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School of Business and Economics TIME Research Area | Innovation & Entrepreneurship Group (WIN)
Entrepreneurship and Innovation TU9 MOOC – Introduction to Effectuation
Univ.-Prof. Dr. Malte Brettel | Aachen | October, 20nd 2014
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Photo: http://www.darden.virginia.edu/web/Faculty-Research/Directory/Full-time/Saras-D-Sarasvathy/
…Is there a difference between expert entrepreneurs vs. non-expert entrepreneurs as concerns how they would deal with risks & returns in highly uncertain situations?
in form of a think aloud experiment
Saras examined 27 Expert Entrepreneurs
Sarasvathy discovered that there also different approaches to starting a business...
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Expert Entrepreneurs Non-Entrepreneurs vs.
o Start by defining goals o Based on goals, acquisition of means o Decision based on expected returns o Research, competitive analysis … o ….
o …. o ….
She examined the differences between expert and non-expert entrepreneurs
Photo: http://pixabay.com/ CC0 public domain
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New means
Input Process Output
What can I do? Who am I?
What do I know? Whom do I know?
1
1 2 3
Expanding cycle of resources
Whom do I approach?
Craft stakeholder
commitments
New goals Converging cycle of goals
2
Co-Creation of Company/Market
3
For example, expert entrepreneurs assess their means avail- able and choose between possible effects to be created...
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Start of process with … START
Logic dimensions
… in causal logic (prediction-based)
… in effectual logic (action-based)
Goal (ends)-driven action Estimation of necessary means
Means-driven action (Bird-in-hand) Preferences, knowledge ,networks Unspecified goals
Investment decision based on … INVEST
Expected returns logic Calculations
Commitment limit (Affordable loss) Restriction on downside potential
Moving forward through … PROCESS
Prediction of the future Planning, Research
Stakeholder commitments, Step-by-step development
Dealing w/ contingencies by … CONTINGENCIES
Avoiding surprises Plan adjustments
Leveraging contingencies, Incorporation of external information
Input Process Output
1 2 3 Input
Process Output 3 2 1 Based on: Sarasvathy (2001), Sarasvathy (2008)
Effectuation can be contrasted to causation along a list of four dimensions, all carrying the notion of design
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Social
networks Whom they
know
Technology What they
know
Traits, tastes, abilities
Who they are
Basic inputs
Based on the given set of means the technology entrepreneurs start to
develop the project
When they identify limits for further development, they start contacting
potential partners
NTBF
MEANS
They bind those stakeholders to the project who commit to the project,
thereby enlarging the means
Effe
ctua
tion
Proc
ess
Process converges on NTBF
Source: Based on Sarasvathy (2005)
In the dynamic model of new technology-based firms the resource base is being expanded while goals converge
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Access your means 1
Reflect your means 2
Transfer your means 3
Write down 10 things answering the questions:
What are your strengths?
What are you good at?
Amend your thoughts by answering the questions:
In which contexts did you use
your strengths?
Which skills & knowledge were also needed in
these situations?
Complete your thoughts by answering the questions:
In which contexts do I want to apply
my skills and knowledge?
Which is the closest context for me to
use my skills &knowledge?
Adopted from: Faschingbauer, M. „Effectuation: Wie erfolgreiche Unternehmer denken, entscheiden und handeln“, Schäffer Poeschl, 2010. p.199
Analyzing your skills and your knowledge as well as settings in which you would like to apply them
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Partnerships ≠ Partnerships – so, what is the difference?
String Quartet
vs.
Jam Session
Photo Orchester: Koninklijke Harmonie Oefening & Uitspanning Photo Jam Session: Kevin Viol
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*Dew et al. (2010) Photo: http://pixabay.com/ CC0 public domain
The preferred method of effectual entrepreneurs building a start-up is “stitching together a network of stakeholders”*
Working with committed partners bears advantages
Greater pool of resources & ideas
New ideas changing business goals
Shared risks and losses
Higher focus on own expertise
Higher growth potential
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Causation Logic Effectuation Logic
???
???
Ret
urn
Inpu
t
Ret
urn
Inpu
t
Adopted from: Faschingbauer, M. „Effectuation: Wie erfolgreiche Unternehmer denken, entscheiden und handeln“, Schäffer Poeschl, 2010. p.203
Effectuation focuses on controlling the level of input, whereas causation focuses on controlling the level of return
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Is your idea interesting?
(based on your motives)
What is the necessary input?
DON’T DO IT !!! NO
Can the input be reduced?
DO IT !!!
YES NO YES
NO Does the input appear
fair?
YES
Adopted from: Faschingbauer, M. „Effectuation: Wie erfolgreiche Unternehmer denken, entscheiden und handeln“, Schäffer Poeschl, 2010. p.203
Understanding your decisions on how to do the next step without risking severe consequences
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Turning contingencies into new opportunities
Photo: http://pixabay.com/ CC0 public domain
In response to a guest complaining about fried potatoes being too thick, an American cook cut them as thin as possible
Working on a treatment for heart disease, Pfizer found that the developed medication could not cure heart diseases, but..
Percy Spencer found that the chocolate bar in his pocket melted because he had been working on a radar unit
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A B A
X
Y
Z
…
Avoiding contingencies/surprises Using contingencies/surprises as new means
Adopted from: Faschingbauer, M. „Effectuation: Wie erfolgreiche Unternehmer denken, entscheiden und handeln“, Schäffer Poeschl, 2010. p.205
Whereas a causation approach attempts to avoid surprises, an effectuation approach embraces surprises