What Makes Entrepreneurs Entrepreneurial?

Entrepreneurs think and act differently from managers and strategists.

This 2008 paper argues that entrepreneurs use effectual reasoning, the polar opposite of causal reasoning taught in business schools. Causal reasoning starts with a goal and finds the best way to achieve it. Effectual reasoning starts with available resources and lets goals emerge along the way. Entrepreneurs are explorers, not generals. Instead of following fixed plans, they experiment and adapt to seize whatever opportunities the world throws at them.

Consider this example from the paper. A causal thinker starts an Indian restaurant by following a fixed plan: researching the market, choosing a prime location, targeting the right customers, securing funding, and executing a well-designed strategy. The effectual entrepreneur doesn’t start with a set goal. She starts with what she has (her skills, knowledge, and network), and she experiments. She might begin by selling homemade lunches to friends’ coworkers. If that works, she expands. If not, she watches what excites her customers. Maybe they care less about the food and more about her cultural insights and life experiences. She doesn’t force the restaurant idea. She unasks the question and asks a new one: What do people really want from me? (This is exactly what Airbnb did with its "Experiences". Instead of just renting out rooms, hosts began offering cooking classes, city tours, and adventures, things people didn’t know they wanted until they saw them.) 

Key principles of effectual reasoning

The author, Prof. Saras D. Sarasvathy, interviewed 30 seasoned entrepreneurs and identified key principles of effectual reasoning.

The first is affordable loss. Forget maximizing returns. Entrepreneurs focus on what they can afford to lose. Instead of wasting time on market research, they test ideas in the real world. They fail cheap, fail fast, and learn faster.

The second is partnerships over competition. Entrepreneurs don’t assume a market exists for their idea. They build networks of collaborators who help shape the business. This lowers risk, opens doors, and provides instant feedback. This contrasts with the corporate world, which focuses on outmaneuvering rivals.

The third is leveraging surprises. Managers hate surprises. Entrepreneurs love them. The unexpected isn’t an obstacle, it’s an opening. A pivot. A new market. A better business.

So, effectual reasoning flips traditional business thinking on its head. Most strategies assume that predicting the future gives control. Entrepreneurs believe the opposite: take action, and you shape the future. Rather than waiting for ideal conditions, they start with what they have and improvise.

Discussion

Here is what I make of this. Some people are born entrepreneurs. Others are not. Maybe you can teach it. Maybe you can’t. But some minds are wired for effectual thinking, and others crave a plan, a map, a well-paved road.

A smart friend of mine put it perfectly. On his dream software team, he wants either Jeeps or Ferraris. Jeeps go anywhere. No roads, no directions—just point them at a problem, and they’ll tear through it. That’s effectual reasoning. Ferraris, on the other hand, need smooth roads and a clear destination. But once they have that, they move fast. He doesn’t want Toyota Corollas. Corollas are slow. Worse, they still need roads.

So here’s my corollary (admire my beautiful pun).

If you got to be a causal thinker, be a Ferrari. Not a Corolla.