Lecture 3 - Effectuation
Success is not linear but full of unpredictable adoptions
2 Different Approaches
1) Causal approach: Search and Select (Opportunity DISCOVERY)
- Market: Visionary people serving a latent (= onzichtbare/verborgen) market
- Logic: Analysis: Select the best opportunity
- Process: Static: Surprises are BAD
Causation = Decision making are rooted in prediction
Example: “If I can predict the future, I can control it”
2) Effectual: Create and Transform (Opportunity CREATION)
- Market: Consequences of people doing what they think is worth doing
- Logic: Local possibilities transformed into opportunities
- Process: Dynamic interactions between stakeholders: Surprises are GOOD
Effectuation = Decision making process that helps entrepreneurs to shape and
control the future
Example: “If I can control the future, I do not need to predict it”
Effectuation: It encourages entrepreneurs to embrace uncertainty, focus on what they can
control, and leverage their existing assets and relationships to create innovative solutions.
5 principles of Effectuation:
1) Bird in Hand principle: Entrepreneurs start with what they have available to them,
such as their skills, knowledge, and existing resources, rather than waiting for the
perfect opportunity or looking for external resources.
It's about taking action based on your current means and capabilities.
2) Crazy-Quilt principle: Forming partnerships and collaborations with others who
share an interest in your venture.
, 3) Affordable Loss principle: Entrepreneurs are willing to take calculated risks and
invest resources (time, money, effort) that they can afford to lose without destroying
their basic well-being. Instead of focusing on potential returns, they consider the
worst-case scenario and assess whether they can handle the loss.
4) Lemonade principle: It is about being flexible and adaptable in the face of
unexpected outcomes or challenges. Entrepreneurs are skilled at turning lemons into
lemonade.
5) Pilot-in-the-Plane principle: It suggests that entrepreneurs see themselves as pilots
who can influence and shape the future through their actions. They believe that they
have control over their decisions and can adapt their strategies as they learn more
about the market and their venture.
Difference between Effectuation and Causation
1) Bird in Hand principle:
a) Caution: Start with a Goal (make a recipe)
b) Effectuation: Start with your means (open your fridge and improvise)
2) Crazy-Quilt principle:
a) Caution: Competition
b) Effectuation: Partnership
3) Affordable loss principle:
a) Caution: Potential returns
b) Effectuation: Affordable loss
4) Lemonade principle:
a) Caution: Avoid surprises
b) Effectuation: Leverage surprises
Success is not linear but full of unpredictable adoptions
2 Different Approaches
1) Causal approach: Search and Select (Opportunity DISCOVERY)
- Market: Visionary people serving a latent (= onzichtbare/verborgen) market
- Logic: Analysis: Select the best opportunity
- Process: Static: Surprises are BAD
Causation = Decision making are rooted in prediction
Example: “If I can predict the future, I can control it”
2) Effectual: Create and Transform (Opportunity CREATION)
- Market: Consequences of people doing what they think is worth doing
- Logic: Local possibilities transformed into opportunities
- Process: Dynamic interactions between stakeholders: Surprises are GOOD
Effectuation = Decision making process that helps entrepreneurs to shape and
control the future
Example: “If I can control the future, I do not need to predict it”
Effectuation: It encourages entrepreneurs to embrace uncertainty, focus on what they can
control, and leverage their existing assets and relationships to create innovative solutions.
5 principles of Effectuation:
1) Bird in Hand principle: Entrepreneurs start with what they have available to them,
such as their skills, knowledge, and existing resources, rather than waiting for the
perfect opportunity or looking for external resources.
It's about taking action based on your current means and capabilities.
2) Crazy-Quilt principle: Forming partnerships and collaborations with others who
share an interest in your venture.
, 3) Affordable Loss principle: Entrepreneurs are willing to take calculated risks and
invest resources (time, money, effort) that they can afford to lose without destroying
their basic well-being. Instead of focusing on potential returns, they consider the
worst-case scenario and assess whether they can handle the loss.
4) Lemonade principle: It is about being flexible and adaptable in the face of
unexpected outcomes or challenges. Entrepreneurs are skilled at turning lemons into
lemonade.
5) Pilot-in-the-Plane principle: It suggests that entrepreneurs see themselves as pilots
who can influence and shape the future through their actions. They believe that they
have control over their decisions and can adapt their strategies as they learn more
about the market and their venture.
Difference between Effectuation and Causation
1) Bird in Hand principle:
a) Caution: Start with a Goal (make a recipe)
b) Effectuation: Start with your means (open your fridge and improvise)
2) Crazy-Quilt principle:
a) Caution: Competition
b) Effectuation: Partnership
3) Affordable loss principle:
a) Caution: Potential returns
b) Effectuation: Affordable loss
4) Lemonade principle:
a) Caution: Avoid surprises
b) Effectuation: Leverage surprises
