General Overview

Effectuation is an idea with a sense of purpose – a desire to improve the state of the world and the lives
of individuals by enabling the creation of firms, products, markets, services, and ideas.
Effectual reasoning is a type of human problem solving developed from a cognitive science based
study of 27 founders of companies ranging in size from $200M to $6.5B. Effectuation articulates a
dynamic and iterative process of creating new artifacts in the world. Effectual reasoning is a type of
human problem solving that takes the future as fundamentally unpredictable, yet controllable through
human action; the environment as constructible through choice; and goal as negotiated residuals of
stakeholder commitments rather than as pre-existent preference orderings.
Effectuation is a logic of entrepreneurial expertise. What makes great entrepreneurs isn’t genetic or
personality traits, risk-seeking behavior, money, or unique vision. Effectuation research has found that
there is a science to entrepreneurship and that great entrepreneurs across industries, geographies, and
time use a common logic, or thinking process, to solve entrepreneurial problems. Effectuation is a logic
of entrepreneurial expertise that both novice and experienced entrepreneurs can use in the highly
unpredictable start-up phase of a venture to reduce failure costs for the entrepreneur.
Context
Effectuation is an idea born of a unique look at an age old problem – what makes entrepreneurs
entrepreneurial? By the late 1990’s this question had been debated for decades by both academic
researchers and practitioners of entrepreneurship with little success. The main focus of academic
research had been on two theories: 1) that entrepreneurship either a genetic or acquired personality trait
or psychological condition (risk seeking) and 2) that entrepreneurs took advantage of opportunities that
were created by inefficient market forces, regulation, and scientific breakthroughs. Even if science had
supported these theories, they were of no practical use to the entrepreneur who was starting his or her
business.
Further, dozens of entrepreneurs publish memoirs and “how-to” books on entrepreneurship every year.
These are based on the unique experiences of the individual entrepreneur (which is good) but aren’t a)
backed up with science or b) universally applicable.
No one had gotten the truly unique characteristics, habits, and behaviors of the species entrepreneur.
The Worldview
Expert entrepreneurs believe that the future is shaped by people. They believe that if they can make the
future happen, they don’t need to worry about predicting the future, determining perfect timing to start,
or finding the optimal opportunity. Sarasvathy calls this “effectual logic” which sits opposed to “causal
logic” taught to managers in more certain (or predictable) circumstances.
Effectuation vs. Causation
Aspiring entrepreneurs in MBA classrooms have long been taught the principles and tools of causal
reasoning—the exact inverse of the effectual reasoning that drives entrepreneurial success. Using
causal reasoning, one begins with a specific goal and a given set of means for reaching it. Using
effectual reasoning, one starts with only a set of means; in the process of deploying them, goals
gradually emerge.