What is effectuation?

Entrepreneurs constantly make decisions and take action.

How do they do that?

Are there any universal methods or principles they use?

Definition

A logic of thinking that entrepreneurs in starting businesses

Provides a way to control a future that is inherently unpredictable.

What Does Effectuation Do?

Ideas- Effectuation advances ideas toward sellable products and services with proven customers.

Stakeholder Commitments- Using effectuation, the entrepreneur interacts in search of self- selecting partners to co-create the venture with.

Decisions- Experts entrepreneurs use a set of techniques that serve as the foundation for making decisions about what to do next.

Effectuation Is

A thinking framework

A set of heuristics

Doing the do-able

How to get the sellable products and services established

Effectuation Is Not

A system to tell you what to do

An algorithms

Not planning

A way to launch an entire business

Principles of Effectuation

Expert entrepreneurs have learned the hard way that the most interesting ventures are built in a space in which the future is not only unknown,but unknowable. Still yet, entrepreneurs do shape this unpredictable future. They use techniques which minimize the use of prediction and allows them to shape the future. These five principles, listed below, make up effectual logic.

Bird-in-hand

When expert entrepreneurs set out to build a new venture, they start with their means: who I am, what I know, and whom I know. Then, the entrepreneurs imagine possibilities that originate from their means.

Affordable Loss

Expert entrepreneurs limit risk by understanding what they can afford to lose at each step, instead of seeking large all-or-nothing opportunities. They choose goals and actions where there is upside even if the downside ends up happening.

Lemonade

Expert entrepreneurs invite the surprise factor. Instead of making”what-if” scenarios to deal with worst- case scenarios, experts “bad” news and surprises as potential clues to create new markets.

Patchwork Quilt

Expert entrepreneurs build partnerships with self-selecting stakeholders. By obtaining pre- commitments from these key partners early on in the venture, experts reduce uncertainty and co-create the new market with its interstate participants.

Pilot-in-the-plane

By focusing on activities within their control, expert entrepreneurs know their actions will result in the desired outcomes. An effectual worldview is rooted in the belief that the future is neither found nor predicted, but rather made.

The Effectual Cycle

  • Means: who am I what I know
  • Goals: what can I do?
  • Interactions: Interact with other people
  • Commitments: Gather stakeholder Commitments

The individual begins with an inventory of his/her means, from which he/she imagines goals. The goals he/she chooses to pursue are within his /her affordable Loss. Goal construction and goal achievement are different sides to the same coin.

Next, interactions drive the process of enlisting others to join in co-creating the new venture. Committed stakeholders will influence the entrepreneur by morphing and appending the original idea into one that a whole network of stakeholders are committed to.