Effectuation vs. Causation in entrepreneurship
Entrepreneurs constantly
make decisions and take action.
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SUBJECTS
27 Expert Entrepreneurs (founders of companies from $200M to $6.58) -
METHOD
Protocol Analysis (80 hours of tape. 500 pages of data) -
THEORY
Effectuation: Elements of Entrepreneurial Expertise. 2006
- A logic of thinking that uniquely serves entrepreneurs in starting businesses
- Provides a way to control a future that is inherently unpredictable
- 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.
EFFECTUAL LOGIC IS
LIKE 1ST & 2ND GEAR
- A thinking framework
- a set of heuristics
- doing the do-able
- how to get the sellable products and services established
- a system to tell you what to do
- an algorithm
- "not planning"
- a way to launch an entire business
Bird-in-hand (START WITH YOUR MEANS)
When expert entrepreneurs set out to build a new venture, they start with their means: who I am, what I know, and whom I I know. Then, the entrepreneurs imagine possibilities that originate from their means.
-
contrasts with
Pre-set goals or opportunities
that uniquely serves entrepreneurs in starting businesses
Affordable Loss (FOCUS ON THE DOWNSIDE RISE)
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.
-
contrasts with
Expected return
Causal reasoning first targets a retum, then works to minimize associated risk
Lemonade (LEVERAGE CONTINGENCIES)
Expert entrepreneurs invite the surprise factor. Instead of making "what-if" scenarios to deal with worst-case scenarios, experts interpret "bad news and surprises as potential clues to create new markets
-
contrasts with
Avoiding surprises
Causal reasoning works to minimize the probability of unexpected outcomes.
Patchwork Quilt (FORM PARTNERSHIPS)
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 interested participants.
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contrasts with
Competitive analysis
Causal reasoning presumes that competitors are rivals to contend with.
Pilot-in-the-plane (CONTROL V. PREDICT)
By focusing on activities within their control, expert entrepre neurs 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.
-
contrasts with
Inevitable trends
Causal reasoning accepts that established market forces will cause the future unfold.
- An ALGORITHM is a step-by-step proce- dure with a finite number of steps that seeks a specific outcome. It's recursive.
- A HEURISTIC is a problem-solving tech- nique that involves creating a speculative formulation and self-led investigation to reach some desired outcome. The most quintessential heuristic is 'trial and error