Effectual Processes in Nonprofit Start-Ups and Social Entrepreneurship

Abstract

While effectual decision making has been studied in the private sector entrepreneurship literature as a way to explain the entrepreneurial start-up process, it also has potential application in the public and nonprofit sectors. Effectuation can be used to explain the decision process used by actors in the nonprofit sector, particularly in understanding how social entrepreneurs make decisions during the development of a nonprofit or social venture. We distinguish between causal and effectual decision making and illustrate the latter through two case studies of nonprofit start-up in the community development arena. These studies indicate that effectual decision making is particularly suited to the start-up social entrepreneurship venture. Differences between causal and effectual decision making influence the way actors prepare for the future and have pedagogical implications for how we teach social entrepreneurship. Training social entrepreneurs in effectual decision making has potential to better mirror real-world applications and may increase a venture’s ultimate success. Effectuation could also potentially explain decision making in other public arenas.