Exploring Entrepreneurial Motivations, Human Capital and Environmental Uncertainty As Antecedents of Causation and Effectuation

Abstract

Entrepreneurship has been acknowledged as one of the most important drivers of growth and prosperity in modern times. Existing ways of life are creatively destroyed to make way for new ways of living. It is the process through which entrepreneurs create new firms that address the growing needs of a changing society. Decision making is at the heart of the entrepreneurial process. Existing literature has found that expert entrepreneurs use a different set of heuristics rather than rely on the analytical and planning approaches to make decisions in the face of uncertainty. These heuristics are termed as ‘effectuation’. The planning approaches are contrasted with the heuristics of effectuation and are called ‘causation’. Entrepreneurs who use the effectuation heuristics are means oriented, use affordable loss strategies, engage with committed self-selected stakeholders to invent the future, and prefer to leverage contingencies. Alternatively entrepreneurs who use causation are goal oriented, use expected return strategies, rely on analytical and forecasting techniques to predict the future and prefer to avoid contingencies. There have been insufficient attempts to uncover the antecedents of causation and effectuation in the entrepreneurial context. This motivates us to study entrepreneurial motivations (career reasons), human capital and environmental uncertainty as antecedents to causation and effectuation. Data were collected from start-ups across multiple domains aged 3 months to 6 years. A total of 115 data points were available for final analysis. Factor analysis and regressions were used to analyse the data. The treatment of causation and effectuation is unique and useful since we measure both causation and effectuation as independent formative constructs. On one hand we refine the operationalization of effectuation while on the other, we treat causation with equal importance by operationalizing the sub dimensions of causation as reflective constructs. The study reveals that entrepreneurial motivations do have small but significant associations with the use of causation and effectuation. Extrinsic motivations have a positive influence on causation while intrinsic motivations influence effectuation. The results highlight the importance of task specific human capital (domain experience and technology experience) to entrepreneurial decision making. The study reveals that migration experience positively influences effectuation. Further, different sources of uncertainty have different associations with the use of causation and effectuation. One striking result is that we find that entrepreneurial experience is not associated with either causation or effectuation. But the interaction effects of the different types of uncertainty and entrepreneurial experience have significant effects on causation and effectuation. We show that entrepreneurial experience moderates the relationship between uncertainty and decision making in the form of causation and effectuation. Entrepreneurial experience helps entrepreneurs carefully diagnose uncertainty and helps them respond accordingly. The study shows that experienced entrepreneurial teams are able to recognize the kind of uncertainty they face and are able to acknowledge the unpredictability of situations. This is done by coining and measuring a new type of uncertainty called ‘forecasting uncertainty’ in addition to market, technology and competitive uncertainty. Based on these results we derive recommendations for the design of entrepreneurship education and pedagogy.