Entrepreneurial expertise
Saras D. Sarasvathy and Stuart Reed
Introduction
Entrepreneurship has traditionally been viewed as an individual characteristic. Besides investi gating personality traits and attributes, studies have examined gender differences (Carter et al., 2003), risk aversion (Miner, Smith, and Bracker, 1994), and even sociopathy as possible traits or characteristics of entrepreneurs (Winslow and Solomon, 1987). Unfortunately, these efforts have returned little more than inconclusive results on what defines an entrepreneur and sustains him or her through a continuing career in entrepreneurship. Recently, however, there is a move to study entrepreneurship as expertise: a set of skills, models, and processes that can be acquired with time and deliberate practice. For example, Mitchell (1997) sought to understand the nature of entrepreneurial expertise in management, while Reuber and Fischer (1994) showed an empirical relationship between entre preneurial expertise and firm performance.
Expertise has traditionally been studied in cognitive science using protocol analysis (Erics son and Simon, 1993). This method consists of having experts solve typical problems from their domain of expertise while continuously thinking aloud. The think aloud protocols are usually recorded on tape and the contents of the tran scribed protocols are analyzed in order to extract the baseline models used by the expert. Saras vathy (1998) used this time tested method on a subject pool consisting of 27 founders of com panies ranging in size from $200 million to $6.5 billion to induce a baseline model of entrepren eurial expertise called ‘‘effectuation.’’
Effectuation, Entrepreneurial Expertise, and Expertise in General
The word ‘‘effectual’’ is the inverse of ‘‘causal.’’ In general, in MBA programs across the world, students are taught causal or predictive reasoning – in every functional area of business. 76 entrepreneurial expertise Causal rationality begins with a predetermined goal and a given set of means, and seeks to identify the optimal – fastest, cheapest, most efficient, etc. – alternative to achieve the given goal. The make vs. buy decision in production, or choosing the target market with the highest potential return in marketing, or picking a port folio with the lowest risk in finance, or even hiring the best person for the job in human resources management, are all examples of prob lems of causal reasoning. A more interesting variation of causal reasoning involves the cre ation of additional alternatives to achieve the given goal. This form of creative causal reasoning is often used in strategic thinking.
Effectual reasoning, or expert entrepreneurial reasoning, however, does not begin with a spe cific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and di verse aspirations of the founders and the people they interact with (Sarasvathy 2001a, 2001b). While causal thinkers are like great generals seeking to conquer fertile lands (Genghis Khan conquering two thirds of the known world), ef fectual thinkers are like explorers setting out on voyages into uncharted waters (Columbus dis covering the new world). It is important to point out, though, that the same person can use both causal and effectual reasoning at different times, depending on what the circumstances call for.
As depicted in figure 1, expert entrepreneurs begin the effectual process with three categories of means; namely, who they are, what they know, and whom they know. Based on these, they come up with a list of possible actions they can do, including taking their ideas to people they know or meet. Soon, particular stakeholders commit particular resources to come on board the enter prise; in the process of negotiating these com mitments, they (both founder and subsequent stakeholder) reformulate each other’s prefer ences for particular features of the firm and market they end up creating. Each commitment makes available new means to the enterprise, setting in motion an expanding cycle of re sources; at the same time, however, each com mitment also reshapes extant goals and fabricates new ones, setting in motion a converging cycle of constraints on what the artifact that the stake holders end up building may look like. In other words, the new firm and market that come to be are a residual of the dual dynamics of the effectual process – on the one hand, expanding resources available to the network of stakeholders, and on the other, contracting what exactly the network can do with those resources.
This baseline model of entrepreneurial ex pertise embodies several key characteristics of expertise in general, as identified by the vast expertise literature in cognitive science (Read,
Both new means and new goals are changes in constraints
Figure 1
Sarasvathy, and Wiltbank, 2003). This literature has investigated expertise in a wide variety of domains, including chess, mathematics, scien tific discovery, medical diagnosis, music, and so on. The four significant parallels between entrepreneurial expertise and expertise in gen eral include the following.
Eschewing prediction. The literature on expert decision making shows us that experts amass and organize the knowledge (Glaser, 1996) necessary to make good decisions without a great reliance on external inputs, particularly predictive inputs (Rikers et al., 2002). Similarly, expert entrepreneurs ignore predictive infor mation, as it is based on the existing environ ment and does not account for the actions that the entrepreneur will take (Sarasvathy, 2001a).
Focus on ‘‘can.’’ Experts automatically store in formation according to outcomes (Ericsson and Kintsch, 1995); they then match and recognize stored patterns against existing situations (Rein gold et al., 2001) to retrieve strategies whose elements they already know how to implement (Kalakoski and Saariluoma, 2001). Expert entre preneurs do the same thing, matching current opportunities with past experiences (Sarasvathy, 2001a).
Means based action. While novices are likely to use goals as the basis for taking action, experts allow their knowledge of means to provide alter native rationales for taking action that simply are not available to novices (Larkin et al., 1980; Shanteau, 1992). Likewise, expert entrepreneurs facing goal ambiguity and environmental uncer tainty craft means driven strategies based on who they are, what they know, and whom they know (Sarasvathy, 2001a).
Strategies that leverage contingencies. Experts in tuitively realize from past experiences where failure is possible (Schenk, Vitalari, and Davis, 1998), and work to frame problems in such a way that they build contingency into their strategies (Glaser, 1996). Expert entrepreneurs frame de cisions in the same way, replacing elaborate planning toward a single outcome with strategies that enable many different paths that are contin gent on intermediate outcomes (Sarasvathy, 2001a).
Entrepreneurial Expertise and Performance: Hypothesized Relationships
In further developing research on entrepreneur ship as a form of expertise, the next step obviously is to compare expert entrepreneurs with novices and demonstrate the relationship of entrepren eurial expertise to performance. Entrepreneurial performance, however, is not a simple matter of firm performance. In fact, in the domain entre preneurship, there exist two performance spaces: that of firm performance and that of the perform ance of the entrepreneur over a career of firm formation (Sarasvathy and Menon, 2002). Fur thermore, entrepreneurial performance and the performance of any given firm they start may be related in complicated ways. With a view to de lineating the subtleties underlying the relation ship between entrepreneurial expertise and performance, Read, Sarasvathy, and Wiltbank (2003) propose the following four hypotheses that are graphically represented in figure 2:
Proposition 1 While novices may vary in their use of causal and effectual action, they will move toward a more effectual position as their expertise grows. Furthermore, both highly causal and highly effectual novices will move toward a more balanced position before developing a clear preference for highly effectual strategies as their expertise grows.
Proposition 2 The more resources available to novices, the more causal their actions are likely to be. In the case of expert entrepreneurs, availability of resources will not affect their use of highly effec tual action
Proposition 3 Successful firms are more likely to have begun through effectual action and grown through causal action as they expand and endure over time.
Proposition 4 Only a small subset of expert entrepreneurs will successfully make the transition from an entrepreneurial firm to a large corporation.
Figure 2
Conclusion
Studying entrepreneurship as a form of cogni tive expertise has rich potential for future research. It provides empirically testable pro positions for clarifying differences between novices and experts, and relating those differ ences to firm performance. Furthermore, there is much current interest in the education of entrepreneurship, and developing a body of in formation to be shared with aspiring entrepren eurs is a valuable goal for scholarship and pedagogy alike, particularly in schools of busi ness management. Understanding the processes used by expert entrepreneurs offers the potential to provide a foundation for that body of know ledge. We know from the expert/novice litera ture that teaching expert rules results in expertise and that the performance of experts can be predicted accurately from knowledge of the rules they claim to use (Holyoak, 1991). Studying entrepreneurship as a form of exper tise promises to shed light not only on how new businesses and markets are created, but also on the current holy grail of how to make existing enterprises more entrepreneurial.
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