Effectual Thinking in Application
Attached are two reading materials and the below questions need to be
answered:
1. What is your understanding of Effectual reasoning?
2. Does it, in your opinion capture the essence of Entrepreneurship?
3. Have you observed or noticed or studied someone in your life that
exhibited some or all of these behaviors?
4. How will you view their actions or behavior today after reading these
articles?
5. Do you still think Casual reasoning is the way to go even for Entrepreneurs?
Why or why not?
Solution
Introduction
Researchers suggest that there are two types of entrepreneurial reasoning; effectual
reasoning and casual reasoning. The mind of the entrepreneur determines his approach to
opportunities. Casual reasoning is the common form of reasoning that business students and
entrepreneurs are taught in school. The method involves setting goals and finding means to
achieve these goals. Effectual reasoning reverses the casual reasoning process. It is based on
using pre-existing means that are used in starting and developing the business, goals are formed
as the business advances. It is the view of most researchers that most successful business
ventures employ the latter form of reasoning. Its effectiveness is debatable but research shows it
is a preferred option.
Effectual Thinking
Entrepreneurship was formerly viewed as an innate ability designed from a person’s
character or the environment in which he is based. Entrepreneurship can now be taught, by
studying the performance of previous entrepreneurs. Effectual thinking applies the logic that
entrepreneurship is a process of discovering what the market wants and structuring the business
to fit this. Effectual thinkers are of the opinion that the world is dynamic and opportunities arise
now and then, all these are at their disposal and they need not try to calculate what the next steps
should be. They start ventures by using the opportunities they already have at hand; who they
are, what they know and whom they know. Centering their time and attention in these areas and
not what they do not yet have allows them to make the best of what is limited. These is described
as the crazy-quilt principle where subsisting means are developed to further a venture compared
to searching for new means for goals that are already set. In time, people take interest in their
ENTREPRENEURIAL THINKING
ideas. They adopt the bird-in –hand principle where they take these ‘potential investors and
stakeholders’ seriously committing to them without worries of market domination pressure.
These obligations create avenues for new means and goals. The increased plane of operation
introduces unexpected problems; the mindset of the effectual entrepreneur is structured to assess
this as a chance to exploit such contingencies to the maximum. Casual reasoning establishes that
goals drive the entrepreneur and they base themselves on a lower level of control of the business
and are more preoccupied with their targets. Effectuation relies on the reverse, a system of non-
predictive control where methods to deal with problems are formed when problems emerge than
have a strategy pre-placed to handle them, (Sarasvathy & Dew, 2006, p. 1-3).
According to Howard Stevenson, entrepreneurship involves looking for opportunities
where there are limited resources available. Sarasvathy explains that in effectual reasoning the
entrepreneur approaches the venture by cultivating opportunities to attract all types of investors
and markets. This allows him to choose what is best for the business he is creating. Having a
stable market consisting of loyal customers interested in growing the business is just is very
similar to having investors. Effectual reasoning paints the spirit of entrepreneurship best and
offers better results compared to casual thinking, (Sarasvathy, 2010, p. 8).
Effectual Thinking in Application
One of the businesspersons I am familiar with, Stuart Merle is a local retailer who
specializes in selling designer clothes. He operates a chain of retail shops called Fashion IDOL.
He started small, focusing on supplying clothes to stores and further discovered that there was a
big market for designer clothes. He rented a stall and started selling directly to the customers.
Several store owners decided to collaborate with him to buy his commodities cheaply and sell
them themselves at the usual price. He grew to owning over seven stores around the city in five
ENTREPRENEURIAL THINKING
years. He currently collaborates with designer companies to supply clothes, shoes and
accessories. He can be considered an effectual thinker due to his approach to the business. He
started by merely using his connections to sell clothes to existing stores and saw an opportunity
to replace the intermediary in the supply chain. His approach to focus solely on designer brands
was developed by the attention customers gave to the product.
The structure employed by Stuart may be describes as a lucky one, considering his
mindset in the beginning and the results a decade later. However, his approach may merely be
that of an effectual thinker. All he began with in the start was his connections and eye for stylish
marketable clothes. He realized the strong demand for such a product was good enough to
support a business that he could operate by himself. His actions may as well be seen to have
structured his market in a way to cause increased interest in his product by both customers and
businesspersons who form a part of the investors. His approach to problems such as the dynamic
arena of fashion was transformed to a big opportunity for better business by including fashion
designers in his business as buyers and suppliers.
Conclusion
Casual reasoning has existed for a long period. Several project developers use it to
predict the capability of the business to succeed. It has succeeded in some business ventures but
majorities of entrepreneurs who have made major breakthroughs show a contrast in opinion.
However, an approach that targets the market rather than the pre-existing goals helps the
business be dynamic enough to take advantage of the ever-dynamic future possibilities and
problems that come up. Effectual reasoning is therefore a preferable approach.
ENTREPRENEURIAL THINKING
References
Sarasvathy, S. D., & Dew, N. (2006). THE ENTREPRENEURIAL METHOD: HOW EXPERT
ENTREPRENEURS CREATE NEW MARKETS. THE ENTREPRENEURIAL
METHOD: HOW EXPERT ENTREPRENEURS CREATE NEW MARKETS, UVA-ENT-
(0073). Retrieved from
http://poseidon01.ssrn.com/delivery.php?ID=5150270051180690871040821240290950
06036012017087001025006003006119051017047088023101105101049060019074022
06911706510006403205410107109409010306502712508610610610411401300701209
0090123084065080109017122069&EXT=pdf
Sarasvathy, S. D. (2010). What makes entrepreneurs entrepreneurial? Retrieved from
http://www.effectuation.org/sites/default/files/documents/what-makes-entrepreneurs-
entrepreneurial-sarasvathy.pdf
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