The Impacts of and Congruence between Effectuation and Causation on the Financial Performance of Startups

Recent research on founders’ goal-setting processes suggests that contrasting decision-making approaches, namely, the effectuation and causal approaches, coexist and complementarily affect business performance. This study analyzes the impact that effectuation and causation have on financial performance and the effect of congruence between the two approaches. The contributions and implications of the findings are as follows: First, we show that causal logic has an independent effect on sales growth and that there is no difference in the effect on sales growth when the implementation level of causation and effectuation are similar to each other. This suggests that the contributions of causation and effectuation to sales growth are not complementary; rather, both principles can follow their own paths to increased sales. Second, effectuation has a greater effect on asset growth than causation, i.e., asset growth accelerates as the level of effectuation increases above average. This suggests that effectuation principles are better suited to a startup's growth path than causation principles. Third, we find evidence that causation logic has a negative effect on operating profits, and average operating profits do not vary with the degree of congruence between effectuation and causation principles. Lastly, effectuation and causation decision logics are not mutually exclusive approaches but are based on different assumptions about the process of setting and achieving business goals. This study demonstrates that using the appropriate framework between effectuation and causation, depending on the goals and constraints of the decision, can lead to better performance.