Effectuation Principles – An Entrepreneur Guide to Success


12 Feb by Think201

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 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 the talk, read through to learn how Effectuation’s principle helps in gaining entrepreneurial success.

Before knowing what Effectuation’s principles are, I would like to mention the speaker. Associate Professor Saras D. Sarasvathy is a member of the Strategy, Entrepreneurship, and Ethics area and teaches courses in entrepreneurship and ethics in Darden’s MBA program. Prof. Saras was named 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 the 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 into our Think201 office anytime. We love to talk.

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

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

I want to start up but…

Start up Principles

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

Effectuation principles answer these questions:

  • Bird-in-Hand
    For the question that arises 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 that we face. This is the big difference between entrepreneurs and others. We need to analyze what we are, where do I stand, and what do I know. The answers that we would obtain would pave the way toward a pitch from which we can plan to launch ourselves. Look for wasted time and money, inefficiency, suffering, and 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 worry about the financial uncertainty that comes along with it. This is in the case of wantrepreneur. 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 to 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 the 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 still 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 coming up with a master piece. Here, comparing the crazy quilt to the team, Prof. Saras says one has to identify talent from diverse backgrounds, 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 into a pearl, he goes towards success. No one succeeds in his/her first attempt. Entrepreneurship is something that does 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 that 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 turn every failure as a stepping stone.
  • Pilot-in-the-plane
    Along with factors like goal, team, and attitude towards business, the market also plays a big role in an entrepreneur’s success. Knowing the market or predicting it is very difficult, rather than being impossible. After all, the market is the destination for one’s product. Tackling market behavior or predicting it is the first thing an entrepreneur should know. Prof. Saras says if it is impossible to predict, the market knows how to control it. Control does not mean it should be governed; rather, entrepreneurs should know how to adapt to market needs and get their story sold. This is what being a pilot on a plane teaches you.

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

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

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

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