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Entrepreneurship / Business

Entrepreneurial Effectuation

Entrepreneurial way of working must necessarily differ from a corporate. Big organisation do market research, find opportunity, allocate funds, employees and other resources, set the target and the managers plan consisting of specific steps to achieve the goal. This is called causation. On the other hand, Entrepreneurs have… an idea. An idea, himself and limited funds. That is how it starts. And when they try to make something of it, the process is called entrepreneurial effectuation. Entrepreneurs must start with who they are and what they have. The ideal scenario is that they will develop their business continually as they find resources and make some money to fund it. So, the idea must be reduced to something doable, that can change according to customers preferences and market development. The market is ever-changing and the flexibility to react to the news – good or bad – and change is the significant advantage for small businesses.

Our company adopted the processes of entrepreneurial effectuation unconsciously of the pure necessity in a desperate attempt to grow. Funded by the partners, families and friend, we came up with a product, the ingeniously creative partners designed it, a prototype was made, plans improved and then we went and spent all the money on materials for production. It was an exciting and scary time.

In the next level, we realised, we cannot manufacture the products ourself because of time constraints. A manufacturing site was contacted, conditions and price negotiated, agreement signed. Now we are waiting for the products, eager to have them and to satisfy all the waiting customers. It is an outgoing process, mixed of worries, changing plans and happiness. It will be interesting to see what happens next.

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Discussion

2 thoughts on “Entrepreneurial Effectuation

  1. Great to see you take a principle and relate it to your own experience. It’s very true what you say here, it’s about understanding what you have and how to make the most of it and push it to the next level. Well done.

    Posted by cbkingston | March 27, 2012, 15:19
  2. Eva, great to see you tackling Entrepreneurial Effectuation. It is the latest research that really does illustrate the difference between what an entrepreneur does aganst traditional managers in established organisation! but dont make the mistake of thinking you can make a business model out of entrepreneurial effectuation. That would be a contradiction in terms. Companies behave spontaneously making use of what they have, currently what they’ve achieved in the past and what they can get hold of in the future. Especially necessary if Windows of opportunity to be caught!

    Have you seen the 5 principles of Entrepreneurial Effectuation? Here’s a copy of some of my slides when I teach the subject.

    Causation v Effectuation

    According to Professor Saras Sarasvathy (Darden, University of Virginia), entrepreneurs tend to use an effectuation process more often than a causal process.

    Causal Process
    Starts with a desired outcome.
    Focuses on the means to generate that outcome.
    Effectuation Process
    Starts with what one has (who they are, what they know, and whom they know).
    Selects among possible outcomes

    Followed by the 5 principles

    Implications of effectuation for the entrepreneur are explained in terms of five basic principles:

    1) Patchwork quilt: means-driven action, emphasizes creation of something new with existing means rather than discovering new ways to achieve given goals.
    2) Affordable loss: prescribes committing in advance to what one is willing to lose rather than investing in calculations about expected returns to the project.
    3) Bird-in-hand: involves negotiating with any and all stakeholders who are willing to make actual commitments to the project; determines the goals of the enterprise.
    4) Lemonade: prescribes leveraging surprises for benefits rather than trying to avoid them, overcome them, or adapt to them.
    5) Pilot-in-the-Plane: urges relying on and working with people as the prime driver of opportunity and not limiting entrepreneurial efforts to exploiting factors external to the individual.

    Please come and have a chat if you want to expand your knowledge in this area

    Catherine Gurling
    Senior Lecturer Entrepreneurship and Innovation

    Posted by ku19736 | March 27, 2012, 15:32

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