So What?!

Sarasvathy didn’t create a “theory” of entrepreneurship that would be pitted against other theories. She
documented a logic of entrepreneurial action that has methodical implications for both researchers and
entrepreneurs. Effectuation research immediately produced two large outcomes:
1) Effectuation doesn’t merely explain historical methods of performance, effectuation is a method that
anyone can learn and use to decrease the risk of starting a venture, “fail” more effectively, use fewer
resources, and become “expert” in entrepreneurship more quickly
2) Effectuation is part of an “Entrepreneurial Method” (similar to the Scientific Method) whereby
“effectual logic” can be used as the fuel to create more effective “experiments” by entrepreneurs testing
their theories in the real world.
The Science
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 practitioners of
entrepreneurship and the academics that study them with little success. No one had gotten the truly
unique characteristics, habits, and behaviors of the species entrepreneur.
The Theory
Saras Sarasvathy, under the mentorship of Nobel Laureate Herbert Simon of Carnegie Mellon
University, sought to provide “valid microfoundations for an economics in which Schumpeterian
perspectives on innovation, competition, and growth are integral, yet consistent with recent evidence
from evolutionary economics on the dynamics of markets and industries as well as with recent
developments in behavioral economics on human decision-making.” The empirical evidence for the
microfoundation came from a cognitive science based study of entrepreneurial expertise using think-
aloud protocols. She had two main questions in her research:
“What commonalities and differences exist in the decision-making process of an group of expert
entrepreneurs who started with the same idea for a new venture and face exactly the same set of
decisions in building it?”
“In the face of non-existent or not-yet-existent markets, what underlying beliefs about the predictability
of the future influence the decisions expert entrepreneurs make as they build a new venture?”