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Elements of Entrepreneurial Expertise

Saras D. Sarasvathy

To effectuate is to engage in a specific type of entrepreneurial action. It has special importance for situations where the future is truly unknowable or human agency is of primary importance. In Effectuation, Saras Sarasvathy explores the theory and techniques of non-predictive control for creating new firms, markets and economic opportunities.
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Chapter 6: Relating Effectuation to Performance

Saras D. Sarasvathy


6. Relating effectuation to performance ‘Most firms fail’, appears to be the consensus among entrepreneurship scholars and practitioners alike, even when they disagree on the actual proportions (Aldrich and Martinez, 2001; Fichman and Levinthal, 1991; Hannan, 1984; Low and MacMillan, 1988; Stinchcombe, 1965). Estimates of firm success rates range from the optimistic 44 per cent of Kirchhoff (1997) to the widely acknowledged one in 10 of the National Venture Capitalists’ Association. To confound matters further, Headd (2003) found that about a third of closed businesses were successful at closure. Expert entrepreneurs, however, mentioned and repeated several times in several ways the bromide ‘Failure is not an option.’ It was a predominant theme in the protocols, as pervasive as the distrust of formal market research. It seemed clear that a deeper and more subtle analysis would be required to reconcile the received, although disputed, consensus in the literature that ‘most firms fail’ with the steadfast avowal of the subjects in the study that ‘failure is not an option.’ There were two possible explanations for the expert entrepreneurs’ contention: 1. 2. It could be a case of overconfidence bias, as suggested by Cooper et al. (1988) and Griffin and Tversky (2002); or, It could be driven by an effectual logic. I began listening to the protocols with a renewed focus on this issue. I also began asking the subjects to explain their statements about failure and success during the interviews following the protocol experiment. Soon, it became clear...

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