The Entrepreneur's Brain

How do great entrepreneurs think? That’s the question that Saras Sarasvathy set out to answer in a recent study. Based on interviews and case studies with successful U.S. entrepreneurs and executives at large corporations, Sarasvathy found that “master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don’t start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives-those in the study group were also enormously successful in their chosen field-use causal reasoning. They set a goal and diligently seek the best ways to achieve it.” (HT: Marginal Revolution) [%comments]

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  1. Cyril Morong says:

    Candace Allen Smith has written about how entrepreneurs are like heroes. She gave a talk on this at the Dallas Fed in 1997. Here is the link:

    http://www.dallasfed.org/research/ei/ei9701.html

    I think that got reprinted in the Freeman. She also had a similar, award winning article in the Journal of Private Enterprise in 1996.

    Walter Williams also wrote about entrepreneurs as heroes

    http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2005&month=03

    So did Johan Norberg

    http://www.cato.org/pubs/catosletter/catosletterv5n1.pdf

    I have also written a couple of articles on the subject

    http://cyrilmorong.com/ENTREPRENEUR.htm

    http://cyrilmorong.com/ENTREPRENEUR.doc

    In one of his books, Israel Kirzner said something like “entreprneurs discover opportunities for economic proft by leading a life of purposeful action.”

    Lawrence Summers explained his vision for an entrepreneurial future last year at the White House blog.

    http://www.whitehouse.gov/blog/A-Vision-for-Innovation-Growth-and-Quality-Jobs/

    “An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not Smith or Keynes, but Joseph Schumpeter.”

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  2. Ulysses says:

    I guess two things are true then: (a) I’m not a causal reasoner/career climber, and (b) I have a truly legitimate reason to describe myself as “entrepreneurial” which has made its way into the business boilerplate lexicon.

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  3. Doc says:

    As an Angel investor I deal with entrepreneurs extensively. The “effectual reasoners” are the ones who succeeded. There are many who do not have that quality, most of them haven’t succeeded. Having been a corporate executive as well, I take issue with the description of goal-striving as “causal”. Entrepreneurs and corporate executives occupy the same world where change is a constant. One could argue that an entrepreneurial start-up has almost perfect uncertainty about what the opportunity set will be in the near future while a successful company has a narrower opportunity set since they have met, rejected and embraced many more opportunities than the start-up and they know what they are about. The narrower the opportunity set, the more “causal” the approach will appear.

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  4. Michael Perkins says:

    The primary difference between successful entrepreneurs and the rest of us is that they do not get discouraged by failure. They are willing to try 10 new things and happy if only one of them succeeds.

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  5. Xian says:

    Wow, how insightful that Corporate Executives are not as flexible or see the ‘other viable’ opportunities avialable. There are established companies that are able to make leaps ahead of their competitors not because they we’re financially astute but saw the potentials of their market in alternate aspects. As the best example I can give is the competition among cable and phone providers, and if it were not for cable pushing the envelop for faster internet speeds, we would all still be on dial-up. The phone company had no reason to expand until competition walked in. Unfortunately their current forsight for the last fifteen years has been somewhat myopic and unchanging as how to financially succeed while technologically advanced.

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  6. sanjib bhardwaj says:

    Being founder & entreprenuer of different types of businesses, one thing I can confidently define about entreprenuers is ” an individual who allways think, plan & implement newer ideas for the benefit of investors, state exequer, workers & clients or customers/end users. With permutation, combination & additions of different concepts & technologies.

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  7. Roy says:

    “An important aspect of any economic expansion is the role innovation plays as an engine of economic growth.”

    Except when it’s innovation in ways to commit fraud.

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  8. hal says:

    If you had both on the team – entrepreneural and causal goal seeker – even if it were just a team of two – it would be more successful than either alone. (At least until the fight at the end over who was more important to the success or to blame for the failure!)

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