When Taking Action Trumps Predicting – Commoncog

Effectuation: When Action Trumps Prediction in Entrepreneurship

The idea that ‘management is prediction’ has been emphasized in recent weeks as a crucial element in running a business effectively. However, while data-driven decision making is becoming increasingly popular, there are situations where prediction is overrated. This article explores the concept of effectuation and its relevance in entrepreneurship, where action often trumps prediction.

What is Effectuation?

Effectuation is a type of thinking that is the opposite of causal thinking, which is generally taught in MBA courses and business books. While causal thinking involves working backward from an end goal to determine how to achieve it, effectual thinking involves working forward from existing resources towards an unknown end product. In a business context, causal thinking is often used to increase sales by a certain percentage, while effectual thinking involves using spare capacity to create something new that may have value for the company.

Effectuation in Entrepreneurship

Most entrepreneurial stories involve founders bouncing from random good event to random bad event before finding something that works. Linear paths with a defined goal are rare, and often entrepreneurship is about navigating uncertainty, which by definition, is impossible to predict. Successful entrepreneurs deal with this uncertainty through execution and improvisation, embracing the fact that they cannot calculate the probabilities of anything working. They also actively distrust information that is not generated through action.

The Principles of Effectuation

Sarasvathy describes effectual reasoning as a process where entrepreneurs use their traits, education, training, expertise, experience, and social and professional networks to imagine and create new opportunities. They focus on what they can control, create new connections through their actions, and limit risk by using affordable loss. This approach allows entrepreneurs to embrace uncertainty and experiment to find what works.


Effectuation is a valuable concept to understand for entrepreneurs. By focusing on action rather than prediction and embracing uncertainty, entrepreneurs can better navigate the challenges of starting a new business. This approach allows entrepreneurs to improvise their way to success and adapt quickly to changes in the market.

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