Book reviews

live better lives? The answer will surely not be in the possession of a single
discipline.
A. MacMillan

Effectual Entrepreneurship
 Read, S., Sarasvathy, S., Dew, N., Wiltbank, R. and Ohlsson, A.-V. (2011),
Effectual Entrepreneurship, paperback, Routledge, pp. 228.
‘Success in investing doesn’t correlate with IQ – once you’re above the level of
125. Once you have ordinary intelligence, what you need is the temperament
to control the urges that get other people into trouble in investing.
Warren Buffett

Introduction
The promotion of entrepreneurship has been a major worldwide policy target,
as it is thought to be associated with the creation of wealth, technological
innovation and increased social welfare. The literature has suggested that
entrepreneurial entry is the outcome of ability to identify and exploit
opportunities and motivation (Shane, 2004). Both elements are important
in the decision to start a business. In this exciting new book, RSDWO
effectively address issues which are ultimately related to entrepreneurial
motivation, by presenting the main principles of effective entrepreneurship.
The authors challenge some of the stylised facts of the entrepreneurship
literature which often attribute mythical proportions to the figure of the
entrepreneur and conclude by presenting principles of action and control
based on sets of facts stemming from the behaviour of expert entrepreneurs.
Pivotal to the discussion is the key distinction between effectual entrepre-
neurs, who work with means, as opposed to causal entrepreneurs who tend to
work with goals, in the spirit of a search and select approach in business
venturing. This reminds of the famous exploration versus exploitation dis-
tinction in organisational science (March, 1991). In the often conflicting
processes of organisations, exploration deals with dynamic efficiency (search-
ing for new options, experimenting and conducting research), while exploita-
tion deals with static efficiency (refining existing procedures, doing the same
things only better and reaping value from what is already known). RSDWO’s
effectual entrepreneurs engage in creative processes based on: (a) Who they
are (traits, tastes, abilities); (b) What they know (education, training, expert-
ise, experience) and (c) Who they know (social and professional networks).
Based on these principles, the main aim of expert (effectual) entrepreneurs is
to control and shape the future rather than try to predict, in contrast to novice
(causal) entrepreneurs who perceive their ability to control the future, based
on the extent that they can predict it. Based on these notions, the authors
promise and depart on an exciting journey that intends to build on the
motivation of latent and existing entrepreneurs by reviewing most founda-
tional research and establishing patterns described as common practice
among expert entrepreneurs across industries, regions and time. The first
part of the book (Chapters 1–8) sets the background stage by challenging some

96 # 2011 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. 3 Spring 2011
 Book reviews

of the main myths of entrepreneurship research, such as that entrepreneurs see

opportunities others can’t see, seize them faster, make better predictions than
others, are brash risk-takers and different from the rest of the population, inter
alia. The second part of the book (Chapters 9 to 18) puts forth the main
principles of effectual entrepreneurship, i.e. (a) Start with own means (what is
readily available, without waiting for the perfect opportunity); (b) Set
affordable loss; (c) Leverage contingencies (i.e. embrace surprises);
(d) Form partnerships; (e) Create opportunities. Finally, the third and last
part (Chapters 19 and 20) concludes this exciting journey by addressing
current entrepreneurs in the process of a growing venture and attending to
questions of how far the venture can go. The next sections review the contents
of the three parts of the book in greater detail.

Part I: Myths and realities about entrepreneurial entry

The study of entrepreneurship and innovation from a behavioural perspective
has much in common with the Austrian-school analysis and the intellectual
tradition of Schumpeter (1934) and Hayek (1945). Motivation and the ability
to identify and exploit opportunities are the two key tenets of entrepreneurial
orientation. Both the economics and management literature suggest that
entrepreneurial entry is the outcome of several ‘personality’, or motivational,
aspects, such as lower risk aversion (Kihlstrom and Laffont, 1979; Moskowitz
and Vissing-Jörgensen, 2002), or higher optimism and overconfidence and
lower ambiguity/skewness aversion (de Meza and Southey, 1996; Camerer and
Lovallo, 1999; Bernando and Welch, 2001; Astebro, 2003). Finally, recent
studies present interesting inquiries attributing a genetic component of
entrepreneurial talent (Nikolaou, et al., 2008) and risk-taking (Cesarini, et
al., 2009), in the spirit of Baumol’s (1990) fixed pool of such talent. Hence,
entrepreneurs are often claimed to be different from non-entrepreneurs, by,
for example, being less risk averse, less ambiguity averse and more over-
confident. In the first part of the book, RSDWO challenge this narrow view,
without necessarily refuting all aspects of this foundational behavioural
research, but rather refocusing on the aspects of uncertainty and control.
Chapter 1 challenges the common view that entrepreneurs are unique
visionaries, presenting the fundamentals of effectual versus causal logic. In the
spirit of Schumpeter (1934), it concludes with the effectual premise that many
opportunities can be created, rather than discovered and new markets can
often be viewed as a residual, explored via creative and transformative tactics.
Chapter 2 questions the ‘eureka’ moment view of entrepreneurial pure vision,
by presenting some unique case studies of successful and radical business
change (Colgate, Tiffany, Nokia, One True Media, De Witt, inter alia). These
challenge the narrow view of innovative ideas and stress the role of commit-
ment, along with opportunity. Chapter 3 reviews the common assertion that
entrepreneurs are risk-takers, pointing out that expert entrepreneurs are
dealing with uncertainty rather than risk. A comparative study of differences
in the stated preferences of entrepreneurs and bankers is presented, pointing
to the latter assertion. Without refuting the risk-taking evidence, RSDWO
conclude that uncertainty can be transformed into opportunity by controlling
the environment and effectuation principles can provide unique sets of

# 2011 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. 3 Spring 2011 97
Book reviews

heuristics which are related to control. Chapter 4 challenges the famous

liquidity constraint story, which is typically viewed as the greatest impediment
to start-ups and successful venturing. The recent literature which casts serious
doubt on the role of wealth, instrumented or not, on entrepreneurship is
reviewed (Hurst and Lusardi, 2004; inter alia). Based on effectual logic,
RSDWO conclude that having nothing can be viewed as an advantage instead
of disadvantage if it serves as motivation to minimise losses, invokes learning
and creativity, along with the formation of partnerships, etc.1 Then, Chapter 5
questions the view that entrepreneurs are unique forecasters, pointing out that
control rather than prediction is the keyword for entrepreneurial behaviour.2
The authors emphasise the adaptation and learning capabilities of expert
entrepreneurs, along with partnerships as key components of a more proactive
effectual and strategic approach to the environment, in a world where
dynamic capabilities are pivotal. The chapter concludes that in uncertain
situations, control can be achieved by constructing elements of the environ-
ment in which one can build their venture.
Chapter 6 discusses the start-up decision, emphasising that the actual
moment of taking the plunge is mostly a matter of motivation (this covers all
cases from serendipity and necessity up to aspiration). The anatomy of the
plunge decision is presented in detail (p. 48) along with exciting case studies of
individual circumstances. The conclusion of the chapter is that ‘action trumps
analysis’. Chapter 7 challenges the view that entrepreneurs are different from
the rest of the population and ‘unique’ creatures, stressing that what can really
make the difference is effectual thinking as a different way of looking at the
world. Literature that emphasises the role of education as the biggest source of
success, independent of parental occupation and other characteristics is
reviewed.3 The authors describe expert successful entrepreneurs as an un-
expected combination of persistence and flexibility, that do not have an
instrumental view of the world and work on making success happen rather
than trying to avoid failure. Chapter 8 concludes this section by focusing on
the fear of failure, stating that it is a subjective concept and presenting some
interesting case studies of subjective failure (Apple, etc.). Interesting psycho-
logical research on the detrimental but transitory emotional impact of failure
is reviewed (Shepherd, 2003) and the interesting fact that only 8% of the
companies that close down owe money to their debtors is highlighted. The
chapter concludes stating that: (a) it is a myth that failure is terminal; (b)
failing alone is probably the biggest threat and (c) part of creating an
entrepreneurial culture is celebrating failure, in the spirit of Baumol (1990).
1
Interestingly, the authors describe sales as the noblest part of business, in contrast to many
popular views by entrepreneurs and as a tool in the process of bootstrapping benefits and one’s
own business.
2
RSDWO review the interesting behavioural entrepreneurship literature that suggests that
entrepreneurs may be more likely to have a bad relationship with prediction, due to traits
popularly labelled as overconfidence and excess risk-taking. The discussion is reviewing most of
the relevant psychological aspects, stemming from concepts such as locus of control, the
attribution theory, bounded cognition and isotropy.
3
One needs to point out that there is also recent literature based on (quasi-)experiments
showing small and insignificant effects of educational programs on the willingness to engage in
entrepreneurial activities (Oosterbeek et al., 2010).

98 # 2011 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. 3 Spring 2011
 Book reviews

Part II: Effectuation in action

In the second leg of this journey (Chapters 9 to 18), the authors get into the
specific principles of effectual logic. Chapter 9 presents the first principle,
according to which starting with means rather than goals helps one begin right
away, with what they possess. This can also help avoiding fads. Chapter 10
emphasises the role of commitment in transforming an idea into a good
concept. This helps to focus on the process of ongoing transformation and the
principle of re-weighting emphasis on features or attributes of a product or
market.4 Chapter 11 emphasises the affordable loss principle and how its use
to reason through the start-up decision reduces the barriers, compared to the
NPV approach, while it still manages risk. The conclusion is that starting is not
about the upside being big enough, but about whether the downside is life-
threatening. Through that logic, the low survival rates of new entrepreneurs
are less of a threat.5 Chapter 12 focuses on access to and the sources of finance,
highlighting how in the effectual approach, investment is tightly coupled with
the affordable loss principle. The pivotal control concept is based on the idea
of doing the most with the least, in order to maintain control, and the authors
suggest that bootstrapping can offer a better fit for most start-ups, which could
avoid venture funding rather than pursue it. Chapter 13 focuses on social
networking and partnerships (e.g. suppliers, customers, acquaintances),
concluding that persuasiveness and rationality come together as commitment
and ‘buy-in is better than sellin’.6 RSDWO highlight the principle of effectual
partnerships, i.e. that those who choose to join and self-select into the venture,
ultimately make it what it is. This is in stark contrast to selecting partners to fit
a given goal, which is the case with causal partnerships. Hence, the venture
does not dictate the partnerships, but effectual partnerships create the
venture.7 Chapter 14 discusses the tradeoffs between dimensions of ownership
and control and the ideas of managing investors. The conclusion is that good
partnerships make good ventures and that ownership enables alignment of
incentives around the creation process. In both chapters, it is pointed out that
larger units and organisations tend to become less effectual. Chapter 15
celebrates the role of the unexpected, providing examples of famous con-
tingencies and stressing the confidence in one’s own abilities to make the
difference as a key component of effectual entrepreneurship. In the ample
examples provided, the manner in which entrepreneurs leveraged the con-
4
An exciting hypothetical stated preference venturing experiment is presented in this chapter,
focusing on these attributes of expert entrepreneurs.
5
An interesting review of mental accounting is presented in this section (Thaler, 1985).
However, another interesting concept that needed reviewing is loss aversion (Kahneman and
Tversky, 1979; Tversky and Kahneman, 1991), which refers to people’s tendency to strongly
prefer avoiding losses to acquiring gains and can predict that affordable losses may be quite low,
further hindering the plunge decision. Moreover, the discrepancy between ex ante stated and
hypothetical preferences and ex post revealed preferences can also raise some scepticism with
respect to setting realistic affordable losses ex ante.
6
The chapter contains excellent reviews of research on experimental economics for the
importance of advice and word-of-mouth (p. 120) along with the social psychology of
persuasion.
7
This is the ‘crazy quilt principle’, based on the metaphor of stitching together a patchwork
quilt, rather than solving a jigsaw puzzle.

# 2011 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. 3 Spring 2011 99
Book reviews

tingencies provides the core of the authors’ ‘lemonade principle’. Expert

entrepreneurs used contingencies as resources, thinking neither inside nor
outside the ‘shifting box’, instead of providing purely adaptive or heroic
responses. An interesting Chapter 16 emphasises on neglected aspects on the
writing of business plans, such as the management of risk and the identifica-
tion of real bottlenecks, based on the premise that ‘one size does not fit all’. The
chapter concludes that ‘action succeeds planning’.
Chapter 17 accentuates the creation of venture identity, i.e. the ‘persona’ of
the corporation in alignment with the business objectives. This comprises of
the philosophy, the values, norms and the personality of the firm and its
members, rather than a mere brand or logo. The conclusion is that identity is
something that the effectual entrepreneur creates every day, as a reflection of
what he/she stands for. Shaping this identity, reinforcing it through actions
and communicating it effectively are central to the value creation of the firm.
Finally, Chapter 18 highlights the power of non-predictive control; its
effectual application means preference to work with elements where a
significant contingency relationship exists between the entrepreneur and the
element, as opposed to causal control techniques in which there is a low or no
contingency relationship. Controlling the controllable by intervening, as a
‘pilot on the plane’, is the concluding principle of this part of the book.

Part III: Entrepreneurial growth

The third and final part of the book concludes this exciting journey by
addressing current entrepreneurs in the process of a growing venture and
attending to the question of how far the venture can go. Chapter 19 deals with
effectual principles of optimal firm size that enables effectual control and
emphasises on the role of innovation and the misconception that most SMEs
are responsible for employment generation.8 Effectual management involves a
fresh look, whereby ‘Alexander the Great’-type mistakes are avoided by
ensuring continuation and performance though selecting, promoting and
training people inside a large firm, as well as thinking what might help
entrepreneurs stay with the venture as it grows into a large firm. Chapter 20
concludes this beautiful journey in the nicest possible manner by addressing
entrepreneurship as a technology for social change, married with the profit
preoccupation, in stark contrast to the separation thesis. Within that view,
entrepreneurship generates sustainable solutions to social problems, raising
instruments and earning returns, while at the same time reducing the need for
charity or higher taxes. Excellent examples, case studies and the main steps are
described, along with an interesting section that compares the effectual
entrepreneurship and the scientific method. The chapter’s conclusion is
beautifully outlined as the principle of ‘doing what we ought; doing what
we should’.

Conclusion
Overall, I have found this book to be the most motivating toolkit in the shelf of
prospective and current entrepreneurs. It recommends a proactive attitude to

8
For a review, the reader is referred to Shane (2008).

100 # 2011 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. 3 Spring 2011
 Book reviews

business and life, based on exploitation of the environment, starting with the
facts, one’s own means, knowledge and networks. It views entrepreneurship as
an effectual venture based on someone’s own current facts. According to the
authors, this book teaches that one need not wait for the right technology or
the proper resources or the massive machinery of governments or the feeble
hope of the next election to rebuild one’s life and the world in which that life
seeks to thrive. One can start today – with who they are, what they know and
who they know – and invest nothing but what they can afford to lose, to begin
building corridors through which their stakeholders can self-select into their
valuable new venture. And together they can co-create value and societal
welfare that neither could fully imagine at this point in time. The book
addresses large audiences of students, scholars, latent and current (both
denovo and family) entrepreneurs, offering an insightful new perspective
on the study of entrepreneurship. This is achieved via the overview and critical
evaluation of large bodies of recent literature from entrepreneurship, eco-
nomics, management, finance and other related disciplines. This synthesis is
presented in a unique non-technical way that makes the book a valuable
handbook for individuals from all backgrounds with an interest in entrepre-
neurship as a discipline or as practice. The authors envisage the role of
entrepreneurial education based on the view that entrepreneurship is not
necessarily innate and this is exactly what they achieve: the production of a
first class entrepreneurship education tool. Importantly, the authors hope that
their explication of effectuation will become part of the mundane toolbox of
entrepreneurial education (p. 203); and that entrepreneurship itself should
become part of all basic education in the near future. This is the most desirable
outcome for every entrepreneurship scholar, and the book’s efforts in making
all this foundational literature and effectual principles easily accessible are the
most effective way of starting with teaching rather than preaching. The book
promises a journey, a trip and ultimately this is what it will achieve, building
on the motivational underpinnings of entrepreneurial action.

References
Astebro, T. (2003), ‘The Return to Independent Invention: Evidence of Unrealistic Optimism,
Risk Seeking or Skewness Loving?’, Economic Journal, Vol. 113, Issue 484, pp. 226–239.
Baumol, W. (1990), ‘Entrepreneurship: Productive, Unproductive, and Destructive’, Journal of
Political Economy, Vol. 98, No. 5, pp. 893–921.
Bernardo, A. E. and Welch, I. (2001), ‘On the Evolution of Overconfidence and Entrepreneurs’,
Journal of Economics and Management Strategy, Vol. 10, No. 3, pp. 301–330.
Camerer, C. and Lovallo, D. (1999), ‘Overconfidence and Excess Entry: An Experimental
Approach’, American Economic Review, Vol. 89, No. 1, pp. 306–318.
Cesarini D., Dawes C. T., Johannesson, M., Lichtenstein, P. and Wallace, B. (2009), ‘Genetic
Variation in Preferences for Giving and Risk Taking’, Quarterly Journal of Economics, Vol.
124, No. 2, pp. 809–842.
de Meza, D. and Southey, C. (1996), ‘The Borrower’s Curse: Optimism, Finance and
Entrepreneurship’, Economic Journal, Vol. 106, Issue 435, pp. 375–386.
Hayek, F. (1945), ‘The Use of Knowledge in Society’, American Economic Review, Vol. 35, No. 4,
pp. 519–530.
Hurst, E. and Lusardi, A. (2004), ‘Liquidity Constraints, Household Wealth, and Entrepreneur-
ship’, The Journal of Political Economy, Vol. 112, No. 2, pp. 319–347.
Kahneman, D. and Tversky, A. (1979), ‘Prospect Theory: An Analysis of Decision under Risk’,
Econometrica, Vol. 47, No. 2, pp. 263–291.

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Book reviews

Kihlstrom, R. E. and Laffont, J.-J. (1979), ‘A General Equilibrium Entrepreneurial Theory of the
Firm Based on Risk Aversion’, Journal of Political Economy, Vol. 87, No. 4, pp. 719–48.
March, J. G. (1991), ‘Exploration and Exploitation in Organized Learning’, Organizational
Science, Vol. 2, No. 1, pp. 71–87.
Moskowitz, T. J. and Vissing-Jorgensen, A. (2002), ‘The Returns to Entrepreneurial Invest-
ment: A Private Equity Premium Puzzle?’, American Economic Review, Vol. 92, pp. 745–78.
Nicolaou, N., Shane, S., Cherkas, L., Hunkin, J. and Spector, T. D. (2008), ‘Is the Tendency to
Engage in Entrepreneurship Genetic?’, Management Science, Vol. 54, No. 1, pp. 167–179.
Oosterbeek, H., van Praag, M. and Ijsselstein, A. (2010), ‘The Impact of Entrepreneurship
Education on Entrepreneurship Skills and Motivation’, European Economic Review, Vol. 54,
pp. 442–454.
Schumpeter, J. (1934), The Theory of Economic Development. Cambridge, MA: Harvard
University Press (First published in German, 1912).
Shane, S. (2004), Academic Entrepreneurship: University Spinoffs and Wealth Creation, North-
ampton, MA: Edward Elgar Publishing, Inc.
Shane, S. (2008), Illusions of Entrepreneurship, Hartford, CT: Yale University Press.
Shepherd, D. (2003), ‘Learning from Business Failure: Propositions of Grief Recovery for the
Self-employed’. The Academy of Management Review, Vol. 28, No. 2, pp. 318–328.
Thaler, R. (1985), ‘Mental Accounting and Consumer Choice’, Marketing Science, Vol. 4, No. 3,
pp. 199–214.
Tversky, A. and Kahneman, D. (1991), ‘Loss Aversion in Riskless Choice: A Reference
Dependent Model’, Quarterly Journal of Economics, Vol. 106, No. 4, pp. 1039–1061.

Georgios A. Panos, Essex Business School, UK

HRM to the fore!

 Pons-Vignon, N. (ed.) (2010), Don’t waste the crisis: Critical perspectives for
a new economic model, Geneva: ILO, paperback, £18.00, 96pp.
 Gall, G. (ed.) (2009), Union Revitalisation in Advanced Economies, Basing-
stoke: Palgrave Macmillan, hardback, £60.00, 240 pp.
 Gall, G. (ed.) (2009), The Future of Union Organising: Building for
Tomorrow, Basingstoke: Palgrave Macmillan, hardback, £60.00, 256pp.
 Benson, J. and Zhu, Y. (eds.) (2010), The Dynamics of Asian Labour
Markets: Balancing Control and Flexibility, London and New York, NY:
Routledge, hardback, £80.00, 240 pp.
 Brewster, C. J. and Mayrhofer, W. (eds.) (2010), Handbook of Research in
Comparative Human Resource Management, Cheltenham: Edward Elgar,
hardback, £175.00, 700pp.
‘Industrial relations’ as an issue has been very much in limbo of late.
Compared with the tumultuous 1970s, the number of working days lost
through strikes in the UK in recent years has been perhaps only a fraction of
what it was back then. In 2009, just under half a million days were lost to
strikes, even with a major dispute at the Royal Mail, compared with 29 million
in the Winter of Discontent in 1979. So, some may say there is no need to
panic, at least not yet. Or is there? There are always exceptions, of course, as we
await the social impact of the trenchant cuts in public spending recently set out
by the UK Coalition Government. Indeed, some say conflicts of interest
among the social partners remain as endemic in modern capitalism as ever –

102 # 2011 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. 3 Spring 2011