Effectuation, Exploratory Learning and New Venture Performance: Evidence from China

Abstract

This paper examines the effect of effectuation on new venture performance in the context of Chinese transitional economy. To determine how new ventures benefit from effectuation, we examine the role of exploratory learning as a key mediator. Using data from 266 Chinese new ventures, our results show that effectuation has a positive effect on new venture performance. Exploratory learning plays a fully mediating role in the relationship between effectuation and new venture performance. This empirical evidence contributes to the development of the theory of effectuation and also provides managerial guidelines for new ventures facing uncertain business environments like transitional economies.

Full Steam Ahead or Abandon Ship? An Empirical Investigation of Complete Pivot Decisions

“…Active entrepreneurs and corporate managers participated in our conjoint experiment. Targeting this group follows other published studies that rely on data from composite samples of, for example, “entrepreneurs and top management team members” (Cai et al , p. 393) and is in line with conjoint research in entrepreneurial decision‐making that utilizes “senior managers and business founders” (McMullen, Wood, and Kier , p. 230). Importantly, conjoint experiments require that participants have experience with making decisions like those in the experiment (Aiman‐Smith, Scullen, and Barr ), and thus this group was targeted because they are actors who have experience making decisions about modifying key aspects of product or service offerings and hence understand decisions of this magnitude.…”

Contesting effectuation theory: Why it does not explain new venture creation

“…6 Some effectuation researchers study established, rather than new, venture settings, for example, studies of decision-making and venture performance (e.g. Wiltbank et al 2006;Cai et al 2017;Smolka et al 2018;Wu et al 2020). Sarasvathy (2001a) has always envisaged effectuation theory might be relevant to non-new venture settings.…”

Means versus goals at the starting line: Performance and conditions of effectiveness of entrepreneurial action

“…Hence, our early stage, which terminates with the drafting of that plan, approximately corresponds to the idea phase, prestartup, and startup phases of Clarysse and Moray's (2004) new venture life cycle model. and skills that were developed through personal experiences in a particular domain of activity is "much less demanding of cognitive capacity and brain energy than the general-purpose logical processing" (Loasby, 2007, p. 39) which is required by unfamiliar problems, so the former approach leaves more cognitive energies to be used for addressing the manifold contingencies a startup always presents; (d) familiarity with the means at hand creates positive affect and motivation because of the strong fit between the means and the intention to carry out relevant actions (Krueger, Reilly, & Carsrud, 2000); (e) by relying on their means, entrepreneurs incur no risk of overpaying resources whose quality is uncertain and about which they are less well informed than the seller (Akerlof, 1970); (f) by avoiding fixed goals early on, entrepreneurs allow themselves to engage in experiential learning not only with regard to the means for developing their ventures, but also with regard to the appropriateness of the goals that they should pursue (Cai, Guo, Fei, & Liu, 2016); and, finally, (g) by focusing on the things over which the entrepreneur has influence, the entrepreneur is under less pressure to make accurate predictions (Wiltbank et al, 2006). Therefore, the costs involved with elaborate prediction are reduced.…”

“…A recent quantitative study (Cai et al, 2016) has contributed evidence of a positive relationship between effectuation and new venture performance from the context of transition economies, albeit with a focus on the construct of effectuation as a whole rather than specifically on means orientation.…”