Why does one person manage to turn a simple idea into a venture, while another has a better idea and never starts? A large part of the answer lies in the way of thinking. In this chapter we look at the behaviors that distinguish entrepreneurs, present the theory of effectuation, which explains how expert entrepreneurs make decisions under uncertainty, and then correct a number of common myths.
After studying this chapter, you should be able to:
This question occupied researchers for decades. Early on, many studies tried to find a stable "entrepreneurial personality" that sets entrepreneurs apart, such as a love of risk or a high need for achievement. But the results were contradictory: there were successful entrepreneurs who were very cautious, and risk-lovers who never succeeded in any venture.
Modern research therefore turned to what entrepreneurs do rather than who they are. The conclusion most researchers agree on today is that entrepreneurship is a set of behaviors, skills and ways of thinking that grow with learning and practice, like the skill of writing or leading. Some people may have a stronger inclination toward it, but everyone can develop it. This is the scientific case for teaching this course to all students.
Here are the behaviors that recur most among entrepreneurs, with their practical meaning, because words like initiative and resilience can sound vague unless we show how they appear in real life.
Initiative means moving before you are asked, and taking responsibility for turning an observation into action. Many people notice problems and complain about them, but few ask: "What can I do?" An employee who notices that visitors ask the same question every day, and prepares a simple guide and posts it at the entrance, has acted entrepreneurially, even without turning it into a venture.
The popular image is of the entrepreneur as an "adventurer" leaping into the unknown. In reality, successful entrepreneurs try to reduce risk, not seek it. Calculated risk means three things: knowing what could go wrong, deciding what you can afford to lose, and testing the idea in small steps before a big commitment. The difference between a gambler and an entrepreneur is that the gambler puts everything on one bet, while the entrepreneur tests with a small part and learns.
At the start of any venture you do not know many of the answers: Will people buy? At what price? Who is the real competitor? Some people feel intense anxiety in this situation and postpone decisions until the picture becomes clear, but it only becomes clear through action. Tolerating ambiguity means taking a reasonable step with the information available, then adjusting as new information appears.
Every venture's journey is full of rejection: a customer who does not reply, an investor who declines, an experiment that fails. Persistence is continuing despite this, and resilience is the ability to get up after failure without turning it into a judgment on yourself. Balance matters here: persistence does not mean insisting on an idea the evidence has shown does not work, but holding on to the goal while staying flexible about the route.
The entrepreneur sees a problem as a possible opportunity and looks for unconventional solutions. This does not require genius ideas; sometimes it is enough to combine two existing things in a new way, or to move a solution from one field to another.
Successful entrepreneurs are more preoccupied with the customer than with their idea. They listen more than they speak, ask why people behave as they do, and change their minds when they see new evidence. A common mistake is for a student to fall in love with their idea and hear only what confirms it.
Nobody starts a venture knowing everything about marketing, finance, technology and law. Entrepreneurs discover what they lack and learn it quickly, from a course, a book, an expert, or from the experience itself.
Relationships are among a venture's most important resources: the partner who complements your skills, the mentor who advises you, the first customer who trusts you, the supplier who gives you good terms. Many opportunities come through someone you know, not through an advertisement.
One of the most important scientific contributions to understanding the entrepreneurial mindset comes from Saras Sarasvathy, professor of entrepreneurship at the University of Virginia. Sarasvathy studied how expert entrepreneurs who had founded successful companies make decisions. She gave them a hypothetical problem of starting a venture, asked them to think aloud, and compared their approach with that of managers in large corporations.
She found two different logics of thinking:
| Causation | Effectuation |
|---|---|
| Starts with a specific goal, then looks for the means to reach it | Starts with the means available, then sees which goals they make possible |
| Relies on predicting the future and studying the market | Treats the future as unpredictable, and shapes it through action |
| Focuses on expected return | Focuses on the loss that can be afforded |
| Sees surprises as deviations from the plan | Sees surprises as possible opportunities |
| Example: "I want to open an Italian restaurant, so let's find a location, funding and a chef." | Example: "I cook well, and I know office owners who order lunch every day, so let's start delivering meals to them and see where it takes us." |
This does not mean causal logic is wrong. It suits situations where the market is known and the future is predictable. But at the start of new ventures, where uncertainty is high, experts lean toward effectual logic. Sarasvathy summed it up in five principles, which we explain one by one:
Start with what you have now, not with what you wish you had. Three questions help you take stock of your resources: Who am I? (my interests, values and personality), What do I know? (my field, experience and skills), and Whom do I know? (family, friends, professors and contacts). Many students say "I have nothing to start with," but when they answer these questions they discover resources they had overlooked. A clinical nutrition student who knows home cooks in her family could start a service offering healthy meals tailored to people with diabetes in her neighborhood.
Instead of asking "How much will I make?", a question that cannot be answered accurately at the beginning, ask: "What can I lose in this experiment without it hurting me?" The answer might be "SAR 500 and two weekends." Risk then turns from something frightening into something limited and known, and you can start now instead of waiting.
A patchwork quilt is sewn from different pieces of fabric brought by different people. The idea is to build your venture through partnerships with those who commit to you early, rather than spending your time analyzing competitors. A partner here might be a classmate who is good at design, a shop that agrees to trial your service, or a customer who pays in advance. Every partner who joins adds new resources, and may change the venture's direction as well.
From the saying "When life gives you lemons, make lemonade." Surprises and obstacles are not always bad; they may point to a better opportunity. A team that started selling simple software for managing clinic appointments noticed that clinics kept asking about sending patients reminders before their appointments. They added a reminder service, and it became their most requested and most profitable service.
The future is not only something we wait for and predict; it is something we help create through our actions. A pilot does not wait for the plane to carry them to their destination; they fly it and correct its course constantly. A student who waits for "the right time" or "the perfect idea" may wait a long time, while someone who starts with a small step shapes their own circumstances.
Some misconceptions stop many students from even considering entrepreneurship. Here are the best known, with corrections:
| Myth | Reality |
|---|---|
| Entrepreneurs are born, not made | Entrepreneurial skills are acquired through learning and experience, as explained at the start of this chapter. |
| You need a lot of capital to start | Many ventures started with modest resources and tested the idea before asking for any funding. Money usually comes after proving the idea works. |
| The idea is everything | Ideas are plentiful and often repeated. What makes the difference is execution, learning from the customer and continuous adjustment. I always tell my students: the idea is about 5% of success, and execution 95%; a good idea is a condition, but it is not everything. |
| Entrepreneurs are thrill-seekers who love danger | Successful entrepreneurs reduce risk through small experiments and affordable loss. |
| Failure is the end of the road | Failure is a source of learning, and many successful people tried ventures that did not work before the one that did. |
| Entrepreneurship is only for tech and business students | Opportunities exist in health, education, agriculture, tourism, the arts and services. The best ideas often come from people in a field who know its problems from the inside. |
| You must leave your studies or job to start | You can start with a small side project and expand it gradually once it proves itself. |
Psychologist Carol Dweck at Stanford University studied how people deal with challenge and failure, and distinguished between two mindsets:
The importance of this concept in entrepreneurship is clear. When a customer rejects your idea, the fixed mindset says: "My idea is a failure and I'm not cut out for this." The growth mindset says: "What does this rejection tell me about the customer? What should I change?" The good news is that mindset itself can change; simply being aware of the difference helps you shift toward a growth mindset.
The answers are on the Answers to Self-Assessment Questions page. On the interactive course page you can answer and check these questions directly, with practical tools linked to the chapter.
Write down your "bird in hand" resources: What do you know? What are you good at? Whom do you know? What small venture could start from them?