- Compare and contrast the prediction and creation approaches to entrepreneurship


[SLIDE 1]

The two perspectives we discuss in this lesson represent older and newer perspectives, or logics (that is, ways of thinking) about entrepreneurship. The older perspective is predictive logic, and this is the approach you might be more familiar with. This approach sees entrepreneurship as a linear, or step by step process involving the gathering of a known set of inputs (such as capital and other resources) in order to reach a predictable outcome.

The newer view, however, recognizes that entrepreneurship is in fact quite a messy process. The future is unpredictable, so creation logic argues that it is not possible to follow a linear and predictable path.


[SLIDE 2]

Let's dig into the differences between prediction and creation logic a little deeper. Prediction logic is all about big planning. An entrepreneur should establish a clear set of goals, and then take all the steps necessary to ensure that these goals are reached. This will involve gathering the resources needed to make the business a success, or waiting to start the business until you get what you need. This makes sense to those who hold that view dear, because they believe that risk can be minimized in this way. The focus of the entrepreneur is on the returns they expect from the enterprise, which might be couched in terms of profits or revenue. A linear process is followed whereby decisions and strategies are optimized in such a way as to avoid failure. Since the focus is on expected return, a competitive approach is employed and the future is considered to be knowable, supporting the development of strategy. Entrepreneurs that follow predictive logic believe that to the extent we can predict the future, we can control it.

In contrast, creation logic involves small actions. Each small action adds up to practice. Whereas with the predictive approach, entrepreneurs first begin by identifying the goals they would like to achieve and look for the resources to enable them to reach their goals, entrepreneurs that employ the creation approach use the reverse strategy -- they determine their goals according to whatever resources they have at hand. They use what they have, rather than wait for extended periods of time to get what they need before taking action. Instead of trying to think about what they want to get from entrepreneurship,  entrepreneurs that follow creation logic identify what they are willing to lose, in line with their understanding that the future is unknowable. Consequently, their approach to business creation is not linear but rather, iterative and experimental. They embrace and leverage failure as well as collaborative relationships with stakeholders, including competitors. Entrepreneurs that follow creation logic believe that to the extent we can create the future, we don't need to predict it.

It is important to note that there is scope for the use of prediction logic, and in fact, entrepreneurs often switch back and forth between both types of logic. Prediction is the dominant logic of large, established corporations, where information is reliable and accessible, and can therefore be used to support planning. Creation logic tends to be employed during times of uncertainty, which includes at the start-up stage. An early entrepreneurial venture is unlikely to have access to sophisticated predictive tools, and in any case, the business landscape is too uncertain to be able to use those tools effectively. How can you possibly price a product or service when the market does not exist yet? How can you optimize hiring decisions when you don't know the size of the market? If you are working on something new, the only effective approach is to take action. 


[SLIDE 3]

The creation approach, and especially the idea that the future is unpredictable yet controllable, aligns with the theory of effectuation. Developed by Dr. Saras Sarsvathy, the perspective argues that entrepreneurs, through their actions can "effect" the future. Dr. Sarasvathy developed this idea based on fieldwork conducted in 17 different states with entrepreneurs from a range of different industries. She delivered a 17 page business building problem to 30 entrepreneurs in order to understand the methods of reasoning they used to solve problems. Her research found that experienced entrepreneurs exhibited specific thinking patterns. 89% of the more experienced, serial entrepreneurs used effectuation more often than predictive, causal thinking, and this helped them to solve the common problems faced in starting a running an entrepreneurial venture. 


[SLIDE 4]

Dr. Sarasvathy demonstrated her ideas through a thought experiment called Curry in a Hurry. Imagine you want to start an Indian restaurant in your town. How might you start?

You could begin by assessing the market through surveys and focus groups in order to identify those who love Indian food and those who don't. This would help you to focus your efforts on predicting who might be your customers when the restaurant eventually opens. Then you might use a similar approach to identify your competitors, your suppliers and so on, and based on all this information, develop an in-depth business plan to enable you to secure the financial capital you need to start the business.

But this is time-consuming and expensive. It is an approach that assumes you have the resources and time to support that research and planning, and assumes that the future is predictable. Instead, the creation approach involves navigating uncertain world to make markets, find opportunities and fulfill your vision of the future. Using this approach, you might instead look at what you have to start the process. This might mean asking an established restaurant to act as partner, or to provide a space where you could run a pop-up. You might cook a few dishes and take them to colleagues to see what they think, or offer some cooking classes at a local school to get feedback. Getting out into the community like this offers you a host of new opportunities: maybe someone offers you a cooking show based on your delicious dishes, or a publisher gives you a chance to write a cookbook. Suddenly, by using effectuation, your original idea has evolved into a wealth of new opportunities, showing how it is possible to change and shape the future through action.