Business researchers and psychologists have tried to discover the personal qualities and attributes that set an individual up for success as an entrepreneur. The findings would help those with the innate talent for being an entrepreneur to hone their advantages and steer others away from pursuing a path where they are likely to fail.
The failure rate is already so high for new enterprises – 20 percent of small businesses fail within the first year, and by year ten, only about 30 percent of companies are still open for business, a 70 percent failure rate – why add injury to insult for those not gifted with the spirit for entrepreneurship?
Notably, researchers have found no entrepreneurial personality type, and while age has some correlation with success, with the advantage going to people with more work experience aged 35-to-64 years, not all older entrepreneurs succeed, not by a long shot. And entrepreneurs are no different than anybody else in their willingness to take risks or avoid them.
But cognitive psychologist Saras Sarasvathy, University of Virginia’s Darden Professor of Business Administration, found that high-performing entrepreneurs display unique cognitive styles and processes that power their success.
She explains that people tend to display a preference for one of two cognitive styles:
- The causal reasoning process starts with a “predetermined goal and a given set of means and seeks to identify the optimal—fastest, cheapest, most efficient, etc.—alternative to achieve the given goals.”
- The effectual reasoning process does not start with a specific goal in mind but “begins with a given set of means and allows goals to emerge contingently over time.”
“Causal thinkers are like great generals seeking to conquer fertile lands. Effectual thinkers are like explorers setting out on voyages into uncharted waters,” she describes.
Businesses need both types of thinkers but effectual thinkers are more likely to succeed at getting a new business off the ground.
The Cook’s Test
Professor Sarasvathy proposes a simple kitchen counter test to determine one’s predominant cognitive style. In the kitchen, are you more likely to closely follow a recipe or wing it?
A cook who thinks causally finds a recipe for the dish they want to serve, buys the necessary ingredients and follows the recipe to prepare it. The goal is predetermined and the steps to accomplish it are defined.
An effectual cook, however, begins with the ingredients available in the kitchen – a given set of means –and lets that determine the final dish served, so that the means determine the ends.
That’s why Bobby Flay invariably wins on his “Beat Bobby Flay” show, where he and a challenger chef prepare the challenger’s signature dish. The challenger chef comes prepared with their predetermined recipe while Bobby uses his effectual reasoning style to put a spin on the dish to make it uniquely his own. And nine times out of ten, the judges reward Flay for it.
The Art and Science of Entrepreneurship
Regarding one’s cognitive style, it’s not an either/or proposition, Professor Sarasvathy explains. High-performing entrepreneurs use both the causal and effectual modes of thinking, but they tend to prefer the effectual process of thinking, which is creative, requiring imagination, spontaneity and risk-taking.
Causal reasoning may also involve creativity, such as reasoning through alternative ways to achieve a specific goal, but the causal process always focuses on the ultimate goal. This makes causal thinkers better suited to more structured corporate environments.
And at different stages of a business, different cognitive styles might be needed, which is why predominantly effectual thinkers might not transition well to later stages of a business where more causal reasoning is required.
The effectual process focuses on the means with the goals evolving from it. “They believe in a yet-to-be-made future that can be shaped substantially by human action,” she says, emphasizing the effectual entrepreneurs’ inclination toward action using all the means at hand to determine the ends. It’s the “Fail early, fail often, but always fail forward,” leadership principle espoused by author John C. Maxwell, of The 21 Irrefutable Laws of Leadership fame.
Ken Rohl, founder of a niche luxury kitchen and bath plumbing supply company that he eventually sold to a Fortune 500 company, credits the ultimate success of his business to his ability to seamlessly switch between the causal and effectual cognitive styles as business circumstances demanded.
He calls it the art and science of business. The effectually-powered art involves intuition, flexibility, innovation and having the human touch. The science is organization, process, strategy and discipline that taps casual thinking.
Corporateneur Circle of Success
He leveraged his 25-year career in corporate America with its emphasis on the causal mode to the day-to-day management of his business and developing its staff. To do that, Ken had to exercise discipline because, by nature, he would default to his preferred effectual style.
He likes to quote President Dwight D. Eisenhower, “Plans are nothing. Planning is everything,” and explains, “It’s not the process [i.e. the plan] but doing the process that moves a business forward. And the entrepreneur is responsible for defining the process and building systems that can effectuate the process.”
Making the Switch
In the early days, Ken’s overall goal was to build a business to provide for his family by leveraging his corporate experience in the luxury home kitchen market. He saw white space there in the home’s faucet and sink water delivery and use systems. The products readily-available in that market were commoditized and had no features or distinctive style that made them suited to the needs of luxury home owners building new homes or upgrading their cabinets, countertops and appliances.
He curated an a la carte menu of high-performance and distinctively styled faucets, sinks and other accessories and attracted a growing body of specialty kitchen and bath distribution partners to carry the Rohl product line.
But he faced a hurdle getting the dealers’ sales representatives to see the value. They still looked at faucets and sinks as a low-margin add-on when their big money-maker was selling high-ticket cabinetry, countertops and appliances. Ken needed to elevate the importance of the faucet-sink combination so they understood the greater value and could communicate it effectively to their customers.
Ken was armed with research that showed homeowners used their faucets and sinks more often on a daily basis than any other kitchen appliance, including the stove, refrigerator, dishwasher or microwave. So thinking effectually, he took the a la carte menu of products related to water in the home and presented them as a main on the kitchen design menu – as the water appliance.
“Rather than just presenting individual components, I repackaged them as an interconnected system that managed water delivery and use in the kitchen. In marketing, it’s called a reframe,” Ken explained.
“By seeing our products as a water appliance—including our premium faucet, sink, soap dispenser, cutting board, water purifier, and hot-water dispenser—the salespeople were looking at the potential of a $1,000+ sale, not just a $250 one. It raised our profile to the level of a Sub-Zero refrigerator or a JennAir six-burner gas stovetop,” he continued.
The water appliance concept elevated the status of the company’s products from commoditized after-thoughts to full luxury status and because the water appliance package typically offered a higher profit margin than luxury appliances, everybody in the value chain benefited.
Ken connected the dots for his dealers, their sales reps and their customers. “We gave our dealers guidelines for how much they should advise their clients to spend on the water appliance,” he continued.
“In a luxury home build or remodel, the typical appliance package ranges from $15,000 to $30,000 or even higher, and there’s typically no price resistance there. We recommended the kitchen water appliance budget should be about 10 percent of the appliance package, so $1,500 to $3,000.”
Ken used both causal and effectual thinking styles to grow his business. He effectually saw white space in the high-end kitchen market and causally put together a range of products to fill the void. But it wasn’t until he applied effectual thinking to present those products as a complete luxury home water system was he able to make the giant leap forward to grow the business.
Get More Wit and Wisdom from Ken
The Corporateneur Plan shares stories and teachings from the business journey of Ken Rohl over a lifetime building an extraordinarily successful presence within the luxury home market.
Grounded in research and enlivened with personal anecdotes, it is a guidebook for every aspiring entrepreneur to read before cutting the cord from their corporate careers and setting out on their own journey.
The Corporateneur Plan has become an Amazon Bestseller in the Knowledge Capital, Business Mentoring and Coaching, and Self-Employment categories and it gets honorable mention in Free Enterprise and Capitalism too.