On entrepreneurial decision-making and how to create firms in the absence of markets

What is it that sets successful entrepreneurs apart? What do they do so well? How do they create markets and firms? Is there any commonality in the processes they follow to analyse, solve problems and make decisions? And what are the processes used by successful senior managers in big international firms? Several studies by Saras Sarasvathy found answers to these questions, resulting in some intriguing insights.

To mention all the details of the research and its methodology goes beyond the scope of this article. So at the bottom I refer to the excellent articles to read up on the specifics. However, relevant to note is that there were clear criteria as to the success of both the entrepreneurs and the managers. In other words, the “models” were excellent.

The two distinct patterns found are labelled causal reasoning and effectual reasoning.

  • Causal reasoning is characterised by presuming given, well-specified goals and finding the best ways to achieve this goal. Also reasonably reliable predictions about the future can be made because causes and histories are well-understood. The environment or context such as the market is independent. This model is the more traditional pattern and used most often by managers.
  • Effectual reasoning on the other hand is characterised by an improvisation process where the starting point is not having concrete goals but the goals evolve and are established along the way. Then the presented opportunities are a result of combining what is happening in the environment and what is possible with the present strengths and available resources.

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