Effectual reasoning, as opposed to causal reasoning, can be defined as the ability to chase goals based on resources available. It is about adapting to changing circumstances, and not focusing on trying to change the context in order to succeed.

The first time I read about effectual reasoning, I was well underway in my entrepreneurial journey. Once I fully grasped what it implied, I started seeing a very distinctive pattern that would split effectual from causal thinkers.

I’m not convinced you can learn how to become effectual, but it definitely helps to keep the idea in the back of your head.

Once you identify who are the effectual thinkers in your team, bring them closer to you, they are going to be a fantastic asset in the early days of the company.

Why effectual reasoning is so important for entrepreneurship

Let’s dive into effectual reasoning, a concept that’s a game-changer in the entrepreneurial world.

Every entrepreneur starts with a handful of tools: who you are, what you know, and whom you know.

That’s your starting point.

From there, you’re not just finding a path; you’re creating it. This approach is all about embracing the uncertainty and unpredictability of the business world and using it to your advantage.

Now, why does this matter in entrepreneurship? Well, think of traditional business strategies as a roadmap, trying to predict every turn and stop. Effectual reasoning, on the other hand, is more like a compass. You know your general direction, but you’re open to exploring, taking detours, and even forging new paths altogether.

This way of thinking is perfect for startups and new ventures where you often start with more questions than answers and more enthusiasm than resources. It’s about being scrappy, using what you’ve got, and leaning on your network. Remember, it’s not always about having the most resources; it’s about being the most resourceful.

One of my favorite aspects of effectual reasoning is iterative learning – learn as you go, adapt based on real-world experiences. It’s like building the plane as you fly it. You’ll make adjustments based on feedback, market changes, and even your own learning curve. This approach is dynamic, exciting, and incredibly practical.

And here’s the kicker: it’s not just about finding opportunities that exist; it’s about creating new ones.

Especially for scientists with complex tools and processes, in many cases you need to convince people that a change is required, that new things are possible.

That’s where true innovation happens. It’s not just filling a need; it’s creating a need that people didn’t even know they had.

So, in a nutshell, effectual reasoning in entrepreneurship is about starting with your means, embracing uncertainty, being resourceful, learning by doing, and creating opportunities. It’s a mindset that says, “Let’s see what we can make happen with what we have.” And honestly, that’s a pretty exciting way to look at the business world.

Contrast with Causal Reasoning in Academic Research

Let’s flip the script and compare effectual reasoning with causal reasoning, which is the bread and butter of academic research.

Causal reasoning is like being a detective with a clear case to solve. You’ve got a specific goal, and your job is to piece together the clues (or data) in a logical, analytical way to reach that goal. It’s methodical, it’s structured, and frankly, it’s pretty neat and tidy.

In the academic world, there’s a lot of emphasis on controlling variables, predicting outcomes, and following a linear process.

A big part of the job description is to lower uncertainty and risk. And for a good reason.

Scientists build knowledge, and knowledge needs to be reliable. You may have a hunch, but you need to pursue it in an extremely systematic way. You have to prove that your observations are statistically relevant and not an artifact. You need to push your hypothesis to the last consequences, trying to prove yourself wrong. It’s a radically different approach from entrepreneurship.

While causal reasoning starts with a clear goal and works backward to find the means to achieve it, effectual reasoning flips this on its head. It’s like starting with what you have in your kitchen and then deciding what you can cook. You’re not fixated on a specific goal; instead, you’re exploring possibilities based on your current resources and connections.

There is no right or wrong here. The two approaches are valid in different contexts and will yield different outcomes.

A very common pattern in academia is to collect resources to execute on a research plan. You gather some superficial insights, you write a proposal. Once you get the funds you hire people, buy equipment and move to prove your points. Not always, however, grants are awarded. At that point different PI’s will behave in different ways.

The more causal-oriented ones will keep applying to grants. Will spend more time on other tasks that may have been neglected, like teaching, writing a book, or accepting more invited talks.

Effectual-oriented academics will gather their network to keep trying. The grant failed but maybe a colleague has just received funding for a PhD and the topics overlap. Perhaps master students and your own time can push the project forward.

In the end, both scientists will be fully occupied, and eventually they both will get funds to keep doing the same research. It’s just the path each one takes that is different.

So, while causal reasoning is about prediction and control, effectual reasoning is about flexibility and creation.

It’s a shift from a world where problems have clear-cut solutions to one where you’re writing the problem statement as you go along. In that gray area is where the magic happens!

Practical Examples of Effectual Thinking in Business Decisions

Let’s get real and see how effectual thinking plays out in the wild, unpredictable world of business. It’s one thing to talk theory; it’s another to see it in action.

1. Starting with Who You Are: You have been grinding in a lab for the past several years. You are a tenacious person who is not let down when experiments fail. You also have a context where you grew up, perhaps you are sociable, and have plenty of friends. Perhaps you are an introvert with fewer but deeper connections. This is who you are, and will always be with you. Your values and principles that guide your future endeavors.
2. Adding what you know: During your PhD and postdoc you have learned new techniques, you’ve been to conferences. You have seen what others are working on and in what way your job fits their needs. You probably see yourself in regards to others just like yourself, grinding on the same topics. However, once you finish your PhD, you will be one of a handful of world experts on those topics.
3. Leveraging Existing Networks: PhD’s and postdocs are in a unique position when it comes to their network. Since you have been embedded in a strong community for several years, the amount of smart people you can reach out to is impressive. If you add the ones your supervisor can unlock, you have within reach a vast network of experts and leaders. A network, in itself, is invaluable.

I will give you a personal example on how these three aspects played a role when I started Python for the lab.

Right after my PhD, I knew I wanted to take a break. I wanted to be able to go back to Argentina for a while, do some traveling. I value working hard, but finishing a PhD is a natural break in your career, and for me it was worth taking it. That is part of who I am (or at least who I was back then).

During the last couple of years I got good at controlling instruments using Python. I was not necessarily a good programmer, but I was definitely an efficient one. I could quickly build solutions to automate setups, to acquire and analyze data. Programming instruments was what I knew.

But the reality is that I only got started when a former colleague, Sanli Faez, called me up and told me I could help him. He was the first, later I got calls from former colleagues and friends that were moving forward in their careers. That was my network.

I leveraged the three aspects that I had without being conscious, without making a plan. I just kept flowing, kept developing software and writing about what I was learning.

The three aspects of who you are, what you know, and whom do you know are fundamental to get started, even if we seldom reflect on them in a structured way.

How effectual reasoners start new ventures

Everyone has three valuable assets, and each one will leverage them in different ways. However, effectual entrepreneurs also use mental frameworks that help them decide how and if they will start a new venture.

In many cases they are not even aware of these mental models, that’s just the way they see the the world when they need to make decisions.

Once you become conscious about them, you can put them to use to your own advantage.

4. Affordable Loss Principle: While many people focus on what there is to gain by choosing a given path or career, entrepreneurs focus on what can they loose by starting a new venture. Once you define what is the maximum you are willing to lose, you can decide if the specific project is what you want to do. For example, professors never risk transitioning to a startup because their loss is their title and reputation, and many can’t afford the social downside.
5. Partnership with Early Customers: Here’s where you ditch the ‘build it and they will come’ mantra. Instead, you involve your potential customers from the get-go. Before you’ve even finalized your product, you’re in talks with the people who’ll actually use it. This collaboration can lead to invaluable insights and tweaks that make your product a perfect fit for the market. Academic startups have an even larger benefit with this approach. Many countries have special grants and incentives for private-public partnerships, where both sides get to benefit from the success of the execution.
6. Pivot Based on Learnings: Every entrepreneurial journey is full of uncertainty. Uncertainty is different from risk in the sense that it can’t be predicted. There are not enough data points to build a distribution of outcomes. As your path progresses, effectual reasoners don’t focus on trying to lower the uncertainty but on adapting to surprises. In other words, if life gives you lemons, make lemonade.
7. Transforming the event space: Finally, the last treat of effectual reasoning, relates to the interaction with reality under uncertain conditions. Effectual reasoners, instead of trying to lower the uncertainty by careful experimentation, they use uncertainty to shape the future to come. Instead of updating probability estimates, they create interventions in the event space, they reshape it and transform it.

One of the challenges that scientists face when they decide to follow the entrepreneurial path is that most information available is not tailored to their specific context.

In many cases, for example, the affordable loss closely relates to loss of income. If your contract ends and you decide to pursue an idea, you’ll be living off of savings. Each one’s runway will be different, and the question of whether you can afford to spend your savings in the project is a very personal decision.

Fortunately, many funding bodies have grants and options specifically tailored to give an income to young scientists exploring the entrepreneurial path. That’s a luxurious position compared to people from other industries.

Early customers are within reach if you look at collaborators. Probably you are starting from research you performed, tools you got good at building or using. If you ask around there is a large chance you’ll find someone who is willing to get your help. If you structure it as selling a “product” and not just “your time”, you are already way ahead compared to many other entrepreneurs.

Know more

To learn more about effectual reasoning for entrepreneurs, I strongly suggest you to read this pivotal work: Sarasvathy, S.; Kumar, K.; York, J. G.; Bhagavatula, S. An Effectual Approach to International Entrepreneurship: Overlaps, Challenges, and Provocative Possibilities. Entrepreneurship Theory and Practice 2014, 38 (1), 71–93. https://doi.org/10.1111/etap.12088.