Entrepreneurship Model of “New Normal”: Effectual Entrepreneurship

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While new normal discussions are rising in every area, entrepreneurs are among the people who will shape this new normal. And it seems that entrepreneurship will have a new “normal” in this new period. At this point, with the Covid-19 discussions, it is necessary to bring up an academic backgrounded discussion that questions the behavioral logic of entrepreneurs.

The source of the discussion was that the study of Saras Sarasvathy, one of the leading academics of entrepreneurship research, divided the entrepreneurial logic into two different classes: causation and effectuation. We were overlooking entrepreneurs with an effectuation logic, since the traditional business world embraced and supported entrepreneurs with causation logic. In the new normal caused by Covid-19,  effectual  entrepreneurs will probably be more on the agenda of the business world.

Causal Entrepreneur and Effectual Entrepreneur

The actions that the traditional and corporate business world expects from the entrepreneur are more in a linear line: To find a clear business idea by conducting various market researches, then, by preparing a detailed business plan, to determine the resources needed and to provide financing such as banks, investment funds, venture capitals. Later, after the development of products and services by adhering to the business plan prepared with the capital obtained, to do marketing activities for these products and services and to earn money by selling. To repeat similar processes so that the enterprise can grow. Causal entrepreneurs are defined as entrepreneurs advancing in this conventional logic.

In business life, the stages of corporate firms’ realization of new projects and investments basically have a similar logic. Since this logic brings quite successful results when everything goes well in the economy, it does not come to mind to question this in normal time. Therefore, traditional businesses and institutions use their resources more easily for this type of entrepreneurs as they think that the causal entrepreneurs who exhibit these behaviors will be successful.

Plans and strategies are revised and updated according to the conditions in the entrepreneurial approach in causal logic. However, if the uncertainties have reached a destructive point, planning may lose its effect and functionality at that point. And you may need to find a way beyond planning.

For example, you designed a digital service that will operate on the travel vertical and you made an excellent business plan. But can you find a way out by focusing on revising your business plan in a time when travels all over the world suddenly stop? Or you have prepared a very good investor presentation and you are a very good speaker, but if the investment fund that previously gave you an appointment has suspended all investment plans for this year, how much can your presentation ability and very successful presentation file benefit you? Or you have made a great sales plan for your new cafe project, but if you find out that the cafes will have to be closed to customers for months, can your sales plan provide sales to you?

Undoubtedly, these examples do not mean that planning is an unnecessary effort, but it shows that it may be needed to act differently than conventional logic of entrepreneurship in the new normal.

Here is a different entrepreneurial logic that can work in periods of uncertainty: Effectual entrepreneurial logic. Effectual entrepreneurs are entrepreneurs who generally do not like to spend too much time on planning, love to act with trust in their experience and intuition, adapt very quickly to any change and change their entire strategy accordingly. According to them, it is not right to wait for the right place, the right time and the right conditions to start an initiative, there can always be a way to go. Such entrepreneurs often see the rules adopted by the traditional and corporate business world as unnecessary and a waste of time. They do not want to comply with them, so they are not liked much by the business world, and they are criticized for not being institutionalized enough.

In order to better understand effective entrepreneurs, it is useful to examine certain common features that appear in their behavior:

First, they focus on the resources and relationships they have. They ask the question what do I have? What is my education, how much capital do I have, who do I know in the business world, what support can my close friends and family provide to me? Then they come back and say what type of business they can start with the resources they have.

This type of entrepreneur does not set very clear targets numerically, such as return on investment. The question they always ask is: “How much loss can I tolerate?” For this reason, it is difficult for them to obtain funds from institutions ,such as investment funds and banks, that are strictly attached to the return on investment calculations. The effectual entrepreneur, who is aware of this, tries to provide his capital and resources through collaborations. For example, it makes preliminary agreements and takes commitments before producing its product and service. Thus, he gets this capital through collaborations rather than knocking on the door of financial institutions for financing.

This type of entrepreneurs try to take advantage of it by changing the plan according to the opportunities they encounter on the road. This is called the lemonade principle. An effectual entrepreneur may have set out to produce and sell orange juice, but if he comes across free lemons, he tries to change the plan and produce lemonade.

Conclusion: More Opportunities should also be given to Effectual Entrepreneurs in the New Normal

The most important problem that Covid-19 poses is the uncertainties caused by radical changes. Radical changes in many issues like as working culture, lifestyles, travel and holiday preferences, importance to health, etc. brought many uncertainties to entrepreneurs. While this uncertainty forced causal entrepreneurs, who were building their success  on the planning and corporate processes, it also paved the way for effectual entrepreneurs who could adapt to changing conditions very quickly and who were highly skilled in discovering new markets and collaborations.

The background of a significant majority of people who play important roles in the entrepreneurship ecosystem is based on corporate working life, not entrepreneurship. Probably because of this, they developed an easier and closer relationship with entrepreneurs in causal logic and gave them more opportunities.

But the new normal may bring great opportunities along with great uncertainties. For this reason, there is a need to benefit more from effectual entrepreneurs acting unusually. For this, it is beneficial for the entrepreneurship ecosystem to review the stereotypes previously determined by its stakeholders and to be open to stretching them. Many changes that can be made from facilitating the admission requirements to programs, expanding the industry verticals determined for investment, freeing the formats of the application files, and personalizing the incentives to be provided will enable the effectual entrepreneurs to enter the playground easily. Thus, it will be much easier for projects with high potential to turn into successful startups by opening up diversity in the entrepreneurship ecosystem.

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