Goal setting fine on paper & in text books, but not in the real world; Expert serial entrepreneurs and MBA's think differently

The notion of goal setting has been the core philosophy of countless MBA programs, thousands of self-help book and pop pshycology articles and magazines and the benchmark tactic promoted by legions of career counselors, business coaches and scores of consultants of all stripes.

Sounds rational and logical on paper and in MBA text book? Right? But does it work in all cases in real life? No...according to a new Swiss and US study that compared how successful expert serial entrpreneurs and novice MBA students think and approach problem-solving.

Traditional goal setting methodology may be fine in a stable world where your assumption hold true over time but not work as well in an ever changing turbulent world, with new emerging world views and ever-shifting mental models and business models of how things work.

The study asked 27 expert serial successful entrepreneurs and 37 novice MBA students to think “out load” continuously as they were given decision-making problems in creating a fictional  new venture. Transcripts were analysed and results showed that experts framed problems in dramatically different ways –in fact, diametrically opposed to the MBA students who followed the textbook. Experts framed problems more using “effectual”  logic, while MBA students largely used “predictive” logic.  Effectual logic ignores long term goals as the starting point for the time being and proceeds outward from means and causes to new effects and unanticipated ends. MBA students, as per their conventional goal-setting  training proceeded in the opposite direction, using predictive logic, starting with predetermined effects or goals and strived for means and causal paths that would direct them toward these pre-selected goals

Using effective logic, serial expert entrepreneurs identified more potential markets, focused more on building the venture as a whole, payed less attention to predictive information, worried more about making do with resources on hand to invest only what they could afford to lose, and emphasized stitching together networks of partnerships. Novice MBA students using “predictive frame” missed most of the above issues when tending  to “go by the textbook.”

This study argues that we need to challenge and rethink the standard business MBA curriculum- how and what we teach MBA students about entrepreneurship and urges researchers to better understand how and why seasoned serial entrepreneurs develop effectual framing logic through their years of experience.

 

The table below summarizes the differences between effectual logic and predictive logic

 

Causal Predictive Logic	Effectual Logic
View of the future Predictive. Causal logic frames the future as a continuation of the past. Hence accurate prediction is both necessary and useful.	View of the future Creative. Effectual logic frames the future as shaped (at least partially) by willful agents. Prediction is  therefore neither easy nor useful.
Basis for taking action Goal-oriented. In the causal frame, goals, even when constrained by limited means, determine sub-goals. Goals determine actions, including which individuals to bring on board.	Basis for taking action Means-oriented. In the effectual frame, goals emerge by imagining courses of action based on given means. Similarly, who comes on board determines what can be and needs to be done. And not vice versa.
Predisposition toward risk and resources Expected return. Causal Logic frames the new venture creation problem as one of pursuing the (risk-adjusted) maximum opportunity and raising required resources to do so. The focus here is on the upside potential.	Predisposition toward risk and resources Affordable loss. Effectual logic frames the problem as one of pursuing adequately satisfactory opportunities without investing more resources than stakeholders can afford to lose. The focus here is on limiting downside potential.
Attitude toward outsiders Competitive analysis. Causal frames promulgate a competitive attitude toward outsiders. Relationships are driven by competitive analyses and the desire to limit dilution of ownership as far as possible	Attitude toward outsiders Partnerships.  Effectual frames advocate stitching together partnerships to create new markets. Relationships, particularly equity partnerships drive the shape and trajectory of the new venture.
Attitudes toward unexpected  contingencies Avoiding. Accurate predictions, careful planning and unwavering focus on targets form hallmarks of causal frames. Contingencies,  therefore, are seen as obstacles to be avoided.	Attitudes toward unexpected contingencies Leveraging. Eschewing predictions, imaginative re-thinking of possibilities and continual transformations of targets characterize effectual frames. Contingencies, \therefore, are seen as opportunities for novelty creation — and hence to be leveraged.

Source: The Opportunity Clinic and Effectual versus predictive logics in entrepreneurial decision-making. Differences between experts and novices. Dew, Read, Sarasvathy and Witbank. Journal of Business Venturing, 24 (4)  (July 2009) 287-309

Walter Derzko

 

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