Chris McCann's Personal Blog

Life's too short to not do awesome things

What Makes Entrepreneurs, Entrepreneurial? Part 1

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explore entrepreneur entrepreneurial ship boat

Photo by Jorge Sato

I just finished reading the most eye opening and inspirational papers I have ever seen before. The paper is called “What makes entrepreneurs, entrepreneurial?” and it was recommended as one of Vinod Khosla’s top reads.

If your unfamiliar with who Vinod Khosla is check out his wikipedia entry http://en.wikipedia.org/wiki/Vinod_Khosla . He was one of the original founders of Sun Microsystems, venture partner at Kleiner, Perkins, Caufield & Byers and visionary of the silicon valley revolution and currently the greentech revolution.

I think it’s safe to say Vinod knows a thing or two about entrepreneurship, and this paper he recommended completely blew my mind away. It perfectly describes the logical processes entrepreneurs go through vs. the logical processes of typical management/non-entrepreneurs apply. After carefully reading every sentence of the paper I thought long and hard about the messages presented, shared it with my friends, had a discussion about it, and now I want to share it with all of you.

There is so much good info in here this will be a part 1 of 2 series where I will lay out some of the main ideas and some interpretation on my behalf.

 

What Makes Entrepreneurs, Entrepreneurial?

In solving complex problems, such as starting a company, there emerges two main types of thinking. The first of which is casual reasoning.

1. Casual Reasoning is the process in which you begin with a pre-determined goal and a given set of means, and the process seeds to determine the optimal (fastest, most efficient, cheapest, etc) alternative to achieve a certain goal. This type of reasoning is taught in general to all MBA programs around the world and in every functional area of business. If we diagramed casual reasoning this is what it would look like:

casual reasoning what makes entrepreneurs entrepreneurial

2. Effectual Reasoning on the other hand is the complete inverse of the casual reasoning process. Effectual reasoning does not begin with a specific goal in mind rather it begins with a set of means and allows goals to emerge over time from varied imaginations and aspirations. If we diagramed effectual reasoning this is what it would look like:

effectual reasoning what makes entrepreneurs entrepreneurial

A good metaphor is casual thinkers are like great generals (Ghenghis Khan) seeking to conquer fertile lands and effectual thinkers are like explorers (Colombus) setting out onto voyages into uncharted waters.

People can use both types of reasoning at different times but entrepreneurs have a greater tendency to use effectual thinking over casual reasoning. While both types of reasoning require domain specific knowledge and training effectual reasoning demands something different: imagination, spontaneity, risk taking, and salesmanship. In my opinion this is why I believe entrepreneurs have a greater tendency to be generalists and insatiably curious in many different topics and fields.

To end part 1 in this series here is an outline of the effectual reasoning process

 

Effectual Reasoning Process

Entrepreneurs begin with three categories of means (inputs to figure out effects/goals), which are:

1. Who they are – tastes, abilities, traits

2. What they know – education, training, expertise, experience

3. Whom they know – social and professional networks

Using these three means or inputs entrepreneurs then imagine the possibilities and implement possible effects that can be created through these possibilities. Entrepreneurs most often start very small with the resources and means closest at hand and move directly into action without any elaborate planning. In my opinion this is why I believe entrepreneurs jump straight into projects without considering many of details involved and prefer action over thinking things through.

Contrast this to casual reasoning, which involves careful planning and subsequent execution, rather than jumping straight into execution. With effectual reasoning plans are made, unmade, revised, and rewritten through action and interaction with others on a daily basis. Through the effectual reasoning process eventually certain emerging effects come together to form clearly achievable and desirable goals like landmarks that point to a path in the wilderness.

However in the classroom setting we teach entrepreneurs a very casual process of thinking: idea – market research – financial projections – team – business plan – financing – prototype – market – exit with a caution that surprises will come along the way.

But the seasoned experienced entrepreneur knows that surprises are not deviations from the path but instead are the norm from which one learns to form a path through the jungle. The unexpected is the stuff of entrepreneurial experience and transforming the unexpected into the utterly mundane is the special domain of the entrepreneur.  This is why I believe that entrepreneurs tend to excel in the face of chaos and pressure, and everything seems to turn out ok (when you succeed of course) even through from the outside the situation looks like utter madness.

This concludes part 1 of the series, in the next part I will write about the principals of effective reasoning vs. casual thinking, the underlying logic of these two reasoning methods, and how you can learn and apply these methods to whatever you are doing.

Leave a comment and let me know what you think of the series so far!

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5 Responses

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  1. […] my last two posts here and here I laid out what entrepreneurial (effectual) reasoning is, the process it involves, and the […]

  2. […] secondi il "ragionamento causale" (effectual reasoning vs causal reasoning – vedi anche qui e qui). L’imprenditore presta minore attenzione a dati e previsioni, tende ad adattare o […]

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