What is learnable and teachable about Entrepreneurship? How are Entrepreneurs different from others? Do they think differently?  Prof Saras D. Sarasvathy answers these questions and more.

She is Associate Professor of Business Administration at the Darden Graduate School in University of Virginia.  She teaches courses in entrepreneurship and ethics in Darden's MBA program.  In September 2007, Fortune Small Business Magazine named her among the Top 18 Entrepreneurship Professors in the US.  

A leading scholar on the cognitive basis for high-performance entre-preneurship, Sarasvathy is the author of Effectuation: Elements of Entrepreneurial Expertise. 

Excerpts from Dr. Sarasvathy's Talk....:

My Credentials come from research; I started with a question, what is learnable and teachable about Entrepreneurship? Then went on to learn, how are they different from others? And what makes them successful entrepreneurs? 

So in 1997 travelling 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 spanning a variety of industries including steel, railroad, teddy bears, semiconductors, and bio-tech. These expert entrepreneurs each have founded several ventures; including a couple of failures and have taken at least one company public.

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, to understand entrepreneurial thinking.  The entrepreneurs worked their way through a 17-page problem set over two hours, talking aloud continuously as they each solved exactly the same 10 decision problems. By this method you not only find out what they do, but actually look at how they do it, what are the principles they use etc. For example if I ask you to multiply 34 by 22, I can see you imitating a paper and pen; I can map out your thought.

In MBA programs across the world, students are taught causal or predictive reasoning in every functional area of 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 alternative to achieve the given goal.

What we realized was that Entrepreneurs took all the principles from casual reasoning and inverted them. I have termed this type of rationality "effectual".  Effectual reasoning, does not begin with a specific goal, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with.

If you have to choose project A, In the casual reasoning method, you will do projections, demand supply, costing, make suggestions of revenue that can be generated, discount it back, do net percent analysis etc, but in the effectual reasoning this will be inverted, the situation is assessed using a method called affordable loss.  Instead of looking at all expected income expert entrepreneurs will think, if all does not happen as per plan, we may lose this much money, can we afford to lose that amount of money? Causal reasoning focuses on expected return, Effectual reasoning emphasizes affordable loss.

Lets look at some examples to understand it better, I teach at the Darden business school, which is one of the top 10 business schools, the students when they pass out, get 200000 dollar a year jobs. Many of them leave the job after a couple of years and start a company of their own. The immediate reaction to this can be my God these people are risk takers. But they think differently, I'm about 40 years old now and have kids who don't need so much attention now, and I always wanted to be my own boss, if I don't do it now, when will I ever do it ? So they'll take 200000 dollars from their savings and start a business, if it does not work well even after 6 months, then they'll probably look for a job again.

The simple example of Cooking can probably explain it better. One way to cook is, plan what you want to cook, go get all ingredients and cook it, other way to cook is open the fridge and see what is there and decide what to make and go ahead and make it. In the second option, the result depends on how good and innovative the cook is and Expert Entrepreneurs work in this fashion. Causal reasoning urges the exploitation of pre-existing knowledge and prediction; Effectual reasoning stresses the leveraging of contingencies. Expert Entrepreneurs are good at working with things they already have, they hire people who can shape the business as they go along and not in a targeted way.

While Causal reasoning depends upon competitive analyses; Effectual reasoning is built upon strategic partnerships. Self-selected strategic partnerships principle dovetails very well with the affordable loss principle to bring the entrepreneurs' idea to market at really low levels of capital. It is very collaborative, not an act of an individual. Early on you learn how to work with other people. So if you fail, it is in an affordable way. It is like the Zari quilts that we make traditionally, the end result can't be predicted, but you are certain that something exotic and beautiful will materialize

Abstraction here is that, the future comes from what people do, not what they try to predict.

She was speaking at a Panel Discussion organized by Businessgyan and TASMAC on the topic ‘What makes  Entrepreneurs Tick?'. 

Compiled by Ms. Mangal D Karnad for Businessgyan

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