amore interesting variation of causal reasoninginvolves the creation of additional alternatives toachieve the given goal. This form of creativecausal reasoning is often used in strategicthinking.Effectual reasoning, however, does not begin with a specific goal. Instead, it begins witha given set of means and allows goals to emergecontingently over time from the variedimagination and diverse aspirations of thefounders and the people they interact with.While causal thinkers are like great generalsseeking to conquer fertile lands (Genghis Khanconquering two thirds of the known world),effectual thinkers are like explorers setting outon voyages into uncharted waters (Columbusdiscovering the new world). It is important to point out though that the same person can use both causal and effectual reasoning at differenttimes depending on what the circumstances callfor. In fact, the best entrepreneurs are capable of  both and do use both modes well. But they prefer effectual reasoning over causal reasoningin the early stages of a new venture, andarguably, most entrepreneurs do not transitionwell into latter stages requiring more causalreasoning. Figure 1 graphically depicts thedifferent forms of reasoning discussed above.
 
 
2001 Saras D. Sarasvathy, University of Washington
3While causal reasoning may or may notinvolve creative thinking, effectual reasoning isinherently creative. The simple task of cookingdinner may be used to contrast the two types of reasoning. A chef who is given a specific menuand has only to pick out his or her favoriterecipes for the items on the menu, shop for ingredients and cook the meal in their own well-equipped kitchens is an example of causalreasoning. An example of effectual reasoningwould involve a chef who is not given a menu inadvance, and is escorted to a strange kitchenwhere he or she has to explore the cupboards for unspecified ingredients and cook a meal withthem. While both causal and effectual reasoningcall for domain-specific skills and training,effectual reasoning demands something more – imagination, spontaneity, risk-taking, andsalesmanship.
Effectual reasoning: The process
All entrepreneurs begin with threecategories of means: (1) Who they are – their traits, tastes and abilities; (2) What they know – their education, training, expertise, andexperience; and, (3) Whom they know – their social and professional networks. Using thesemeans, the entrepreneurs begin to imagine andimplement possible effects that can be createdwith them. Most often, they start very smallwith the means that are closest at hand, andmove almost directly into action withoutelaborate planning. Unlike causal reasoning thatcomes to life through careful planning and
 subsequent 
execution, effectual reasoning livesand breathes execution. Plans are made andunmade and revised and recast through actionand interaction with others on a daily basis. Yetat any given moment, there is always ameaningful picture that keeps the team together,a compelling story that brings in morestakeholders and a continuing journey that mapsout uncharted territories. Through their actions,the effectual entrepreneurs’ set of means andconsequently the set of possible effects changeand get reconfigured. Eventually, certain of theemerging effects coalesce into clearly achievableand desirable goals -- landmarks that point to adiscernible path beginning to emerge in thewilderness.Yet, in our classrooms, we teach potentialentrepreneurs an extremely causal process – thesequential progression from idea to marketresearch, to financial projections, to team, to business plan, to financing, to prototype, tomarket, to exit, with the caveat, of course, thatsurprises will happen along the way. Seasonedentrepreneurs, however, know that surprises arenot deviations from the path. Instead they arethe norm, the flora and fauna of the landscape,
 from
which one learns to forge a path throughthe jungle. The unexpected is the stuff of entrepreneurial experience and transforming the
Managerial Thinking -- Causal Reasoning
 Distinguishing Characteristic:
Selecting between given means to achieve a pre-determined goal
GivenGoalGiven Means
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Figure 1
Given MeansE
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ImaginedEnds
Entrepreneurial Thinking -- Effectual Reasoning
 Distinguishing Characteristic:
Imagining possible new ends using a given set of meansGivenGoalsNew meansare generatedM
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Strategic Thinking -- Creative Causal Reasoning
 Distinguishing Characteristic:
Generating new means to achieve pre-determined goals
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