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Friday, October 24th, 2014


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Entrepreneurs Excel in “Effectual Reasoning,” According to New Study

A recent study conducted by Saras Sarasvathy sought to answer what makes a successful entrepreneur's brain different from the average person.In recent years, researchers and laypeople alike have endeavored to find out what makes a successful entrepreneur's brain different from the average person. A recent study conducted by Saras Sarasvathy sought to answer that question and her findings may surprise some people.

Sarasvathy, a professor at the University of VIrginia's Darden School of Business, set out to ascertain how entrepreneurs think. Sarasvathy began her research when she was a graduate student at Carnegie Mellon and started to eavesdrop on the country's most successful entrepreneurs as they worked through business problems they faced. The entrepreneurs she picked to study all had at least 15 years of experience, started both successful and failed companies and took at least one company public.

Sarasvathy then chose 245 U.S. entrepreneurs to follow – though only 45 agreed to participate. She then met individually with every entrepreneur and presented them with a case study about a hypothetical startup and 10 questions the founder of such a company would have to contend with when building up the company from scratch. She flipped on a recorder and then let the entrepreneurs talk through the problems for two hours. After, she posed the same question to managers at large corporations to compare and contrast her findings.

After combing through the data, Sarasvathy concluded that that most successful entrepreneurs rely on effectual reasoning, meaning they define goals based on the means and choices they are given. Moreover, entrepreneurs are often brilliant improvisers and do not start out with concrete goals, but constantly assess how to most effectively use the tools at their disposal and their personal strengths to develop goals extemporaneously.

On the other hand, managers at big corporations often employ causal reasoning, setting a goal first and then later seeking the best ways to achieve it. Sarasvathy found – unsurprisingly to many – that angel investors and venture capitalists often think more like entrepreneurs than do those with M.B.A.s.

In her research, Sarasvathy found that entrepreneurs are like "Iron Chefs" because they perform at their highest level when they're presented with an assortment of variables and are challenged to come up with "whatever dish expediency and imagination suggest." Ultimately, successful entrepreneurs are quick on their feet, work through obstacles with relative ease and keep a sound mind when making decisions that could impact a large number of people.  

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