How to Predict the Unpredictable

“Let there be light” (Genesis 1:3)

or: How to Control the Unpredictable

Sara Sarasvathy’s (2001) research on how to be a successful entrepreneur questions the

overall applicability of preceding neoclassical models of entrepreneurship (Stevenson and

Gumpert, 1985). It follows an approach called “problematization” in which an existing model

- neoclassical model of entrepreneurship - fails to properly explain certain patterns of

behaviour - expert entrepreneur behaviour of starting new businesses (Arend et al, 2015).

Effectuation is emphasized in the early stages of developing new businesses, in situations

where the entrepreneur is confronted with greater levels of uncertainty and the resources at

hand are restricted. Sarasvathy (2001) developed five principles of effectuation: (1) Bird in

Hand, (2) Affordable Loss, (3) Lemonade, (4) Patchwork Quilt and (5) Pilot in the Plane.

When an entrepreneur applies effectuation, she will start with a given set of means, focus on

the downside risk, leverage contingencies, form partnerships and therefore seek to control an

unpredictable future. This is in contrast to the neoclassical models of entrepreneurship, also

called causation. In the latter scenario the entrepreneur will have a set of pre-set goals, focus

on expected return, avoid surprises, enhance competitive analysis and predict an uncertain

future (Sarasvathy, 2001).

Effectuation is emphasized in an environment of greater uncertainty. The moment the

entrepreneur brings a “break through” technology to the market, she cannot rely on market

forecasts, as the market does not exist yet. Therefore the entrepreneur would not be able to

identify obstacles ex ante (“Knightian Uncertainty”) (Knight, 1921). Sarasvathy’s effectuation

approach is offering a solution to the dilemma: “to the extent that you can control the future,

you do not need to predict it” (Sarasvathy, 2001, S.252). Entrepreneurs would focus on “the

controllable aspects of an uncertain...