I recently came across a very interesting paper covering how entrepreneurs might think differently about the world. I have embedded a marked up version of it below. Allegedly, the very entertaining markups belong to to Vinod Khosla. I highly recommend it to people who want to start a business, are already doing so, or have to deal with founders (both personally and professionally). It might help and explain why they do certain things🙂.
From my personal experience and talking to others who have started companies, what the paper calls ‘effectual reasoning’ is the only possible way of thinking in early days of a startup (especially if you are a first time entrepreneur with very limited resources). As the business grows though you definitely need to add some ‘causal reasoning’ to the mix otherwise you can’t scale the organization and the business. The bigger the company becomes (both in terms of people and revenue), the more you end up tilting your reasoning to the causal side.
However, you still need to keep the effectual reasoning in your arsenal beyond the very first days of the venture. It is an essential part of being able to expand your product offering, enter new markets, or even add innovative functionality to your products. The trick becomes maintaining a healthy balance of the two if you possess both. My current thinking is that 1 of out every 5 major initiatives at a company between $100M and $1B should be adhering mostly to effectual reasoning. What has been your experience?
Another interesting outcome of this paradigm is that you need to have a team that can execute on both types of projects. Early employees at startups by definition become comfortable with the effectual reasoning of the founders. That’s all they see everyday! However, as the business grows and new people join the team who have not been involved in these types of projects, it can create shocks when switching between the two. I have personally tried to put together mixed teams for these types of projects: bring some people with experience in effectual reasoning projects and have them play along with a few newbies. It has worked well so far in getting projects off the ground as well as making more people comfortable with the project type.
As a founder switching back to effectual reasoning every once in a while might come very naturally (you might even yearn to go back to it because it’s what you enjoy the most). Like anything else, the more you do it, the easier it becomes. But you need to keep in mind that not everybody on your team has had this type of practice. It never hurts to talk about the differences between types of reasoning and projects discussed in this paper. Sometimes I feel I am beating a dead horse when I try to talk about this topic with our team. And every time I do, I am glad I did it. You might not realize it, but you are probably not doing it often enough. And this paper gives you a very good framework to discuss the idea with your team.