Unternehmergeist
The doing of new things or the doing of things that are already being done in a new ways, is the "fundamental impulse that sets and keeps the capitalist engine in motion" according to Joseph Schumpeter the Austrian/American economist (1883-1950). Unternehmergeist/ the Entrepreneurial spirit, drive business cycles where innovations create short-lived monopolies while the competition catches up with imitations or makes innovations of their own. The "...process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one " in what he described as the "perennial gale of creative destruction" (Joseph Schumpeter, in "Capitalism, Socialism and Democracy", 1942) this is sometimes known as Schumpeter's Gale.
Saras Sarasvathy set out to identify what makes individuals entrepreneurial. Through discussions with successful business people, getting then think aloud while working through a set of problems, she was able to analyse their thought processes. The distinctive way an entrepreneur thinks is described as effectual reasoning or effectuation as opposed to causal reasoning, in the sense of cause and effect. According Sarasvathy the more conventional causal thinking, as taught by many business schools, begins with a pre-determined goal and a given set of means that then seeks the optimal path to achieving that goal. However the process of effectuation begins with a given set of means and allows goals to emerge contingently. There are many imagined ends rather than a single goal. These are determined by resources already held which is the starting point. Effectual thinkers are liken to "explorers setting out on voyages into uncharted waters" while Causal thinkers are compared to " great generals seeking to conquer fertile lands..." An example of the causal approach is the is the chef who makes a meal based on the customer's choice from menu, he will then gather the correct indigents and prepare it according to the recipe. Whereas the effectual chef looks in the cupboard and makes something out of what is available, using his or her skills and going without a recipe or menu, learning by experience what works and what does not.
While the causal manager analyses the market to choose segments with the highest return, entrepreneurs look for ways to reach the market with minimum expenditure of resources. Creating a business venture requires an outlay of time effort and money. The entrepreneur will keep this to an acceptable and affordable minimum. This is defined by Sarasvathy as the principle of affordable loss. As there is initially no pre-defined market there is little millage in traditional market research. So time is not wasted and excessing business planning and marketing. The approach taken with effectuation is more agile.
Another difference is in the seeking strategic partnerships over the identification of the competition. Instead the entrepreneur engages with potential stakeholders and collaborators, where their input and opinion serves as market testing. As the entrepreneur is not attached to any particular market he or she is open to surprises. "The unexpected is the stuff of entrepreneurial experience", where it can be used as the impetus for new ventures.
Causal reasoning is summarised by " the extent we can predict the future, we can control it" with effectual reasoning it is " the extent that we can control the future, we do not need to predict it." Most management efforts are concerned with predicting outcomes and avoiding uncertainty, they prefer stability and a of sense permanence. However change and uncertainty is an unavoidable fact of life. The Entrepreneurial spirit or Unternehmergeist weather these winds of change, always with an eye open for new opportunities to be uncovered. Effectuation gives us some insight how to teach Unternehmergeist. It is also useful for instilling resilience and agility into any business venture or project.
Read more: What makes entrepreneurs entrepreneurial?
September 2014
| Duncan Stonebridge.
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