Knowing what to do and doing what you

Knowing what to do and doing what you know: Effectuation as a form of entrepreneurial expertise Stuart Read and Sarasvathy 2005

Effectuation = logic of entrepreneurial expertise. – What makes great entrepreneurs isn’t genetic or personality traits, risk-seeking behavior, money, or unique vision. – there is a science to entrepreneurship and that great entrepreneurs across industries, geographies, and time use a common logic, or thinking process, to solve entrepreneurial problems. – Effectuation is a logic of entrepreneurial expertise that both novice and experienced entrepreneurs can use in the highly unpredictable start-up phase of a venture to reduce failure costs for the entrepreneur.

Effectuation vs. Causation • The focus is on achieving a desired goal through a specific set of given means. Causation invokes search and select tactics and under-lies most good management theories. Causal thinkers believe that “If I can predict the future, I can control it. ”

Effectuation vs. Causation • Effectuation • The focus is on using a set of evolving means to achieve new and different goals. Effectuation evokes creative and transformative tactics. Effectual logic is the name given to heuristics used by expert entrepreneurs in new venture creation. Effectual thinkers believe that “If I can control the future, I do not need to predict it. ”

The Principles • Bird in Hand Principle – Start with your means. Important to know: who you are, what you know, and who you know. • Affordable Loss Principle – Set affordable loss Evaluate opportunities based on whether the downside is acceptable • Lemonade Principle – Leverage contingencies. Embrace surprises that arise from uncertain situations, remaining flexible rather than tethered to existing goals. • Crazy-Quilt Principle –Form partnerships with people and organizations willing to make a real commitment to jointly creating the future—product, firm, market—with you. Don’t worry so much about competitive analyses and strategic planning. •