Substantive and Instrumental Rationalities: Evidence from Startups

Abstract

This study aims to understand how substantive and instrumental rationalities emerge during the constitution stages of startups (pre-incubation and incubation). Inspired by Guerreiro Ramos’ call for empirical research that highlights alternative forms of rationality, the work underscores the relevance of Serva’s model (1997; Serva et al., 2015) in the scientific field. The study identifies a research gap regarding startups amidst the rise of new business models. Previous studies often overlooked distinct phases in organizational life cycles. Consequently, Robert Stake’s (2011) method was employed for multiple case studies, using semi-structured interviews as the main data collection tool. Data analysis was conducted using Bardin’s (1977) content analysis. The manifestations of substantive rationality were predominantly observed in the category of self-realization, evidenced through purpose during pre-incubation and through maturation and self-perception during incubation. In the understanding and consensus category, findings included agile horizontality in pre-incubation and team consensus during incubation. Finally, in the emancipation and autonomy category, flexible schedules were observed in pre-incubation, extending to flexible work hours and locations during incubation. This study contributes to expanding the empirical field of substantive and instrumental rationalities in market-oriented organizations across different stages.

Keywords:
Instrumental rationality; Substantive rationality; Startups

Resumo

A presente pesquisa visa compreender como se evidenciam as racionalidades substantiva e instrumental nos estágios de constituição das startups (pré-incubação e incubação). A partir do chamamento de Guerreiro Ramos para a realização de pesquisas empíricas evidenciando formas alternativas de racionalidades, verificou-se a relevância da utilização do modelo de Serva (1997) e Serva et al. (2015) no campo científico. Percebeu-se uma lacuna de investigação emstartups, por ocasião da ascensão dos novos modelos de negócios. Os estudos anteriores, em geral, não consideraram fases distintas da vida das organizações e, por isso, utilizou-se o método de Robert Stake (2011) para estudo de casos múltiplos. Como instrumento de coleta de dados, utilizou-se a entrevista com roteiro semiestruturado. A análise de dados foi realizada mediante análise de conteúdo de Bardin (1977). As principais manifestações da racionalidade substantiva se deram na categoria autorrealização, na pré-incubação através da evidência do propósito, e na incubação através do desejo de autorrealização, amadurecimento e autopercepção. Na categoria entendimento e consenso, no pré-incubação foi evidenciada através da horizontalidade ágil e na incubação, através do senso de equipe. Também na categoria emancipação e autonomia, no pré-incubação se evidenciou no horário flexível, enquanto na incubação se evidenciou na flexibilidade de horário e local de trabalho. A contribuição do trabalho se dá na ampliação do campo empírico da racionalidade substantiva e instrumental em organizações voltadas para o mercado em estágios distintos.

Palavras-chave:
Racionalidade instrumental; Racionalidade substantiva; Startups

Resumen

Este estudio tiene como objetivo comprender cómo se evidencian las racionalidades sustantivas e instrumentales durante las etapas de constitución de las startups (preincubación e incubación). Inspirado en la convocación de Guerreiro Ramos para realizar investigaciones empíricas que pongan de manifiesto formas alternativas de racionalidad, el trabajo destaca la relevancia del modelo de Serva (1997; Serva et al., 2015) en el campo científico. Se identificó una brecha en las investigaciones sobre startups en medio del auge de nuevos modelos de negocios. En general, los estudios anteriores no consideraron las fases distintas de la vida organizacional, por ello, se utilizó el método de Robert Stake (2011) para estudios de casos múltiples, empleando entrevistas semiestructuradas como principal herramienta de recolección de datos. El análisis de datos se llevó a cabo mediante el análisis de contenido de Bardin (1977). Las manifestaciones de la racionalidad sustantiva se observaron principalmente en la categoría de autorrealización, evidenciadas a través del propósito en la preincubación y mediante la maduración y autopercepción en la incubación. En la categoría de entendimiento y consenso, en la preincubación, se evidenció a través de la horizontalidad ágil, y en la incubación, a través del sentido de equipo. Finalmente, en la categoría de emancipación y autonomía, en la preincubación, se evidenció en el horario flexible, mientras que en la incubación se evidenció en la flexibilidad de horario y lugar de trabajo. Este estudio contribuye a expandir el campo empírico de las racionalidades sustantivas e instrumentales en organizaciones orientadas al mercado en diferentes etapas.

Palabras clave:
Racionalidad instrumental; Racionalidad substantiva; Startups

INTRODUCTION

Organizational theory consolidates through the observation of its object of study in contexts such as production, structure, decision-making, systems, contingency, ecosystems, networks, institutions, resources, and capabilities. At the same time, it provides an opportunity to reflect on the meaning and motivations behind actions within organizations, creating space for discussions about individuals’ emancipatory and autonomous values (Serva, 2015). In this regard, as noted by Serva (2023), critically oriented studies grounded in philosophical and sociological pragmatism contribute to organizational theory by emphasizing collective action, the pursuit of justice, and social transformation. These studies thus form a reflective and critical approach, making them both relevant and innovative.

From this perspective, this study examines the manifestations of instrumental and substantive rationalities in startups. This inquiry responds to the call for research on substantive rationality initiated by Serva (1997) and Serva et al. (2015), following their review of rationality studies in the Brazilian organizational context. The study is theoretically grounded in the tradition of research on organizational rationalities initiated by Ramos (1989) and continued by Serva (1997) and Serva et al. (2015), whose work empirically demonstrates the presence of both substantive and instrumental rationalities within a critical framework (Serva, 2023).

Startups were chosen as the empirical field for this research due to their increasing prominence in technology-based economic activities. Commonly located in science and technology parks—often within incubation or acceleration programs—startups occupy a significant position in academic, business, and media discussions. An examination of international databases¹ revealed a lack of specific studies addressing substantive rationality in the context of startups.

Although the dominant scientific literature on startups largely adopts a functionalist perspective, it is important to create space for alternative approaches. This stance enables a renewed exploration of the meaning of work within new and emerging organizational models.

While substantive rationality offers a framework for reflecting on alternative work and career trajectories, there is a growing emphasis on entrepreneurial protagonism through the institutionalization of the startup model. Therefore, it is crucial to empirically investigate whether startups show signs of emancipation and self-actualization, or whether these ideals are in conflict with instrumental rationality.

Against this backdrop, the central research question guiding this study is: How are rationalities (substantive/instrumental) demonstrated in the pre-incubation and incubation stages of startups?

INSTRUMENTAL AND SUBSTANTIVE RATIONALITIES AND STARTUPS

Substantive rationality provides individuals with a reflective connection to internalized values, principles, and purposes. For Weber (1999), human beings are responsible for establishing the meaning of their social actions and their consequences. In contrast, instrumental rationality does not allow for adequate reflection on the value considerations necessary for action in the modern world. Substantive rationality enables individuals to move beyond compartmentalized decision-making and exercise ethical judgment across all areas of life affected by their actions (or inaction). In this sense, substantive rationality may replace religion for postmodern individuals in guiding their social, economic, interpersonal, and organizational conduct (Kalberg, 1980).

By employing substantive rationality, individuals gain control over their lives in pursuit of self-actualization and personal development. This, in turn, promotes engagement in organizational and societal advancement (Lima et al., 2015). It is important to emphasize that rationalities do not exist in isolation in the real world; social systems are always mixed. For Salm and Menegasso (2015), there is an interconnection between instrumental and substantive rationalities, which is especially evident in productive organizations and new business models. However, because it prioritizes ethical, moral, and political considerations in organizational practices, substantive rationality aligns with the pragmatist approach rooted in philosophical and sociological pragmatism, as outlined by (Serva, 2023).

A study conducted with three companies in Salvador, Bahia, empirically tested and developed a scale to measure the intensity of substantive rationality. Complementing this theme, the study builds on Habermas’s theory of communicative action and demonstrates how instrumental and substantive rationalities can be practically implemented (Serva, 1997). The main findings are presented in an analytical model—addressed in this article—that identifies evidence of both rationalities within organizations, including productive enterprises.

In the literature on startups, several studies touch on the theme of rationality, including: decision-making associated with rationality (Gong, 2015; Ilonen et al., 2018); cognitive representations (Baumann et al., 2019); rationality and sustainable development (Kallio et al., 2007); institutional environments of new business models (Gstraunthaler, 2010); decision-making in planning and development (Lin et al., 2010); co-creation (Ferguson et al., 2016); socialization in incubators (Nijssen & van der Borgh, 2017); private ecosystems (David-West et al., 2018); technocratic rationality (Perng et al., 2018); passion versus precariousness (Styhre & Norbäck, 2019); emancipatory voice (Gülenç & Aritürk, 2016); women in startups (Kuschel et al., 2017); identity theory (Gruber & MacMillan, 2017); the “billionaire persona” (Maia, 2019); language (Roundy & Asllani, 2019); bounded rationality (Cohen et al., 2018); behavioral rationality (Chu et al., 2022); cognitive rationality (Berglund, 2015; Chatfield, 2009; Datta et al., 2020; Ferguson et al., 2016; Lowe & Ziedonis, 2006); general rationality (Pollio, 2020; Ramesh, 2019); instrumental rationality (English-Lueck & Avery, 2017; Gruber & MacMillan, 2017); substantive rationality related to sustainable development (Kallio et al., 2007; Bolis et al., 2021); study of routine in startups (Mariano & Casey, 2016); and entrepreneurship effectuation (Wiltbank & Sarasvathy, 2010).

Studies conducted in Brazil were grouped by organization type. In nonprofit organizations, relevant works included studies on equality in civil society organizations management (Souza & Lins, 2009); the heterogeneity of rationalities in the nonprofit sector (Barros & Santos, 2010); and the presence of substantive rationality in women-led nonprofits (Figueiredo & Dellagnelo, 2011). Finally, Sabioni, Ferreira, and Reis (2018) examined the organization Çarakura Institute, exploring the complementarity of rationalities in motivational processes.

Studies exploring rural contexts addressed the characterization of Ecocitrus as a highly substantive organization (Severo & Pedrozo, 2012); the Brazilian Forest Code as lacking substantive rationality (Camargo & Rodrigues, 2018); the significant role of affective relationships and traditional practices in organizing, which are associated with the substantive nature of social relations (Boehs & Seifert, 2020); agroforestry practices aimed at food security, income generation, and agroecosystem conservation (Henzel et al., 2021); the family farming unit that facilitates economic exchanges from production on small properties (Ramos & Silva, 2022); the predominance of management processes characterized by substantive rationality, reflecting traces of emancipatory practices of human beings in the production sphere of ecovillages (Tres & Souza, 2022); and rationalities in the decision-making of alfalfa producers (Barros et al., 2022).

Research on substantive rationality also covered associations, cooperatives, community groups, churches, and yoga networks, examining: the influence of substantive rationality in the constitution of a production chain within an association working with recyclable materials (Silva et al., 2009); the impact of substantive rationality on the emergence of emancipatory values, autonomy, ethical understanding, and self-actualization in popular cooperatives (Cançado et al.; Matarazzo & Boeira, 2016); the role of instrumental rationality in survival strategies and substantive rationality in ethical-aesthetic values in a theater group (Souza & Carrieri, 2014); the study and debate of different rationalities in cooperatives (Zwick & Pereira, 2013); the tensions of human life associated with traditional communities in Faxinais, a territory in the Brazilian state of Paraná (Silva et al., 2015); the drivers of substantive rationality in technological cooperation networks (Mineiro et al., 2019); the tensions between instrumental and substantive rationalities in a cultural organization (Associação Amigos da Cultura) (Delgado, 2018); and the complementarity of substantive rationality and communicative action in an evangelical church (Cavalcanti & Cavalcante, 2020).

Substantive rationality was also examined in various other organizational contexts: companies (Serva, 1997); professional identity (Lima et al., 2004); people management under substantive rationality as a driver of human potential (Loch & Correia, 2004); foundations of social management according to Robert Owen’s analysis (Souza & Oliveira, 2006); psychiatric institutions (Vizeu, 2006); solidarity economy (Dias & Souza, 2014; Medeiros & Souza, 2011; Soares et al., 2020); oncology care (Silva & Fernandes, 2011); instrumental and substantive conceptions of the media about the 2016 Olympics (Silva et al., 2011); corporate governance (Jacometti, 2012); the professionalization of large family businesses (Muzzio, 2012); dismissals (Margoto et al., 2014); organizational climate (Lima et al., 2015); transaction cost theory (Gouveia & Conti, 2015); social management training (Salm & Menegasso, 2015); higher education institutions (Alves & Adamoglu, 2019); the “parenthetical man” in social sciences (Santos, Serafim, & Pinheiro, 2019); tactical-level administrative practices (Silva & Lins, 2019); public procurement (Cardoso & Mueller, 2020); forensic accounting (Santos & Hein, 2020); accounting narratives and corporate reporting (Cruz et al.); and logistics (Massi & Araújo, 2021). Despite the variety of contexts studied, there is a notable research gap regarding startups, particularly as new business models. Moreover, existing studies rarely consider the different life-cycle phases of organizations. Among the available models, the most widely accepted framework for analyzing instrumental and substantive rationalities remains that of Serva (1997), as shown in Table 1.

Table 1
Substantive vs. instrumental action

Substantive action	Instrumental action
Self-actualization	Purpose
Understanding	Resource maximization
Ethical judgment	Success/results
Authenticity	Performance
Emancipatory values	Utility
Autonomy	Profitability

• Source: Serva (1997).

Startup

Faced with the challenges of disruptive innovation, large companies have sought alternatives to engage more closely with startup communities, investing in internal and external incubators and accelerators to boost innovation. As a result, they have begun to use external spaces in technology parks and private innovation hubs to detach from traditional structures and gain the freedom to develop new products and services, leveraging their previously accumulated knowledge (David-West et al., 2018).

The innovation process can be understood on two levels: one based on continuous interaction between research, technology development, application development, validation, and practical use; and the other as collaboration at the territorial level, driven by urban and regional development policies (Husar & Ondrejicka, 2019). In this context, startups are frequently hosted in technology and innovation centers, where they undergo incubation and/or acceleration.

A startup is defined as “a human institution designed to create new products and services under conditions of extreme uncertainty” (Ries, 2012). Similarly, Blank and Dorf (2012) describe it as “a temporary organization in search of a scalable, repeatable, and profitable business model.” As a temporary organization, a startup has a limited lifespan, placing it in a state of intermediate existence.

There is no consensus on the time required to build a scalable and successful startup, as this process varies widely. However, Blank and Dorf (2012) estimate that it typically takes between 6 and 30 months. Many startups begin by seeking support to develop their ideas, with incubators serving as a key resource. Since the late 1990s, incubators have become more common, initially conceived as spaces that nurture fragile ideas - an analogy drawn from the biological care given to plants or living beings requiring specialized, frequent, and careful attention (Maia, 2019).

Accelerators, now more widespread than incubators, may also organize themselves into networks that optimize the flow of information, including at the international level, thereby strengthening startups (Sarmento et al., 2016; Cohen et al., 2018; Kuschel et al., 2017; Nijssen & van der Borgh, 2017). To expedite investment during this stage, startup investors - often referred to as “angels” in startup culture - serve as key sources of funding. These investors are typically organized and provide capital in stages or rounds, with subsequent investments tied to the achievement of tangible goals (Maia, 2019; Blank & Dorf, 2012).

Effective entrepreneurs do not hesitate to pivot when they recognize flaws in their original assumptions (Blank & Dorf, 2012; Bouncken et al., 2018). To fully understand the stages of startup creation, it is crucial to acknowledge that a startup is not merely a smaller version of a large company; it is a distinct type of organization.

Regarding scientific studies on rationalities in startups, most are grounded in a functionalist perspective. Examples include research on the cognitive bias of over-optimism (Lowe & Ziedonis, 2006); the history of incubators (Gstraunthaler, 2010); bounded rationality in accelerators (Cohen et al., 2018); and the conceptual origins of startups based on the resource-based view (David-West et al., 2018). However, studies adopting a critical perspective have also been identified, such as critiques of technology through Heidegger’s lens (Gülenç & Aritürk, 2016); studies on financing for female startup entrepreneurs (Kuschel et al., 2017); anthropological critiques of startup culture (English-Lueck & Avery, 2017); and examinations of precarious labor practices in hackathons (Perng et al., 2018).

METHODOLOGICAL PROCEDURES

Ontology concerns the understanding of how things exist, supporting the delimitation of research and assisting in both the epistemological choice and the selection of the appropriate method. In an idealist (subjectivist) ontology, an object only comes into existence when it is perceived by the observer. Accordingly, social reality is understood as a product of negotiated interactions and shared meanings among individuals. Regarding research paradigms, this study aligns with the interpretivist paradigm (Saccol, 2007).

Regarding the technical procedure, the case study method was chosen, following Stake (2007, 2011). The categories of analysis were defined based on the need to address the research problem: a) Substantive rationality (self-actualization, understanding/consensus, emancipation/autonomy); b) Instrumental rationality (purpose, resource maximization, success/results). Both categories were considered in the pre-incubation and incubation phases, as they reflect the dimensions in which evidence was found in the results, using the model developed by Serva (1997) as a reference.

The study included 14 startup entrepreneurs from incubators affiliated with two community universities located in two states in southern Brazil. Most participants were white men aged 18 to 46, with educational backgrounds ranging from high school to doctoral degrees. To ensure anonymity, neither the incubators nor the participants were named. Access to the entrepreneurs was mediated by incubator staff, who contacted the incubated individuals to assess their willingness to participate in the study via semi-structured interviews.

With the participants’ consent, the interviews were scheduled, and data collection was conducted. Initial contact revealed that many entrepreneurs were situated in different cities and operated from various physical locations. Consequently, and at the suggestion of several participants, the interviews were conducted remotely via Google Meet. Given the ongoing COVID-19 pandemic and the prevalence of infection cases at the time, this format was maintained throughout the study.

With consent, the interviews were recorded using Google Meet, and the digital files were subsequently stored on two external hard drives and in Google Drive. Since the interviews followed a semi-structured script, only guiding questions were posed, such as: a) “Tell me about your journey to becoming a startup entrepreneur...”; b) “What led you to create a startup?”; c) “What were your expectations regarding incubation and/or acceleration?”; d) “How did the process begin?”; e) “What stage are you at today? What has changed?” Additional questions were asked as needed to explore the meanings participants attributed to working in a startup.

Based on the responses, the aim was to uncover the meanings revealed through their narratives. The recorded interviews (387 minutes) were transcribed into Microsoft Word documents (151 pages), then analyzed and categorized. The next section discusses the findings.

For the interpretation and content analysis, the study adhered to the guidelines laid out by Bardin (1977, p. 65), specifically Chapter 3 of his book, which addresses the analysis of research interviews and the interviewee’s relationship with the object examined. The analysis material comprised interview transcripts, including both text and audiovisual data. Once transcribed, the interviews were categorized and separated into pre-incubation and incubation phases.

PRESENTATION AND DISCUSSION OF RESULTS

Self-actualization versus purpose

Pre-incubation

In the pre-incubation phase, aspects of instrumental rationality were explicitly highlighted, particularly the need to generate financial returns to fulfill the startup’s purpose. At the same time, there was a clear effort to conciliate these practical concerns with elements of substantive rationality, especially the pursuit of self-actualization.

Instrumental rationality was primarily evident in the scarcity of resources, as reflected in the following statements: “So it was really tough at that time too. I worked late and woke up early.” (Interviewee A); “We’re not a nonprofit, so we have to make money. And just for a company to operate, to be able to hire and gather people, you need money. [...] I spent four years just putting money in without earning a cent.” (Interviewee B); “In the beginning, we spent a lot of money because it was easy for us to create a single website. [...] But mass production requires a lot of money.” (Interviewee C).

Regarding substantive rationality, the pre-incubation phase revealed a strong desire to pursue a meaningful purpose, often associated with greater autonomy and freedom, conditions lacking in previous professional experiences. The following statements illustrate this perspective: “Our focus from the beginning was to do something that would change the farmer’s life” (Interviewee B); “I decided to leave my job to start a business with a purpose, a meaningful work. I felt that what I was doing before wasn’t relevant” (Interviewee E); “I always saw things in other companies that I really disliked. I had no control. [...] Here, we have that autonomy” (Interviewee G); “It’s about self-actualization. Of course, the financial aspect is also very important, but it was more about self-actualization” (Interviewee K).

Incubation

The incubation phase provides evidence of substantive rationality concerning self-actualization. However, there was no indication of whether the interviewees find the financial return (instrumental rationality) satisfactory or rewarding. Narratives were detected attempting to reconcile substantive and instrumental rationalities, i.e., self-actualization and financial returns.

Examples of such narratives include: “Now I believe that making money is closely linked to self-actualization. So in our business, self-actualization will be achieved if we make money” (Interviewee K); “It’s about a financial security because there were months when I worked more with photography and others when I worked less. But it’s more about fulfillment” (Interviewee N).

Within the category of self-actualization versus purpose, some statements express a self-perceived sense of maturity that emerges during the incubation phase, reflecting the ongoing conciliation of substantive and instrumental rationalities: “We have a much greater knowledge of what this self-actualization represents; we have experienced professional maturity, financial progress, and everything else” (Interviewee D); “If we look at the before and after, we have matured a lot, we have learned a lot. And we continue with the same determination we had at the beginning” (Interviewee E); “Look, we are no longer IT kids; we have to behave and conduct ourselves now as entrepreneurs and understand that this new positioning says a lot about the company in the market” (Interviewee F).

Instrumental rationality was more explicitly present during the pre-incubation phase. As the incubation phase progresses, it becomes more conciliatory toward the interests of substantive rationality. This phase reveals evidence aligned with the category of self-actualization versus purpose, along with narratives of conciliation between substantive and instrumental rationalities, suggesting a growing self-awareness and organizational maturity.

Understanding and consensus versus resource maximization

Pre-incubation

The category of analysis “understanding and consensus versus resource maximization,” like the other categories in the pre-incubation phase, is marked by evidence of instrumental rationality, particularly due to the need to make the personal and professional project viable. Nonetheless, there is abundant evidence of efforts to conciliate substantive and instrumental rationalities. This category also provides significant insights into the process of forming the team that will be part of the startup.

In analyzing this category during the pre-incubation phase, three specific aspects required separate attention: agile horizontality, part-time work, and divergence in remuneration.

Regarding the first aspect, agile horizontality, it became clear that collaborative arrangements are crucial during pre-incubation, as this is the phase in which the team configuration is defined. Some interviewees expressed an understanding that supports this idea: “We work on a sort of horizontal scale, and when we work like this, we use the agile approach a lot” (Interviewee B).

“When we started, one of the things encouraged in the pre-incubation phase was to draw up a memorandum of understanding [...]. So we set expectations, and it was decided that everything related to development itself, programming, was up to him, and the rest was up to me” (Interviewee K).

“We never stretched it out [...] if my agreement is lower than that of the other two, or if the agreement of one of the other two is lower than mine, we set the benchmark - whichever gives the highest agreement is what we follow” (Interviewee F).

The pre-incubation phase also revealed that some startup members were simultaneously engaged in other professional activities, delaying their full-time commitment until the project could offer sufficient financial return: “In the issue with [Person X] there, in the beginning, [Person Y] was not an effective partner, he worked more as a consultant” (Interviewee A); “I work more actively, and my partner works in a company that bank X bought” (Interviewee K).

At this stage, in addition to defining the division of tasks, negotiations over remuneration or equity distribution were common. The interviews reveal some tensions around expectations - particularly from developers - regarding financial compensation: “If today 30 thousand is a lot, then imagine back then...” (Interviewee A); “[...] but two of them had the idea of working to make money, and one didn’t [...] the relationship broke down, and we stopped” (Interviewee B).

Incubation

During the incubation phase, substantive rationality prevails, as seen in the maturation of efforts toward understanding and consensus. However, there is evidence of attempts to conciliate the need to maximize results (instrumental rationality), where substantive rationality takes precedence over the instrumental.

Team

Regarding evidence of substantive rationality in the form of understanding and consensus, it is generally clear that three individuals are responsible for making the key decisions in the startup: “Since the team is small, we can have very close contact, so when a demand or a job comes up, everyone, the three who are most involved, has access to the process” (Interviewee N). However, decision-making within a trio may also result in two members outvoting the third: “We have good conversations [interviewee J and person X] when we have to resolve something and present it to [person Y]; he [person Y] always goes for something else. [Person X] and I are in favor, and he [person Y] is always against it” (Interviewee J).

The team members’ skills and competencies seem to complement each other, enhancing task performance: “I think it was a good thing that they were together because we think a lot alike, but we have our differences” (Interviewee A). There is also clear evidence of a self-perception of increased maturity during the incubation phase: “I think it’s the same issue; we are more mature, we have a better rapport today because we have been working together for a few years” (Interviewee E).

Another aspect that stands out is the emphasis on understanding and consensus regarding teamwork and work arrangements. In most startups, the team does not always work together in the same physical space, a finding consistent with earlier evidence under the category of emancipation/autonomy.

There is also evidence of a self-perceived need to improve teamwork. While some startups function effectively as teams, one member often assumes a more active role and greater responsibility: “I am the one who takes care of the company the most. I am more involved in the administration and business acquisition. We even had a meeting with them today, and they are willing - they say they will help more” (Interviewee L).

Goals

Regarding evidence of instrumental rationality related to results maximization, statements were identified that support efforts to reconcile understanding and consensus with the pursuit of results, particularly concerning the startup’s goals during the incubation phase. As Interviewee H explained: “We have weekly meetings […] with more strategic discussions. But I think that today, we are in a moment much more focused on goals, results, etc...” Interviewee M, on the other hand, expressed a different approach to goal-setting: “We don’t set goals like that... Especially because it is very exhausting to set a goal and stay focused. So we always try to get the best result and improve more and more.”

Emancipation and autonomy versus profitability

Pre-incubation

During the pre-incubation period, when analyzing the category of emancipation and autonomy versus profitability, evidence of instrumental rationality (profitability) was more explicit, appearing to be associated with the need to validate the business idea to ensure the startup’s viability. For example: “We wanted to be able to do something easy first because otherwise, it is closer to (failure) than to success. We found success along the way, but it is easy to grow when you already have such stability” (Interviewee F).

Instrumental rationality (profitability) also appeared in conjunction with substantive rationality (emancipation/autonomy) in statements that sought to justify a conciliation between the two rationalities. This is evident in Interviewee B’s comment: “We need to make money so that we can give back to society [...] that way we can hire, have a better team, create more products, always think about innovation.”

Substantive rationality (emancipation/autonomy) was primarily evidenced in the entrepreneurs’ desire to work in environments with greater flexibility in terms of hours and organizational structure: “[...] when I opened my first CNPJ [Brazilian tax identification number for legal entities], in this case [...]. I left the company I was working for to earn less, precisely because I wanted this freedom, this autonomy, like I have now. It was always about autonomy, mainly autonomy, flexible hours, having your own business” (Interviewee G); “It depended a lot on approval and convincing people who often have a very conservative identity; it’s a little more complicated” (Interviewee K).

Tensions between substantive and instrumental rationalities emerged in the contrast between the desire to be an entrepreneur and the burden of indefinite time investment required during the pre-incubation phase. These tensions were linked to the small structure of the startup and the necessity of taking on numerous administrative tasks.

There is clear evidence of substantive rationality in the association between flexible working hours and the pursuit of emancipation and autonomy. However, at this stage, the desire to take on the role of entrepreneur and business owner does not seem to be hindered by concerns about working overtime, which are often justified by the expectation of future success.

Incubation

During the incubation period, the interviewees’ statements revealed even more explicit evidence of substantive rationality (emancipation/autonomy), particularly in relation to the flexibility offered by the work format. At the same time, attempts to conciliate substantive and instrumental rationalities (profitability) were also evident.

Flexibility

Aspects of substantive rationality (emancipation/autonomy) related to work flexibility became evident during the incubation phase. Several interviewees provided statements that support this observation. For example, Interviewee M noted: “We are in a region where remote work, this freer way of working, is not so popular. But now things are changing a lot, and since it is an innovation, people want to have more of it [remote work].”

In addition to the novelty of this work format, the appeal of a flexible schedule was also emphasized. Interviewee I stated: “Working at a startup is about the flexible schedule, and that makes things much easier. I wouldn’t say I have an excellent quality of life, but my workflow is lighter.” He further explained how he adapted his work routine: “Now, if I want to wake up at six in the morning and work at the startup, or if I need to work until two in the morning, I do. Because it’s that feeling of working for something that is yours, that you’re part of.” The issue of flexible working hours also emerged in Interviewee N’s remarks: “What counts the most for us today is the working hours. We can’t work with fixed hours or even five or six hours like a regular business day.”

Another related factor was the workplace itself. In many startups, team members do not share a common physical location. This flexibility, especially for those in software development, allows them to work from a variety of locations, often while earning higher salaries than the entrepreneurs themselves. Interviewee P highlighted this point: “Since we have part of the team working from home and not even living here in Santa Catarina [Brazilian state], the issue of working hours is what I most avoid in regular management.”

Thus, the primary evidence of substantive rationality (emancipation/autonomy) in the incubation phase lies in the perception of work flexibility. The interviews suggest that the value of working longer hours is linked to the sense of ownership and personal investment in the business, unlike traditional employment, where such effort might not yield the same personal return.

Conciliation between rationalities

Evidence of substantive rationalities (emancipation/autonomy) versus instrumental rationality (profitability) also emerged in several testimonies, particularly in those that attempt to conciliate these rationalities. After acknowledging the need to invest time before reaping results, Interviewee B stated: “But we entrepreneurs cannot just think about this profitability, because we know that we are investing and working so that in the future we can generate our financial resources.” The testimony suggests a connection between commitment and dedication, implying that emancipation and financial autonomy will eventually stem from future profitability. He adds: “But we are aligned with our purpose; there is something we want to create. If we can’t make it work? That’s okay. It’s a learning experience. You will focus, work, create a product - in short, you will somehow readapt.”

Another statement reflecting the attempt to conciliate effort and dedication with an emancipated and autonomous work model in the startup context was also offered by Interviewee B: “In the beginning, we couldn’t pay our people, our team, much, right? But they invested in the project. So they knew that as the company grew, they would grow together.” While this indicates a conciliatory narrative, it also raises a potential contradiction: Is the startup profitable today? This evidence could not be confirmed by the interviews. Only one participant explicitly mentioned a significant increase in profitability. However, it is worth noting that entrepreneurs with more experience in the startup ecosystem appear more willing to endure fluctuations in profitability.

Interviewee C shared that while working at a previous mobile app startup, he earned over BRL 20,000 per month - substantially more than he is earning at his current startup. Nonetheless, he is transitioning to a third startup, which he believes has strong revenue potential. His testimony reflects the nature of the startup environment: although uncertain, it offers opportunities that contrast with the predictability and stability of a traditional career path. This illustrates an ongoing conciliation between substantive rationalities (emancipation/autonomy) and instrumental rationality (profitability), where the financial results of startup ventures ultimately serve as vehicles for achieving emancipation and the autonomy often unattainable in conventional jobs and careers.

Profitability

Regarding evidence of instrumental rationality (profitability), only one statement stood out as particularly strong and exclusively aligned with this rationality, without any indication of conciliation with substantive rationality (emancipation/autonomy) during the incubation phase. Coincidentally, it came from the startup entrepreneur, who explicitly stated that the venture is currently highly profitable:

The current stage is very promising, very promising. The company is already in a position to invest in itself, which it has already done, and from now on, the company’s profitability will be very high. We are conducting research and restarting the process of structuring our human resources. We need people, and until now, this has been handled by the partners themselves” (Interviewee F).

During the incubation phase, the category of analysis emancipation/autonomy versus profitability was more clearly evidenced through expressions of substantive rationality (emancipation/autonomy) than in the pre-incubation phase. However, this evidence primarily emerged through perceptions of flexibility, particularly in terms of work arrangements and schedule autonomy. Table 2 presents a summary of the results obtained.

Table 2
Summary of the results

Startups
Categories	Pre-incubation			Incubation			Categories
	Substantive rationality	Tension/ Concilitation	Instrumental rationality	Substantive rationality	Tension/ Conciliation	Instrumental rationality
Self-actualization	Purpose		Need for financial return	Desire for self-actualization	Self-actualization vs financial return	Satisfactory return	Purpose
				Maturing
	Search for autonomy		Scarce resources	Self-perception
Understanding and consensus	Agil horizontality	Part-time work		Team		Goals	Resource maximization
		Divergence in remuneration
Emancipation and autonomy	Flexible working hours	Revenues vs Retribution to society	Desire for financial security	Flexible working hours	Investment of time for future returns	Profitability	Profitability
		Conflict between my role as a manager and my role as a programmer		Physical mobility (remote work)	Make profits to achieve dreams
					Work more vs precariousness

• Source: Research data.

Discussion of results

A discrepancy emerges between the literature on startups and the empirical findings, particularly regarding the prominence of substantive rationality as the driving force behind pursuing a new business model during the pre-incubation phase. At this stage, instrumental rationality is more closely associated with concerns about the origin of resources and the allocation of extra working hours, as many interviewees were still engaged in professional activities and/or employed by other companies.

According to Ramos (1989), substantive rationality is an inherent attribute of human beings, rooted in the psyche. Moreover, studies by Serva (1997) and Serva et al. (2015) conclude that individuals’ decision-making is guided by the pursuit of self-actualization and emancipation, harmonized with social satisfaction, while respecting others’ rights to do the same. In this sense, the search for self-actualization among young entrepreneurs has intensified as they find shared aspirations for emancipation in their partnerships and the possibilities presented by the startup model.

However, stronger evidence of attempts to reconcile the two rationalities seems to emerge during the incubation phase. As the initial financial results begin to support the new working model, entrepreneurs often abandon their previous professional activities and fully commit to the new venture. Still, most do not report that their startups have achieved a satisfactory alignment between the value proposition and customer or user needs. This alignment would constitute the startup’s core purpose.

Lima et al. (2004) recognize that, while instrumental rationality imposes routines and knowledge fragmentation, the spaces carved out by substantive rationality in constructing self-actualized professional identities remain undeniable. These identities often prompt individuals to rethink their ideological relationship with work. In this regard, the interviewed entrepreneurs clearly demonstrate the influence of substantive rationality on their professional identities.

The paradox of emancipatory decision-making in pursuit of organizational self-actualization creates a fertile ground for observing the tensions between substantive and instrumental rationalities. On the one hand, substantive rationality represents a libertarian political rationale (Fernandes & Ponchirolli, 2011); on the other, individuals are compelled to make decisions that carry broader social and economic consequences (Ramos, 1989). This pursuit of freedom influenced the choices made by the startup entrepreneurs interviewed.

Margoto et al. (2014) present findings based on the life stories of five individuals who voluntarily left their jobs in search of a new lifestyle, marked by decisions closely aligned with Ramos’s (1989) notion of the “parenthetical man.” Similarly, this study identified individuals who decided to transform their lives by leaving behind previous professional roles to pursue work that resonated more deeply with their personal and professional values.

This alignment with what is defined as their purpose (instrumental rationality) contrasts with the dominant definition of startups in the literature, as transitional organizations created to operate in highly unstable and uncertain environments, with the goal of being scalable and repeatable (Ries, 2012). In practice, however, most entrepreneurs interviewed appeared to view themselves more as tenants within the incubator, awaiting sufficient financial returns to sustain continued growth, expand their teams, and preserve a flexible work format. This perspective resembles a conventional business growth trajectory rather than the exponential growth typically associated with startups - businesses designed for acquisition, merger, or financial exit, enabling a transition to the next entrepreneurial venture.

There is an impression that deep involvement, dedication, and overcoming challenges foster a sense of identity and belonging. The attempt to reconcile the tension between substantive rationality (self-actualization), manifested through the satisfaction of experiencing freedom, and instrumental rationality (purpose), evidenced by the desire for business growth, though not excessive, diverges from the purpose for which new business models were originally conceived, according to the literature.

Tensions between substantive rationality (understanding and consensus) and instrumental rationality (resource maximization) were particularly evident during pre-incubation. These tensions are mainly related to the need for team members to reconcile their engagement in the new venture with other professional commitments or to plan for the business financially. This stage was characterized by a conflict between the desire to work full-time in a more horizontal and meaningful environment and the financial necessity of covering basic expenses. It demanded extensive negotiation, constant dialogue, and often exhausting working hours.

The reality of this situation became especially apparent for professionals in the technology sector, who could potentially earn less by choosing entrepreneurship, despite continually increasing salaries in conventional companies. In addition, the conveniences of remote work allow IT developers to work comfortably from any location. In contrast, entrepreneurs leading new ventures must often be physically present, assuming the administrative and bureaucratic burdens inherent in starting a business.

These findings align with those of Serva et al. (2015), who attribute to managers the capacity to navigate the tension between substantive and instrumental rationalities, depending on the specific dynamics of each organization. In this context, startups, marked by less rigid hierarchies and more horizontal structures, emerge as environments that accommodate substantive rationality, while still acknowledging the constraints of instrumental rationality.

During the incubation phase, tensions between substantive rationality (understanding and consensus) and instrumental rationality (resource maximization) became especially evident in the team formation process. At this stage, interaction with clients and/or users, as well as investors, intensifies. Work transitions from an aspirational concept to a concrete reality. The business idea must be validated for the startup to be sustainable. Tasks are allocated based on individual characteristics, skills, and competencies. However, due to the small size of the team, not all assignments fully align with the preferences of those responsible for them. For example, in-person meetings become necessary - even in hybrid work models (which most startups adopt) - to ensure proper alignment and evaluation.

According to Cavalcanti and Cavalcante (2020), the tension between collective action and managerial oversight tends to be minimized when a high degree of substantive rationality is present in decision-making, as it fosters ideological alignment and promotes actions geared toward mutual understanding. Although their study was conducted within a religious congregation, making it inadvisable to generalize their conclusions indiscriminately, the insight remains relevant. It is important to emphasize that young startup entrepreneurs can, in a way, be seen as evangelists of new business models. They tend to share similar ideological values, which in turn reinforce substantive rationality, particularly in relation to the more horizontal and interactive forms of work, as observed in this study.

Tenório (2000) highlights Habermas’ objective of developing a theory that fosters a social praxis grounded in reflective knowledge and a political praxis that challenges existing social, political, and economic structures - in other words, a theory that guards against dogmatism and seeks the emancipation of the subject. In this regard, startups face the challenge of achieving social emancipation, particularly when they remain bound by the constraints of the market economy. Despite this, they can still present themselves as alternatives to rigid, hierarchical, and traditional organizational structures.

The tension between substantive rationality (emancipation/autonomy) and profitability was similarly present during both the pre-incubation and incubation phases. Moreover, the interviewees’ understanding of emancipation and autonomy was largely associated with flexible working hours and the freedom to choose their work location. Paradoxically, although most entrepreneurs reported feeling more autonomous in terms of when and where they work, few indicated that their businesses were yet profitable. Nonetheless, participation in public calls for proposals and fundraising from investors was frequent, as part of efforts to grow their customer and/or user base.

Serva and Andion (2020), in their study of the Ecovida Agroecology Network’s certification system, introduced the category of social autonomy. Although that study focused on autonomy in an individual context, it highlights the importance of examining autonomy in the organizational realm as well. Accordingly, pursuing further research on startups from this perspective would be fruitful.

Even typically substantive organizations, such as the ecovillages studied by Tres and Souza (2022), face conflicts, dilemmas, and contradictions in their administrative practices. These challenges are arguably more pronounced in startups, which are born with the explicit aim of operating within the market economy. Nevertheless, despite their differences from ecovillages, startups also contain latent spaces for the expression of substantive rationality.

Serva et al. (2015), in reviewing field research on nonprofit organizations, found that even entities with a social mission exhibit evidence of instrumental rationality. Similarly, when analyzing startups, which are explicitly designed to meet the demands of the market economy, abundant evidence of substantive rationality can also be observed. This suggests that both substantive and instrumental rationalities are present in organizations, regardless of whether their primary focus is social impact or market performance.

Although previous studies by Serva et al. (2015) and Faria et al. (2021) have focused on organizations at a single stage of development, it is now clear that tensions between rationalities exist across different phases of a startup’s lifecycle. Furthermore, because substantive rationality emphasizes ethical, moral, and political considerations in organizational practices, it aligns with the pragmatist approach based on philosophical and sociological pragmatism as presented (Serva, 2023). This perspective can influence organizational practices across various contexts, offering valuable insights into the understanding and transformation of organizational behavior in Brazil, including within startups.

FINAL CONSIDERATIONS

The research identified evidence of both substantive and instrumental rationalities in the startups investigated. It found that this emerging model of (transitory) organizations also presents statements that reflect considerations aligned with the elements of substantive and instrumental rationality, as outlined by Guerreiro Ramos and later developed (Serva, 1997, 2023; Serva et al., 2015).

Among all the evidence gathered, the most prominent was the entrepreneurs’ desire for flexibility in how they work (without hierarchical structures) and their working hours. For the most part, entrepreneurs did not indicate whether working more was financially worthwhile, although they expressed expectations of future rewards. At the same time, they reported feeling much more comfortable with their current work arrangements.

This finding suggests the potential for future studies with this group of entrepreneurs to explore how they come to understand the consequences of their activities in relation to the analytical categories examined in this study. Investigating whether this new business model continues to reflect the interplay and tensions between substantive and instrumental rationalities would be especially relevant. Another important avenue for future research is the actual engagement of startup entrepreneurs with the knowledge produced by their respective higher education institutions. At this stage, it appears that incubation often functions more like renting office space than fostering academic or scientific collaboration.

Regarding the limitations of this study, there are several points to note. Initially, the intention was to conduct the research within a single science and technology park, where the startups had undergone a complete incubation process. However, the data collection period coincided with a change in the university’s administration, which delayed the admission of new startups and jeopardized the study’s completion. Consequently, it became necessary to include other incubators, some of which housed ventures that had not participated in the pre-incubation phase. As a result, only a limited number of startups included in the study had experienced both pre-incubation and incubation stages.

Another limitation is that most data were collected through remote interviews, which were the preferred format for most participants. In face-to-face interviews, it became clear that the available spaces were generally small and not conducive to private conversations—everything said could be overheard. Additionally, since interviewees discussed the pre-incubation phase while still in the incubation phase, they had to rely on memory, which may have influenced the accuracy of their responses.

ACKNOWLEDGMENTS

We thank Santa Catarina State University and the University of Passo Fundo for allowing us to conduct research with startups incubated in their science and technology parks. We are grateful to the startup entrepreneurs for their participation and willingness to provide information. Finally, we express our gratitude to the examining committee that participated in the defense of the PhD dissertation that led to this article.

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• 1
  Scopus, Web of Science, Wiley, and Emerald. Search terms: startup AND rationality. Search period: through the end of 2022.

• 9
  [Translated version] Note: All quotes in English translated by this article’s translator.
• DATA AVAILABILITY
  The dataset supporting the results is not publicly available.
• REVIEWERS
  Laís Silveira Santos (Universidade Federal de Santa Catarina, Florianópolis / SC - Brazil). ORCID: https://orcid.org/0000-0002-4737-5470
• REVIEWERS
  One of the reviewers did not authorize the disclosure of their identities.
• PEER REVIEW REPORT
  The peer review report is available at this link: https://periodicos.fgv.br/rap/article/view/97059

Edited by

• EDITOR-IN-CHIEF
  Hélio Arthur Reis Irigaray (Fundação Getulio Vargas, Rio de Janeiro / RJ - Brazil). ORCID: https://orcid.org/0000-0001-9580-7859

• ASSOCIATE EDITOR
  Fabricio Stocker (Fundação Getulio Vargas, Rio de Janeiro / RJ - Brazil). ORCID: https://orcid.org/0000-0001-6340-9127

Data availability

The dataset supporting the results is not publicly available.

Publication Dates

• Publication in this collection
  09 Jan 2026
• Date of issue
  2025

History

• Received
  31 Dec 2023
• Accepted
  12 July 2024