How to thinking like an entrepreneur - Effectual Vs Causal Thinking

If you are an entrepreneur looking for a business idea, you first need to know how you think - is it causal thinking or effectual thinking?

Large organisations have specific goals in their agenda, an objective or a set of targets that they mobilise and channelise their resources towards. Their objective is to achieve their targets by leveraging and / or manipulating their means. To them, their goals are primary, and means are just those - mere means that would take them closer to their objectives. This approach is characterised by causal thinking.

For instance, Unilever, the global consumer product behemoth, has set forth three objectives for 2020 - improve the health and wellbeing of a billion people, enhance their living standards, and simultaneously halve their environmental footprints. That's causal thinking in action. Or, if you would like to have larger-than-life objectives, try Elon Musk - to create a new industry of space tourism or to colonise Mars by 2025 should be enough inspiration for Musk to get off his bed and get to work. 

When you resort to effectual thinking, however, you may not want to colonise Mars. In fact, you may not even have any goal at all, in the first place. Rather, all you have are means, your existing resources that you could garner (bootstrap?) to get the boat sailing. You do not know what your destination is, but you do know what resources you have on hand - and you have started sailing with your means on hand.

Which way? Schumpeter or Kerzner?

As depicted in the video above, the distinction between the two schools of effectual and causing thinking is accentuated by the debate between the Schumpeterian and Kirznerian approaches to entrepreneurial thinking. Joseph Schumpeter maintained that the entrepreneur is capable of disrupting the equilibrium in the market with their inherently innovative instincts. Israel Kirzner, on the other hand, believed that an entrepreneur merely brings markets back to equilibrium by displacing the disruptive forces that disturb the equilibrium. Opportunities exist in the market, according to the Kirznerian approach, which only beg to be discovered by entrepreneurs.

While the Kirznerian perspective delves into the realms of managerial thinking, pitching opportunities in the market as the starting point of entrepreneurship, the Schumpeterian approach roots for effectual thinking, associated with innovation and experimentation. In simple terms, small enterprises and start-ups should start from where they are and with what they have, letting opportunities emerge naturally, rather than forcing themselves on potentially elusive targets that could make them fail. 

In effect, innovations take precedence over exploiting market opportunities. As an entrepreneur or start-up, innovation would be the key towards powering the initial phase of your new business venture. As you create value out of your means, you would then exploit new market opportunities as you grow your means. Entrepreneurs may want to set off with the Schumpeterian approach of effectual thinking, and as their business takes shape, gathers mass and finds new opportunities that await being exploited, they may switch gears to subscribe to the Kirznerian approach. 

As it is said, no matter where you want to be, the first step always starts from where you currently are.