How Great Entrepreneurs Think

In the world of business, there are great entrepreneurs and great corporate executives.  What distinguishes one from the other?

Saras Sarasvathy, a professor at University of Virginia’s Darden School of Business, tested some of the best minds in American business and found that entrepreneurs and corporate execs have different ways of thinking.

Sarasvathy met personally with all of her subjects, presenting each with a case study about a hypothetical start-up and 10 decisions that the founder of such a company would have to make in building the venture. Then she switched on a tape recorder and let the entrepreneur talk through the problems for two hours.  According to an article in Inc. magazine earlier this year, Sarasvathy concluded 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 use causal reasoning. They set a goal and diligently seek the best ways to achieve it. Early indications suggest the rookie company founders are spread all across the effectual-to-causal scale. But those who grew up around family businesses will more likely swing effectual, while those with M.B.A.’s display a causal bent. Not surprisingly, angels and seasoned VCs think much more like expert entrepreneurs than do novice investors.

It’s an interesting theory…but I’m not sure I’m totally convinced.