The Optimal Strategy for an Entrepreneur with Experience Diversity: Causation or effectuation?

Abstract

This study explores how entrepreneurs’ experience diversity affects how they run their business, and how this chosen strategy – i.e., causation and/or effectuation – influences their performance. First, we hypothesize that an entrepreneur’s low experience diversity entrepreneurs is positively associated with a preference for effectual logics, and negatively related to a preference for causal logics. Second, we argue that an entrepreneur with high experience diversity using effectual logics is likely to produce low entrepreneurial performance, whilst her/his use of causal logics is associated with high entrepreneurial performance. To test our theory we examine survey data from 3,513 entrepreneurs in the Netherlands. Our results show that the use of effectual logics negatively mediates the relationship between experience diversity and entrepreneurial performance. The use of causal logics positively mediates the relationship between experience diversity and performance. Furthermore, for low levels of experience diversity, the use of effectual logics is positively related to entrepreneurial performance. For high or intermediary levels of experience diversity, the use of effectual logics is associated negatively with entrepreneurial performance. Thus, entrepreneurs scoring high on experience diversity are better off using effectual logics, whereas entrepreneurs with little experience diversity tend to perform better when using causal logics.