Entrepreneurship and human action: Why the award received by Darden's Saras Sarasvathy is important
By defending the idea of an open world, product of human creativity, and proposing five principles of action, her theory of effectuation is a formidable weapon of freedom and progress.
Saras Sarasvathy, the originator of the entrepreneurial theory of effectuation, has just received the prestigious Swedish Global Award for Entrepreneurship Research. Organized since 1996 by the Swedish Foundation for Small Business Research (FSF) and the Swedish Agency for Economic and Regional Growth, the award recognizes researchers who made major contributions to entrepreneurship research. She joins such great researchers as Sidney Winter, Shaker Zahra, Kathleen Eisenhardt, Scott Shane, Israel Kirzner, William Gartner, William Beaumol or Zoltan Acs and David Audretsch. The prize is the recognition of more than twenty years of efforts to promote a radically different approach to entrepreneurship. But its significance goes far beyond that, as effectuation is above all a vision of human action and freedom.
Do you know Saras Sarasvathy? Born in India, she is now a professor at Darden business school (Virginia, USA). In the 1990s, she was an entrepreneur, running a family business that manufactured plastic drums for the oil industry. The business was thriving until her factory was destroyed by flooding. She had just made a large investment and lost everything overnight (interestingly, and as a thumb in the eye to risk managers, she had been assured that she was in a non-flood zone). After a few weeks of stupefaction, she ended up leaving for the United States, encouraged by her brother who already lived there, without any clear idea of what she was going to do. Through a series of coincidences and adventures, which I will tell you about one day, I promise, she ended up in Herbert Simon's office to do a doctorate. Herbert Simon was quite unique: he was the father of artificial intelligence, but also Nobel Prize winner in economics, and via Sarasvathy, the inspirer of effectuation. Nothing less!
Sarasvathy started with a very simple question, like all great research questions: how do entrepreneurs create new products, new organizations, and new markets? The prevailing answer, a flash of genius and then implementation via a plan, did not satisfy her. She went on to observe entrepreneurs to see what they really did, and to understand how they reasoned about the classic problems they encountered: how to get started, how to find an idea, a product or a customer, how to make a decision, etc. She highlighted five dominant principles in these decisions: start with what you have, act based on affordable loss, co-create with stakeholders, take advantage of surprises, and create the future you want. These five principles constitute effectuation.
Effectuation revolutionizes entrepreneurial thinking because it does not fit at all into the dominant paradigm of neo-classical economics (which simply ignores the entrepreneur). The power of effectuation is that it describes what is, what entrepreneurs do, not what we would like them to do. Effectuation is not prescriptive, it does not say "don't make predictions", but "you don't need to". It emphasizes the sufficient, not the necessary.
This award is important because, like all disruptions, effectuation struggled to find its place in the academic field. Despite more than 100 articles in the best economics, management, and psychology journals over the past 20 years, the principles it puts forward have raised reservations among researchers, many of whom remain anchored in a Cartesian and positivist paradigm that assumes that future states of the economy can be anticipated as long as there is sufficient knowledge of the present. That there is no uncertainty, only lack of information.
The world is continuously being created by human choices
Faced with a world seen as static because it is knowable, effectuation defends the opposite idea of a dynamic and open world, complex, full of uncertainty, a world continuously generated by human actions and choices (in addition to natural phenomena). With human systems like organizations or markets, the future is created. It does not pre-exist. It is therefore not a matter of discovering, exploring or predicting the future, which is impossible, but of creating it. The future is therefore open, perpetually under construction, and this construction is the product of creative human action. This action takes the name of entrepreneurship, science, art, politics, whatever. At the moment I act, the future is not only unknown, it is indeterminate, because it will result from the multitude of choices and actions made at the same moment by other actors in addition to my own.
This need to see the world as non-deterministic and permanently constructed, and therefore not predictable, had already been theorized in science by Ilya Prigogine, a pioneering physicist, in the 1980s. His work inspired many economists, but the neo-classical paradigm remained dominant, including in entrepreneurship, until the work of Sarasvathy.
If the world is uncertain, it is open. If it is open, there is room for creative human action. In other words, uncertainty is the condition of human freedom.
The philosophical significance is important: if the world is uncertain, it is open. If it is open, there is room for creative human action. In other words, uncertainty is the condition of human freedom; it means that the human being is not locked into a future already written, and especially written by others. In this respect, effectuation puts forward the notion of non-predictive control: if you act to change your context, you do not need to make predictions. Similarly, the entrepreneur is not the one who corrects the "mistakes" of economic actors, as proposed by the great entrepreneurial researcher Israel Kirzner, because this presupposes an absolute criterion of truth, which effectuation rejects.
In academic language, effectuation promotes a "non-teleological" vision of action, that is, one that is not separate from the actor. Everything starts from and comes back to the acting human being. There is no need for a distant vision, no need for an ambitious objective, no need for an ideal to be satisfied, or even for performance criteria. All these abstract notions are outside the human being and turn him into a means to an end. Effectuation reverses this by making the acting human the starting point and the only criterion for action. It shows how the goals we set for ourselves need not be a starting point, but can instead emerge from the action itself. Vision, opportunity, market, products and services, objectives, goals, organizations, all are the product of human action.
Entrepreneurship for all
Importantly, the simplicity of the principles of effectuation makes them applicable to everyone. Against the prevailing view of the entrepreneur as a deus ex machina or a visionary and omnipotent superhero, effectuation asserts that everyone can act in an entrepreneurial way, understood as the possibility of being master of one's destiny, even if only partly. By challenging the prevailing view, effectuation thus liberates the action of many individuals who mistakenly thought that entrepreneurship was not for them. The work of Sarasvathy and the many other researchers who have followed in her footsteps, however, goes far beyond the sole domain of entrepreneurship. In her speech upon receiving the award, she emphasized the extent to which the principles of effectuation apply to all major issues in human societies.
Like all great innovations challenging dominant mental models, effectuation took time to become established. Academic recognition has now been achieved through numerous articles and special issues; the dissemination of the principles among entrepreneurs is also progressing rapidly, and the Swedish prize has crowned these twenty years of efforts by an international community in full development.
Saras Sarasvathy is not only a great researcher, she is also a very human person. I have been fortunate to work with her for several years on a research project (with my colleague Dominique Vian from Skema business school). How many times, after hanging up at the end of a work session with her, we said to ourselves “Well, we are a little less stupid than we were 1hr30 ago”. Saras is a sharp mind - with her a discussion is a merciless joust without concession - you had better be prepared - but she is always very human, accessible as well by a great researcher as by a first year student (she generally welcomes her students at her house at the end of the course, and she is the one who cooks). I treasure the incredible message she sent me when I had a serious health problem a few years ago. She is, truly, one of those people who make the world a better place.
Here we go... Join me in congratulating Saras Sarasvathy, of course for her award, for her pioneering work, and for her tireless advocacy of entrepreneurship for all, but most of all... for who she is!