What makes a person entrepreneurial?
Professor Saras D. Sarasvathy believes the distinguishing factor is in the reasoning process. She identifies two types of reasoning:
When you think with causal reasoning, you focus on what you want to do—the desired end goal, or the destination—and then work backwards from that. Business leaders, managers, and strategists tend to use this planning process in their work, but it’s not how entrepreneurs think.
By contrast, you could instead think with effectual reasoning, which would involve focusing on your point of origin—who you are (traits, tastes, abilities), your knowledge (education, training, expertise, experiences), and who you know (personal and professional networks). In effectual reasoning, your goals emerge and change over time. There isn’t a final destination.
Entrepreneurs tend to think with effectual reasoning. There’s a great hypothetical example in the paper, and I also work at a company that’s a good example of that—FGX started as a general courier, and now specializes as a logistics partner for just delivering IT.
The story that’s most relevant to this blog is my own. When I started my business over a decade ago, I was mainly interested in practicing entrepreneurship. I saw it more as a beta test.
While I wanted that business to be successful, I had no idea what my final goal was going to be. If I had waited, I would probably still be waiting. Instead, I started with my skills and abilities.
When I was a teenager, I started a tech blog. Through many years, I eventually earned the opportunity to write for a Canadian tech trade publication (more details here). Eventually I got my first job in tech, at a mobile app studio.
My initial pool of contacts in the technology industry approached me with freelance writing opportunities, so I incorporated a holding company for that revenue. I also had years of blogging about technology, and I was relatively tech literate, so I had the expertise to match. I had aspirations for my career beyond being a freelance writer, but my goals weren’t very specific. (In effectual reasoning terms, this is known as the bird-in-hand principle.)
I initiated other projects I wanted to explore as well, and got my business involved. I put my business name as the producer of my interview series, which I did with my friends, but my business wasn’t a production company. I put it on a book that I made, but it wasn’t a publisher. I never put up any money that I couldn’t afford to lose (the affordable loss principle—which is very relevant to Small Bets).
After a couple of years, the only reliable way I found to make money was through my services—writing, editing, and marketing advisory. As I focused on that, I realized that I didn’t like certain parts of the process, and I also noticed that some clients paid more than others. I’d come across a niche that matched my preferences—working with tech companies on their engineering blogs.
On its own, the business I started didn’t end up as the resounding success I’d hoped. That was due to all sorts of reasons, but one is perhaps because I failed to engage more fully in causal reasoning and focus on getting key activities done.
But I didn’t fail to start. I didn’t let a bad business name stop me. I out-executed analysis paralysis. My business delivered value to clients and even created employment opportunities. It also taught me what taking risks felt like, and provided a sense of confidence that I can go back to.
Entrepreneurship brought me many fulfilling life experiences, and set me up for this professional marketing career I have today. The people I met through my business also showed me more possibilities outside of my business.
I realized that there were many different business models aside from the one I was working in, as well as all sorts of ways I could level up as an entrepreneur outside of working on my business.
In true effectual reasoning fashion, when I decided that looking for a full-time job was probably my best option, that’s what I did—more than once. (I leveraged a contingency—in effectual reasoning, this is called the lemonade principle.)
I could’ve told more stories here—about my book (and how I signed with a publisher after I independently published), about moving away from my hometown Toronto to Hong Kong and to New York City, the list goes on.
That’s what effectual reasoning looks like. I didn’t do it because I think it’s smarter—I did it because I felt more inclined to. It gave me energy to continue seeking out opportunities to grow, finding problems and solving them, and delivering new creative projects. And whenever I realized what I was doing wasn’t working, I was always able to find something new to jump into.
If you’re a person who thinks best with effectual reasoning, you’d be well-suited to lean into that. You’ll eventually need to learn and practice causal reasoning too, in order to hone your focus and make sure you and your team prioritize well. Failing to make the switch costs entrepreneurs a lot of opportunities—maybe even the whole business. You may want to build a team around you that is more well-suited to causal reasoning, but isn’t inclined towards effectual reasoning. But there will always be room for your effectual reasoning, even in a tight focus. Remember: it’s your superpower.