Effectual Entrepreneurship

Effectual Entrepreneurship

This is continuation to my previous post on my experiences in Startup Saturday, July 2010. This post concentrates on the highlight of the meetup which was a presentation on Entrepreneurship by Prof. Suresh Bhagavatula. The presentation started with a simple question: Can Entrepreneurship be taught? He proceeded to prove that entrepreneurship can be taught like any other science or art.

Personally, I still think that entrepreneurship can be taught only to the extent of the functions of an entrepreneur. One can be taught the finance, operations, purchase, marketing, sales, support and even the ability to spot the opportunities and risks and assessing them; however, as shown by various stories quoted by Bhagavatula and those that I have read (mainly in the books Stay Hungry Stay Foolish and Connect the Dots), there aren’t any well-known factors that necessarily equate success. Of course, if one removes the necessity of success out of the definition of entrepreneurship, it can be, in principle, taught. Then again, to do this, we need to understand the definition of success which is a bigger task than defining entrepreneurship itself. This said I don’t disagree with Bhagavatula on any count. In fact, I wholeheartedly agree with him that entrepreneurs are essentially men like any other. It is only what they do that makes them entrepreneurs and that, in subject, can be learnt.

Bhagavatula uses a line from the movie Ratatouille to explain this: Anyone can cook. There is a fine line in understanding this line, however. In the story, Anton Ego describes what he understands it to mean:

Not everyone can be a great artist, but a great artist can come from anywhere.

Indeed, Bhagavatula’s stories and examples highlight this strongly. Successful entrepreneurs have sprouted from parts of this country one can scarcely imagine. Could their endeavors have been predicted? Bhagavatula stated that we do not know how this happened. These are still subjects of entrepreneurial research.

Bhagavatula references Prof. Saras D. Sarasvathy’s work in entrepreneurial research in most of his presentation. Sarasvathy has studied the reasoning of 30 founders of companies ranging from $200 million to $6.5 billion. What she found was that rationality of these founders is distinct from regular strategic thinking. She termed this rationality as Effectual Reasoning. You can find a discussion on effectual versus causal reasoning here. This article also, obviously, refers to Sarasvathy’s work on this topic.

With effectual reasoning, one doesn’t consult a business plan to identify resources needed and then work to obtain them. They merely identify what resources they have and start. Characteristically, these entrepreneurs build a comfort zone and work within, outsourcing or delegating the rest. They are not really interested in market research or elaborate plans, doing it only if they have to. They just do what they love and that is what brings success.

Bhagavatula explains this with an analogy. He asks on how a person begins to cook. Some of the audience described themselves opening the refrigerator and then deciding what to cook based on what is available. The audience also remarked that more often than not, what is eventually made is different from the original plan in mind. This, Bhagavatula explains, is effectual reasoning. You are cooking something with what you have rather than deciding on a recipe and then visiting the supermarket to buy the ingredients. The books I have mentioned earlier (SHSF and CTD) have sections on entrepreneurs who formed their companies exactly this way.

So what should one do to succeed in their undertaking? Bhagavatula advises just doing the job you want to do. You don’t need a formal business plan to make it to the list of fastest growing companies. All you need is opportunity and passion to work at it. In fact, formal business plans are becoming less useful to predict the success of a company. According to the data presented, 40% of the 500 fastest growing companies did not write a formal business plan. Furthermore, only 5-10% did market research and only about 30% took more than a few months to start. Whilst not a proof, but this goes to show you are more likely to succeed if you concentrate on your job rather than worry about the outcome.

There was also a discussion about the time element. Bhagavatula gave an example of an entrepreneur who spent 18 months just writing a business plan to her venture. Today, she is merely surviving. In contrast, there were dozens of examples of traders and artisans who evolved into multi-crore businesses from roadside or door-to-door jobs.

There was a lot more in the presentation than what I have written here. I have written the parts I found most useful and could remember best. I did take notes some of which I used in writing this post but they are quite haphazard. Moreover, the written text is not nearly as effective as being there in person watching and listening to the presentation.

Further Reading