Entrepreneurs' Adaptive Toolbox: The Relationship Between Structure and Decision-Making Logics

Abstract

In the early stages of new venture creation, entrepreneurs have to make decisions in a variety of functional areas within the emerging firm, including hiring, marketing, and financial planning (Shepherd, Williams, & Patzelt, 2015). These decisions are highly heterogenous both in their content, as well as their structure, such as the number of perceived options. In this study, we investigate elements of decision structure as potential antecedents of effectual, causal, and hybrid decision-making logics. We analyze 290 critical decision events across 41 ventures. Our results suggest that two elements of decision structure — decision complexity and the costs of experimenting with different options — explain significant variability in dominant logics adopted by entrepreneurs across distinct decision domains. For decisions that involve high levels of complexity and low costs of experimenting with options entrepreneurs prefer effectual logics, for decisions that involve low levels of complexity and high experimentation costs entrepreneurs tend to use causal approaches, whereas for decisions that are high in both complexity and costs of experimentation, entrepreneurs tend to mix effectual and causal heuristics within their approach. We discuss these findings in relation to how effectual and causal heuristics fit the cognitive demands of decisions combining these two elements of decision structure.