Why CEO Thinking is Bad for Entrepreneurial Success?

Do you seek opportunities or create them?

Business managers and entrepreneurs differ in how they treat their work, especially when faced with risk and uncertainty. Entrepreneurs play with their work. They treat their business models as mere hypotheses, just like scientists in the lab, and test as often as possible. Entrepreneurs have a preference for testing, failing early and testing again, then planning, unlike corporate executives, says Saras Sarasvathy, an entrepreneurship professor.

What separates entrepreneurs from business managers is how they act in uncertain situations. Which is playful tinkering. Entrepreneurs work by rigorously testing their hypotheses and pivoting early, says Adam Grant, an organizational psychologist.

Sarasvathy found that faced with uncertain environments, entrepreneurs preferred to avoid market research and simply went ahead with exploratory action based on whatever they had with them- their vision of who they are, what resources and what experiences they have, and what networks they knew who could be roped in. In effect, they created the future they wanted with whatever they had.

Grant points out that some organizations encourage their executives to fail deliberately. This is game thinking in action if you recall our earlier discussions.

Let us stay with this point and understand how entrepreneurs create the future when there is uncertainty. While business managers deal with risk, entrepreneurs deal with uncertainty. What is the difference? There are usually three terms related to chance- risk, ambiguity, and uncertainty.

Risk is when you know the outcome of your actions and the probability of each of the outcomes. Ambiguity exists when you know the outcomes, but are unsure of the probabilities of each outcome. Market research could give you some idea, although not highly reliable. Uncertainty is when you know neither the outcome nor the probability. In fact, both could be changing.

Classic business management is based on predictions and goals and is hence not suited to uncertainty. Entrepreneurship, on the other hand, is not based on predictions but rather on creating the future. It does this with game thinking.

Saras Sarasvathy found that entrepreneurs do not see the future as predictable but as actionable. She called this attitude “effectuation”, a predilection for making things happen. Dietmar Grichnik, Ronny Baierl, and Michael Faschingbauer describe the elements of the effectuation approach:

(1) Future-oriented action: Instead of predicting the future and following market trends,

entrepreneurs create new trends and shape them to suit their visions.

(2) Start with means, not goals—since the future is uncertain, they can't start with predefined goals. They start with whatever they have—their own sense of identity and vision, their values, their experiences and competencies, and the resources they currently have at their disposal.

(3) Focus not on returns, but on affordable losses- yes, when the future is uncertain, you cannot predict the returns. However, you work with what you can expect to invest and, thus, what you are prepared to lose. Affordable losses can be defined not just in terms of money, but also in terms of leadership time and effort.

(4) Do not search for the right partners, but create a future with your current partners. This is because searching for the right partners or customers is not rational when there is not enough information available about the future. One needs to trust existing networks and leverage their strengths.

(5) Test and repeat. Testing may show up surprising accidents (both positive and negative) which are highly valuable.

Entrepreneurs are not searching for opportunities across all markets, Sarasvathy says; there are no such opportunities waiting for someone to come and tap. In the ‘entrepreneurship as exploring opportunity’ paradigm (which she calls the ‘causal process’), if you want to start a restaurant, you will search for a great location, analyze the existing competition, define your target segment, develop a menu for the target segment, develop a business plan, acquire funds and then search for the right resources, such as your chef.

The ‘effectuators’ (the term Sarasvathy uses for entrepreneurs who see the market as actionable), on the other hand, do not start with any particular ‘opportunity’. Instead, they look at who they are, whom they know, and what they collectively know. Then, they begin acting on whatever they can do collectively, negotiating a series of commitments from each. It is critical to note that the selection of people is not based on the opportunity pursued; people are onboarded first, and their collective aspirations create the business opportunity.

This is, again, game thinking in action. If you are considering starting your own business, do not search for opportunities- create them. What are your competencies and skills? Can you create opportunities out of them? Can you get together with other like-minded entrepreneurial people? What can you collectively create?

If you are already running a business, entrepreneurial thinking can transform your business.

Stay tuned as we discuss this in more detail.