lecture 1 mooc@tu9: entrepreneurship by prof. brettel

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

TIME Research Area | Innovation & Entrepreneurship Group (WIN)

2 © Innovation & Entrepreneurship Group

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...



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

http://pixabay.com/

http://pixabay.com/



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...



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



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



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



Partnerships ≠ Partnerships – so, what is the difference?

String Quartet

vs.

Jam Session

Photo Orchester: Koninklijke Harmonie Oefening & Uitspanning Photo Jam Session: Kevin Viol



*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

http://pixabay.com/



Causation Logic Effectuation Logic

???

???

Ret

urn

Inpu

t

Ret

urn

Inpu

t


Effectuation focuses on controlling the level of input, whereas causation focuses on controlling the level of return



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


Understanding your decisions on how to do the next step without risking severe consequences



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

http://pixabay.com/



A B A

X

Y

Z

…

Avoiding contingencies/surprises Using contingencies/surprises as new means


Whereas a causation approach attempts to avoid surprises, an effectuation approach embraces surprises

lecture 1 mooc@tu9: entrepreneurship by prof. brettel

Education

goals o

expected returns o research

technology entrepreneurs

process prediction

nonexpert entrepreneurs

o decision

means avail able

logic dimensions