Our team of about 25 people is mostly sitting at the conference table. Some are standing up while their smiles fade about the agenda I am about to discuss. It was a Friday, March 30, 2007, about 6 p.m. It is a payroll day, and I am announcing that I am giving them all up together with the office and all company expenses because the cash flow cannot justify them anymore.
I went home, and inside my bedroom, I leave it dark, I lean against the wall and put my head in my hands. What should I do? I sink to the ground, and I want to make myself as small as possible.
I have never been in this kind of situation. My co-founders and all the staff were all gone. Several clients, a couple of desktop computers and my coding skills were left. Get it together, Dennis.
What is the principle behind entrepreneurial thinking? I read research written by Dr. Saras Saravathy at the University of Washington entitled “What Makes Entrepreneurs Entrepreneurial?” In 1997, she traveled across 17 states in the United States over several months, and she met with 30 founders of companies, ranging in value from $200 million to $6.5 billion and spanning a variety of industries including steel, railroad, teddy bears, semiconductors and biotech.
She coined the term “effectual reasoning” and “causal reasoning.”
“In general, In MBA programs, students are taught causal in every functional area of business. Causal rationality is the traditional approach where you predetermine goals and a given set of means, and then identify the optimal, fastest, cheapest, alternative to achieve the goal. This is also synonymous with strategic thinking.
Effectual reasoning, however, does not begin with a specific goal. Instead with a given set of means and allows goals to emerge contingently over time from the varied imagination, diverse aspirations of the entrepreneur and the people they interact with.”
Causal thinkers are like generals while effectual thinkers are the explorers, setting out on voyages into uncharted waters.
To summarize her study, entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in yet-to-be-made future that can substantially be shaped by human action; they realize that to the extent that this human action can control the future. It is important to point out, though, that the same person can use both causal and effectual reasoning at different times depending on what the circumstances call for. In fact, the best entrepreneurs are capable of both.
In my story above, unconsciously, using the principle of effectual reasoning, I have to work with readily available resources. I began with some questions like who am I, what are my traits and abilities, what do I know and whom do I know.
Instead of revalidating our products by doing market research and business planning, I started by setting up a workstation at home while working on projects by myself. When I realized I needed extra hands, I sourced for interns from several universities and asked one of my existing customers who is also a good friend/mentor to accommodate me in his office in Makati. I used desktops from the old office and hired the interns. By word of mouth, I started booking new customers again, got a new office and hired regular employees and then eventually changing our name to Hilsoft, Inc by 2012.
In summary, in relation to my experience and the study above, below are some keys to solve problems by entrepreneurial thinking:
- Solve problems using existing resources and means.
- Execute solutions focusing on affordable loss and not on expected return. It means for example not to exert too much effort on market research and to choose the target market, but instead do the actual selling and adjust products accordingly.
- Solve problems by trial and error, leverage on contingencies and be open to surprises.
- Take advantage of opportunities while solving problems through human action.
As I say all the time, we can solve anything as long as we do not tolerate problems. By adding this concept, I wish that each of us can find what we are looking for.
A must read for the budding entrepreneurs!