Effectuation presentation gc20151210 (4)

Effectuation presentation gc20151210 (4)

• 1.
  Effectuation Gavan Cleary &Norah Cussen
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  Effectuation • What iseffectuation.. • Short Video • Principles of effectuation: • Norah • Bird in the hand – Leverage your means • Affordable Loss- Assess potential loss rather than potential gain • Lemonade – Leverage Contingencies • Gavan • Crazy Quilt – Build partner networks to co-create the outcome • Pilot in the plane – Focus on actions which directly influence the outcome • Summary, Q&A, Discussion
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  Bird in Hand •The effectual cycle begins with the first principle – Bird in Hand. • This implies that entrepreneurs use the means available to them to achieve an imagined end. • There are three categories of means: 1) Who you are – traits, tastes and abilities 2) What you know - education, training, expertise and experience 3) Who you know - your social and professional networks
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  Entrepreneurial and Non-Entrepreneurial Thinking Effectual Reasoning Entrepreneurial Thinking – Effectual Reasoning Imagining possible new ends using a given set of means M M M M M GIVEN MEANS E E E E IMAGINED ENDS (Saravarthy S. , Effectuation 101, 2012) Causal Reasoning Imagining possible new ends using a given set of means Selecting between given means to achieve a predetermined goal Sarasvathy, S. (2012) “Effectuation 101”
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  What does thismean? “Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in a yet-to-be-made future that can substantially be shaped by human action; and they realize that to the extent that this human action can control the future, they need not expend energies trying to predict it.” (Sarasvathy, 2012) Common Questions: What are the characteristics, habits, and behaviors of the entrepreneur? Is there a learnable and teachable “core” to entrepreneurship? Effectuation Considers: Is there such a thing as “entrepreneurial thinking” that can be applied across space, time and technology? Does this provide a learnable and teachable “core” to entrepreneurship? Sarasvathy, S. (2012) “What Makes Entrepreneurs Entrepreneurial?”
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  Affordable Loss • Effectuationis not just the entrepreneur’s ability to identify the means they have available to them but also their ability to use them effectively. • This brings the second principle in the effectual cycle – Affordable Loss • Causal models focus on maximising returns by selecting optimal strategies.  The entrepreneur will calculate upfront how much they will need to start a new venture and spend time and energy raising this money. • Whereas, the “effectuator” will estimate the downside of what they are willing to lose.  Making decisions based on the factors within their control Effectuation.org “The Affordable Loss Principle”
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  • The conceptis that the ‘effectuator’ is thrifty and at every stage they are asking; - Where do I stand? - How can I use what I have, what I know and who I know to get me to the next stage? - What can I afford to lose on the way? • While calculating affordable loss may seem possible it requires the entrepreneur to have a clear understanding of; - their financial condition - psychological estimate of how much they are willing and able to commit.
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  • Given theunpredictable nature of the business environment and the ‘entrepreneur type’ I consider: Can an entrepreneur accurately estimate what they will need to invest? And; Can they estimate their own capabilities without bias?
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  Lemonade • The thirdprinciple Lemonade - refers to the entrepreneur’s ability to leverage contingencies. • The ‘effectuator’ when faced with unexpected events sees opportunity where others see distraction or even catastrophe. The ‘effectuator’ will; • Leverage unexpected events and go ‘off road’. • Invite the chance of opportunity instead of thinking - “what if” • Interpret unforeseen events as the potential for tangent in the business plan hoping it will lead to unexpected growth Effectuation.org. “The Five Princples of Effectuation”
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  • Indeed, viewingunexpected events as opportunity can be beneficial and may lead to growth. • However, following unforeseen opportunities can; - divert from the original business objectives - lead the entrepreneur into a negative tangent - which can waste time and money all detrimental to the success of the business. Which would lead me to ask; Should new entrepreneurs practice more caution and curb the ‘entrepreneurial streak’ at the beginning of new venture?
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  Increasing Risk End Goal Negative Opportunities Positive Opportunity Business Plan Notall Opportunities are Good Opportunities “Be firm in your vision – its what gets you through the dark days” – Jennie McGinn founder of Opsh online fashion retailer
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  • Entrepreneurs shouldcarefully assess the risks of new opportunities. • Given that 80% of new ventures fail, erring on the side of caution is not to be disregarded. Example; Consider a plumber (Joe) who is a first time entrepreneur. Joe has invested the maximum amount of his resources financial, time and psychological to set up a small business. Is it wise for Joe to chase new opportunities & stakeholders when he is already over run trying to achieve his initial goal?
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  Crazy Quilt – BuildingPartnership Networks • “Partners are a source of new means, a source of new ideas, a way of sharing risk, and the people who help you to create an opportunity.” (Read, Sarasvathy, Dew, Wiltbank, & Ohlsson, 2010) • Carefully selected stakeholders commit differing means in exchange for a chance to influence goals and final outcomes • Self-selection is critical – commitment is more important than precise alignment. • Partnerships Should: • Increase the available means • Align to co-create the end result
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  Partner Acquisition • Allsignificant stakeholders are potential partners • Tools of Influence • Reciprocation, Commitment , Consistency, Credibility, Likability, Opportunity cost. • Consider • What will this partner bring to the venture ? Will s/he fit ? • Are you persuadable, willing to re-shape the venture with partners in order to gain their commitment to it? What are you reluctant to change? Why? • In the process of bringing a partner on board, when do you need persuasion and when do you need negotiation? • What partners would like to see you succeed? Why?
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  Ownership vs Control •Ownership is what remains when commitments are met and bills are paid. • Is it better to own 100% of a failing company or 5% of a successful company which you control? • Sharing ownership wisely can create more cash than hoarding it. In new ventures, the pie is not fixed. • Contracts (meta rules) specify who controls the business. • Bill Gates owned 9.4% of Microsoft in 2008 • Offering Equity to key partners can incentivise and align interests • External stakeholders do not typically seek control of the venture, but want protection from downturns and participation in upturns. • Equity can be offered temporarily, and bought back at agreed milestones. • Other options include, equity options, profit share, discounted pricing, recognition. • Control is rarely simple, never absolute, and frequently illusory.
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  Pilot in theplane principle. Non predictive Control • Focus on activities where you know your actions will directly influence the outcome. • Taking action based on your means is more controllable • Evaluate actions based on whether the downside risk is acceptable • Work with partners who will commit • Being flexible gives more control in an uncertain environment than sticking to a pre-defined plan.
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  What is control •Causal thinking (Prediction) allows a degree of control, if you are operating in a stable environment. • Effectual thinking is particularly useful in uncertain, entrepreneurial situations because it does not rely on the past to predict the future. • The control you exercise can be either exogenous ( shaping the environment) or endogenous (shaping yourself). • Not everything is controllable, but the effectual entrepreneur focuses on what elements s/he can control to create outcomes that s/he finds desirable.”
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  Control Paradoxes (Readet al, 2010, p184)
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  Summary- 5 Principlesof effectuation • Bird in the hand. Leverage your means • Who am I, What do I know, Who do I know? • Affordable Loss • Can I bear the loss if my actions are unsuccessful? • Lemonade – Leverage contingencies • Am I open to opportunities arising from the unexpected? • Crazy Quilt – Build stakeholder partnerships/networks • Will I allow and incentivise others to co-create the outcome? • Pilot in the Plane – Focus on actions where you directly influence the outcome • Will my actions today move me forward?