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Entrepreneurship, Effectuation and Core Principles
- 1. THE ENTREPRENEURIAL METHOD Anuj Poudel([email protected]) Ravi Bhattarai([email protected])
- 2. What do businesspeople think after seeing this ?
- 3. A Businessmen buysmore banana, sells at more place, expand the network
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- 6. Effectuation An effectual approachstarts with available means (who I am, what I know, whom I know) and focuses on controllable aspects of an unpredictable future. “To the extent we can control the future, we do not need to predict it.” Effectuation is the process of making something happen, or putting something into action. It can also refer to a way of thinking and making decisions.
- 10. How Effectuation works? Effectuation involves taking action and making things happen, rather than relying on predictions and planning. It focuses on creating opportunities and solving problems using available resources. It's based on the idea that entrepreneurs create their future.
- 11. Principles At each stepof the process, expert entrepreneurs use the following principles. Each principle inverts key decision making criteria in convectional management theories and practices. The bird-in-hand principle The lemonade principle The affordable loss principle The pilot-in-the- plane principle The crazy quilt principle
- 12. The Bird inHand Principle • It is a principle of means driven (as opposed to goal driven) action. • The emphasis here is on creating something new with existing means rather than discovering new ways to achieve given goals. • These means can be grouped into three categories: - Who I am - What I know - Who I know
- 13. Melanie Perkins wasa university student and tutor who noticed students struggling with complex design software like Photoshop. She didn’t have funding or a tech background, but she understood user pain points from her experience teaching design. Instead of waiting for a perfect business plan, she created a small online tool for designing school yearbooks (the first version of Canva). The bird in Hand Principle
- 14. The Affodable LossPrinciple • Rather than projecting expected returns, effectual entrepreneurs focus on what they can afford to lose, shaping decisions around limiting downside risk. • This principle prescribes committing in advance to what one is willing to lose rather than investing in calculations about expected returnsto the project. • Affordable loss varies with each individual’s resources and life stage, fostering an approach that encourages cheap failure, rapid learning, and continuous venture evolution. • By using affordable loss as a guide, entrepreneurs reduce dependence on predicting outcomes, leverage co-creation with stakeholders, and focus on opportunities that can be adapted with manageable investments.
- 15. The Affordable LossPrinciple Rather than investing heavily in a full-fledged design platform, Perkins started with Fusion Books, a small, niche product for making school yearbooks. The first product was bootstrapped and tested on a small scale before scaling to Canva. This minimized financial risk, ensuring they could sustain the business even if it failed.
- 16. The Crazy QuiltPrinciple • This principle involves negotiating with any and all stakeholders who are willing to make actual commitments to the project, without worrying about opportunity costs or carrying out elaborate competitive analysis. • Instead of exhaustively analyzing competitors, entrepreneurs using the crazy quilt principle focus on building partnerships with self-selected stakeholders who commit time, money, or resources to the venture. • By securing pre-commitments from customers or suppliers, entrepreneurs minimize cash outlays and risk, aligning closely with the affordable loss principle.
- 17. The Crazy QuiltPrinciple (Build partnerships, not just competition) They also collaborated with schools and businesses early on, ensuring Canva had real users before going mainstream. Melanie and her co-founder pitched to investors in Silicon Valley but got rejected over 100 times before finally securing funding. Instead of giving up, she partnered with engineer Cliff Obrecht and ex-Google Maps developer Cameron Adams to bring Canva’s vision to life.
- 18. The Lemonade Principle •This principle suggests acknowledging and appropriating contingency by leveraging surprises rather than tryig to avoid them, overcome them, or adapt to them. • Effectual entrepreneurs embrace surprises, using them as fuel for new opportunities rather than seeing them as obstacles. • No “Worst Case” Scenario: Freed from preconceived markets, every surprise—good or bad— can be leveraged for innovation and growth. • By staying flexible and refusing to commit to any single market hypothesis, entrepreneurs continuously pivot to profit from unforeseen events.
- 19. 4. Lemonade Principle(Leverage surprises instead of avoiding them) • Many investors doubted that people would want simplified design tools. • Canva adapted by offering an intuitive drag-and-drop experience, proving that design could be democratized. • As social media and content marketing exploded, Canva became an essential tool for non-designers who needed quick, professional designs.
- 20. The Pilot inthe Plane Principle • This principle urges relying on and working with human agency as prime driver of opportunity rather than limiting entrepreneurial efforts to exploiting exogenous factors such as technological trajectories and socioeconomic trends. • Humans naturally strive for personal control, which boosts self-esteem and reduces stress, while loss of control often leads to helplessness or depression. • A strong desire for control is part of “Who you are,” evolving over time, and can be both a motivator for becoming an entrepreneur and a quality that intensifies through entrepreneurial experience. • Many people choose entrepreneurship precisely to gain more control—freedom, autonomy, and self-direction—in their work and lifestyle.
- 21. 5. Pilot inthe Plane Principle (Control what you can, don’t predict the future) Perkins didn’t try to predict whether Canva would compete with Adobe. Instead, she focused on making design easy for beginners, creating a new category rather than competing directly. Canva’s success was not about predicting market trends but about making a useful, accessible product and iterating based on user feedback.
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- 23. Effectual Reasoning (Entrepreneurial) -Starts with available means - Focuses on affordable loss - Builds strategic partnerships Example: Starbucks • Howard Schultz started with his means (coffee industry knowledge, relationships) • Made small, affordable experiments • Built partnerships with early employees and investors • Let the business model evolve based on customer feedback Logic: To the extent that we can control the future, we do not need to predict it. Causal Reasoning (Traditional) - Starts with predetermined goals - Focuses on expected returns - Relies on competitive analysis Example: Theranos • Elizabeth Holmes started with a clear goal: Creating comprehensive blood tests from a single drop • Raised massive funding based on expected returns • Failed due to rigid adherence to predetermined goals despite technical impossibilities Logic: To the extent that we can predict the future, we can control it.
- 26. Criticism of EffectuationPrinciples Limited explanatory power for complex contexts Write your topic or idea Write your topic or idea Doesn't sufficiently consider how external factors like market dynamics, competitive landscape, and regulatory environments might shape an entrepreneur's options and actions. Write your topic or idea Theory's focus on utilizing only readily available resources may limit an entrepreneur's ability to identify and leverage potentially valuable external opportunities. Write your topic or idea Some argue that it can be unclear on how to define and refine goals throughout the entrepreneurial process, especially in situations where a clear target market or product is necessary.
- 27. References Write your topic oridea Sarasvathy, Saras. (2008). What Makes Entrepreneurs Entrepreneurial?. SSRN Electronic Journal. 10.2139/ssrn.909038. Dew, Nicholas & Sarasvathy, Saras. (2008). The Entrepreneurial Method: How Expert Entrepreneurs Create New Markets. SSRN Electronic Journal. 10.2139/ssrn.1278394. https://effectuation.org/the-five-principles-of-effectuation-detail#crazyquiltsummary https://www.cnbc.com/2020/01/09/canva-how-melanie-perkins-built-a-3point2-billion-dollar-design- start-up.html https://www.youtube.com/watch?v=oC-yWrC0P_E
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Editor's Notes
- #5 Entrepreneurship is the process of starting and running a business, often with the goal of creating economic value. Entrepreneurs are people who take on the risk of starting their own businesses.