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Effectuation and Causation: The Effect of Entrepreneurial Logic on Incubated Start-up Performance: The predictive value of effectuation in business plans

Nienhuis, Michel Diemer (2010) Effectuation and Causation: The Effect of Entrepreneurial Logic on Incubated Start-up Performance: The predictive value of effectuation in business plans.

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Abstract:Effectual logic, captured in the emerging theory of effectuation, is the logic of expert entrepreneurs and differs significantly from the causational logic predominantly used by managers and MBA students alike. This new school of thought lacks significant empirical evidence of the influence of effectuation, e.g. on performance, and in this thesis I aim to contribute to filling that gap by assessing the impact of effectuation on job creation as performance measure in the context of incubated start-ups. In the process, a coding scheme to measure effectuation in business plans is developed. The literature review revealed two major ongoing debates: one between discovery theory and creation theory in entrepreneurship research, with effectuation having moved to the front lines of creation theory, and the other an ongoing debate on the merits of planning, mostly in terms of performance, as opposed to learning. This thesis attempts to integrate these debates, looking for evidence of creation theory in (mandatory) business planning leading to higher performance. The literature review also indicated a lack of operationalization in the area of effectuation, being non-existent in the context of business plans. This thesis tries to fill that gap as well. The data collection method used was cross-sectional manual coding of 92 initial business plans of start-ups in the TOP incubation programme of the University of Twente, written between 1986 and 2005, using employment data mostly from 2008 and 2009. To code the business plans, a coding scheme was developed from a theoretical framework based on literature review. The findings offer interesting new insights into the workings and effects of effectuation. Effectuation and causation approaches differ significantly in resulting performance. Causational market research has a positive influence on performance, while measurements of means-based, rather than goals-based action and a focus on partnerships both proved that these dimensions of effectuation positively influence performance. Interestingly, attention for competitive analysis also positively influenced performance. Also, experience as a measurement of means, along with the control variables growth intention and company age, proved to be a predictor of the chance that a start-up would successfully transition from a micro business to a small business (more than ten employees). A focus on affordable loss (effectuation), rather than expected return (causation), was hard to measure and did not provide significant results. Apparently, not all effectual constructs are advantageous to start-up performance, and not all measurements within constructs point in the same direction, questioning the reliability of the effectuation constructs themselves. This suggests avenues for further research on the effectual constructs. The limitations of this thesis are notably the generalizability to groups outside an incubation programme like this, the relatively small sample size, and the cross-sectional design of the study. But most importantly, this thesis contributes to research and practice in two ways: by offering an operationalization for measuring effectuation in business plans, and providing empirical evidence of effectual logic in planning influencing performance, but not univocally in the same direction. Yet the result that the logic behind planning has a big, predictive influence on job creation is an important finding for entrepreneurs, incubators, business angels, teachers, policymakers and scholars alike.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/60018
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