There are many approaches to entrepreneurship including the psychological approach that focuses on the personality of the entrepreneur, the environmental approach that focuses on the social and organizational aspects, and a combination that looks for systemic elements.
Saras Sarasvathy, Darden School research professor at the University of Virginia, has researched the approach from the context of a domain of expertise and has found that serial expert entrepreneurs use a distinct logic in their decision making that she refers to as “Effectual Logic”. As a method for design, it can be taught like other methods of thought.
A Psychological Approach
A psychological approach to entrepreneurship would consider questions of personality. Does one have a high need for achievement, a high locus for control, a high tolerance for risk, and perhaps, suffer from overconfidence bias? Based on these and similar assessments, one could conclude that an entrepreneur is born and bred.
An Environmental Approach
The environmental approach would ask if the entrepreneurial candidate worked in an environment with supportive mentors who themselves had been entrepreneurs. Is the geographical area influenced and supported by multiple companies, skilled employees, venture investors, institutions of higher learning, etc., similar to a Silicon Valley or Cambridge? In essence, this approach assumes the environment to be a significant impact conducive to entrepreneurship or not.
Both of these approaches would assume that entrepreneurship is not taught, but born as personality or coaxed and supported as a socio-economic outcome.
Sarasvathy was interested in two primary questions: (1) What commonalities and differences exist in the decision making process of a group of expert entrepreneurs, and (2) in the face of a non-existent markets, what underlying beliefs about the predictability of the future influence decisions as they build a new venture?
Entrepreneurship: A Design Approach
This led her to research entrepreneurial thinking as a domain of expertise and, as such, she found it had a logic of its own. She found that entrepreneurs have learned how to build ventures in a market in which the future in not only unknown, but unknowable. Yet, entrepreneurs are able to shape this future by utilizing the following five principles:
- Start with the Means – they started with their means: who I am, what I know, and whom I know
- Affordable Loss – they limit risk by understanding what they can afford to lose
- Leverage Contingencies – they invite surprise as a clue to new markets vs. managing for risk
- Form Partnerships – they build partnerships with self-selecting stakeholders and change the goals and resources available by doing so
- Control vs. Predict – they build the future rather than finding it or predicting it.
She refers to this approach as an “Effectual Logic” that can be contrasted with “Casual Logic”, the approach that predicts the probability of the future, manages the risk, assesses the competition, and moves a new venture forward on the basis of returns on assets.
Effectual logic is an approach to design and construction in contrast to casual logic’s approach to decision making. It is, however, simply another method of thinking along side deductive logic, Bayesian analysis, the experimental method, etc., and as such, can be taught just like other problem solving methods.