What makes entrepreneurs entrepreneurial?

One of my investors recently shared this awesome paper: What Makes Entrepreneurs Entrepreneurial. The paper led to the concept of “effectual thinking” which has 5 core principles (copied from Wikipedia):

  • The Bird in Hand Principle. Entrepreneurs start with what they have. They will look at who they are, what they know and who they know. Their educationtastes and experience are examples of factors which are important in this stage. Besides these examples this is also the stage where entrepreneurs look at their 3F’s, better known as friends, family and fools. From this point they will look at their abilities. So an entrepreneur does not start with a given goal, but with the tools he or she has.
  • The Affordable Loss Principle. An entrepreneur does not focus on possible profits, but on the possible losses and how they can minimize those losses.
  • The Crazy Quilt Principle. Entrepreneurs cooperate with parties they can trust. These parties can limit the affordable loss by giving pre-commitment.
  • The Lemonade Principle. Entrepreneurs will look at how to avoid contingencies. Surprises are not necessarily seen as something bad, but as opportunities to find new markets.
  • The Pilot-in-the-plane. In this stage all the previous principles are put together. The future cannot be predicted, but entrepreneurs can control some of the factors which determine the future.

Before the Lean Startup fundas came along and established a simple methodology for starting a startup, this paper must have been an awesome piece of work (laying down expressly what entrepreneurs’ intuitively do). No wonder, Vinod Khosla’s handwritten notes say, “First good paper I’ve seen”. That’s a quite a compliment from a guy who would have read tons of papers in his life.

The paper helped me understand my own behaviour better. Most of our strategy just evolves as we go along, decided by what we get exposed to, whom we get to know, what new consumer/enterprise needs we identify. If it comes across as lacking a proper product/company vision, then it is actually true, except the whole premise of having a vision like that might be wrong. A lot of that stuff is applied ex-post facto.


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