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Category: Business and Industry
Date Submitted: 02/03/2016 09:00 AM
“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...