Effectuation Principles – An Entrepreneur Guide to Success

It was a very good learning experience for team Think201 at IIM Bangalore where a start-up boot camp was arranged for Entrepreneurs on 4th Jan 2014. The talk was organized by N S Raghavan Centre for Entrepreneurial Learning (NSRCEL) for the budding entrepreneurs. Since we understand that “knowledge shared is knowledge gained” we decided to write a blog post on this session. For all those who missed out on talk, read through to know how Effectuation’s principle helps in gaining entrepreneurial success.

Before knowing what Effectuation’s principles are, I would like to mention about the speaker. Associate Professor Saras D. Sarasvathy is a member of Strategy, Entrepreneurship and Ethics area and teaches courses in entrepreneurship and ethics in Darden’s MBA program. Prof.Saras was named as one of the top 18 entrepreneurship professors by Fortune Small Business magazine. I must say, the talk did portray her experience and excellence in conveying core factors of her teachings.

It was a talk which spanned across 2 hours. It is very difficult to bring down the entire talk to a post and hence I will be only quoting about the principles in brief here. If you want to know more about the session and our experience; drop in to our Think201 office anytime. We love to talk.

Much before knowing about the principles, let’s face up to a very common question which would help us understand “Effectuation” in a better way.

Many entrepreneurs and wanterpreneurs would surely have gone through these questions:

I want to start up but

1. What do I do?
2. How do I get right talent?
3. What if I fail?

Effectuation principles answers these questions

  • Bird-in-Hand : For the question which rises in each one’s head, where do I start? , what do I do? ; Bird in the hand rule would throw light to the right door. How often do we think of creating a solution for the problems we face? The chances are very low. We usually tend to adapt solutions found by others and go ahead. We never think of solving a problem what we face. This is the big difference between entrepreneurs and others. We need to analyse what we are, where do I stand, and what do I know. The answers which we would obtain would pave its way towards a pitch from where we can plan to launch ourselves. Look for wasted time and money, inefficiency, suffering, losses. Then start a project to fix it. To start with, even a small problem we face can be chosen as a launch pad for our entrepreneurial journey.
  • Affordable Loss : Many who would like to start up worries about financial uncertainty which comes along with it. This is in case of wanterpreneur. However for an entrepreneur it is another sort of fear. Every start-up venture struggles to answer the following questions: Will our product/idea actually work as planned? Will it deliver the desired benefits to consumers? Is the timing of its introduction too early or too late? Will the market be big enough and keep expanding? Will our competitors react in unexpected ways? Will our management team have the skills to grow the company? Will our investors stand behind the company?Risks are the stuff of daily business in the start-up world, and entrepreneurs and investors must try to anticipate, quantify and mitigate a host of risks. This is what Affordable Loss principle teaches. Entrepreneurs should have a clear idea about what loss might occur if something fails. This would prepare them to face the worst but yet keep them going since their mind is already prepared for it.
  • Crazy Quilt : Nothing comes ready for an entrepreneur. This principle says that, entrepreneurs build from tiny bits available and then get set to sell their story. It is like weaving a crazy quilt which is made of different quality and patterns of cloth and then come up with a master piece. Here comparing the crazy quilt to team, Prof. Saras says one has to identify talent from different diverse background and hold them tight and grow big. An awesome team can pull off anything together.
  • Lemonade : All of us know about the proverbial phrase “When life gives you lemons, make lemonade”. This is one vital lesson to be understood and implied by everyone. When one knows how to turn a pebble to pearl there he goes towards success. No one succeeds in his/her first attempt. Entrepreneurship is something which do not have pre defined rules to follow. It is rather an experiment where failures might occur. When failure happens, embrace it and adapt yourself to make changes which fix it. When we fail we discover more efficient ways to approach the same problem.For example, you have one company and cannot find a good solution for something. You start a second company to solve it and the second one becomes bigger than the original one. So one mantra to follow is to think creatively which would help turning every failure as a stepping stone.
  • Pilot-in-the-plane : Along with factors like goal, team, attitude towards business, market also plays a big role in an entrepreneur’s success. Knowing market or predicting it is very difficult rather than I say it is impossible. After all market is the destination for one’s product. Tackling the market behaviour or predicting it is first thing an entrepreneur should know. Prof. Saras quotes, if it is being impossible to predict market know how to control it. Control it does not mean it should be governed rather entrepreneur should know how to adapt to the market needs and gets his story selling. This is what being a pilot in the plane teaches you.

These are the 5 principles of Effectuation which was presented by Prof. Saras. These principles are the outcome of a research conducted by 40 researchers over a span of 15 years.

As we all know road to entrepreneurial journey is not defined by any rules or not guided by any mentors. It is a beautiful island where everyone would like to reach but yet no one knows the right way. When we start such a journey, principles or guidance like this will help us to take the right path (courtesy – Anurag). We wish everyone who starts their journey find their way to destiny.

To know more about effectuation and the speaker herself, visit www.effectuation.org


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