The effectuation logic of new business entrepreneurs’ transition from owning an informal to a formal business

Abstract

In dealing with uncertainty inherent to entrepreneurship, the informal new business entrepreneur transitions to formality in an effort to grow, but little research has understood the behavioural decision-making logics used to transition to formality. Entrepreneurial theories such as effectuation are most suited to assist entrepreneurs in venture creation and transitions in the midst of uncertainty, particularly in the volatile South African context. This study explores the transition process of the informal new business entrepreneur through an effectuation behavioural decision-making logic lens. Through the use of 12 semi-structured interviews with transitioned new business informal entrepreneurs, data was gathered for the purposes of understanding the transition process. The study found that the transitioned entrepreneurs employs a hybrid approach of both causation and effectuation behavioural decision-making logic as a means to transition to formality. Although there is a hybrid approach to the decision-making, effectuation is still the dominant behavioural decision-making logic used by the transitioning entrepreneurs. The study contributes to understanding the transition process by providing a conceptual framework to guide private and public sector collaborations with informal entrepreneurs in an effort to assist the transition process by practically understanding the hybrid approach adopted by the entrepreneurs and increase the low entrepreneurship rates in South Africa.