Presention shared by Dr. Robert Wiltbank at FiBAN's business angel training in Helsinki, 3rd of November. All the presentations and videos are gathered here: https://www.fiban.org/robertwiltbank Presentations given: 1. Comparison of Finnish and US angel activity https://www.youtube.com/watch?v=UKdmr... - Slides: 2. Angel Returns: https://www.youtube.com/watch?v=juuAK... - Slides: 3. Effective business angel strategies: https://www.youtube.com/watch?v=TsZQd... - Slides: 4. Effectuation in Venture investing - Do experts make decisions differently?​: https://www.youtube.com/watch?v=miWap... - Slides For additional details and questions: https://www.fiban.org/robertwiltbank

1. Robert E Wiltbank, Ph.D.
wiltbank@willamette.edu

2. The Entrepreneurial Problem
For Profit / Social / Otherwise
• Goals are rarely well known & specified
• The future is extremely unpredictable
• People don’t ‘follow instructions’

3. Effectual vs. Predictive Logic
Given
Goals
M1
M2
M3
M4
M5
Distinguishing Characteristic Of Predictive Logic:
Selecting various means to achieve pre-determined goals
New means may be generated over time

4. Distinguishing Characteristic of Effectuation:
Imagining & Selecting various goals using a given set of means
E2
E3
E
En
Given Means
M1
M2
M3
M4
M5
E1
Imagined
Ends
Effectual vs. Predictive Logic
What CAN we do, rather than what SHOULD we do.

5. • Causal reasoning takes a particular effect as given
and focuses on selecting between means to create
that effect.
What should we do?
What can we do?
• Effectual reasoning takes a set of means as given and
focuses on selecting between possible effects that
can be created with that set of means.

6. 6 Definition of one of several possible markets
Adding Segments/Strategic Partners
Segment Definition
(through strategic partnerships & “selling”)
Market Definition
Segmentation
(using relevant variables such as age, income, etc.)
Effectuation
Causation Model
from Expert Managers
Targeting
(based on evaluation criteria
such as expected return)
Positioning
(through mktg strategies)
Effectuation as Used
by Expert Entrepreneurs
Customer
Identification
(through Who am I?
What do I know?
Whom do I know?)
THE CUSTOMER

7. • Causal principles (red) generally taught in bschool
7
• Effectual principles are always in Blue
The Principles of Effectuation

8. 8
• Means. The basis for decisions
and new opportunities:
– Who I am
– What I know
– Whom I know
Where to Start
• Goals. Given (based on predictions)

9. • Expected Return.
Calculate upside potential
and pursue the (risk
adjusted) best opportunity.
9
• Affordable Loss.
Calculate downside potential and risk no
more than you can afford to lose.
Risk, Return and Resources

10. 10
Partnership. Build your “future” together with customers,
suppliers and even prospective competitors.
Attitude Toward Others
Competition. Set up transactional
relationships with customers and
suppliers.

11. 11
When things pop up
• Leverage Surprises.
Surprises can present new opportunities.
• Avoid them. Surprises are not good

12. 12
Underlying Logic & What to Do
To the extent we can predict the future,
we can control it.
⇒⇒⇒⇒ PLAN
To the extent we can control the
future, we don’t need to predict it.
⇒⇒⇒⇒ CO-CREATE

13. Prediction: efforts to position the venture for success based on
forecasts of important market elements.
Control: efforts to directly construct important market elements,
in order to lead the venture to success.
A Critical Difference
Prediction Control when facing uncertainty.

14. Predictive. The future is a reliable
continuation of the past. Accurate
prediction is possible and useful.
Transformative. The future as shaped (at least
partially) by actions of all players. Prediction is
neither easy nor useful.
5. Approach
Avoid Contingencies. Surprises are
bad. Contingencies are managed by
careful planning and focus on
targets.
Leverage Contingencies. Surprises are good.
New developments encourage imaginative re-
thinking of possibilities and continual
transformations of targets.
4. Contingency
Perform Competitive Analysis. Protect.
Strategy is driven by potential
competitive threats.
Form Partnerships. Grow. Strategy is created
jointly through partnerships to create new
opportunities.
3. Attitude
Toward
Outsiders
Calculate Expected Return. Pursue the
(risk adjusted) largest opportunity
and accumulate required resources.
Maximize upside potential.
Set Affordable Loss. Pursue interesting
opportunities without investing more
resources than you can afford to lose. Set a
limit on downside potential.
2. Risk, Return
and
Resources
Set a Goal. Goals determine actions. For
example, the goal of achieving X, will
dictate I need person A with skills
matched to X.
Assess Your Means. Take action based on what
you have available:
* Who I am
* What I know
* Whom I know
Example: I have person A, I can achieve X, Y, or Z
1. Where to
Start
Tactics for PredictionTactics for Control
Predictive. The future is a reliable
continuation of the past. Accurate
prediction is possible and useful.
Transformative. The future as shaped (at least
partially) by actions of all players. Prediction is
neither easy nor useful.
5. Approach
Avoid Contingencies. Surprises are
bad. Contingencies are managed by
careful planning and focus on
targets.
Leverage Contingencies. Surprises are good.
New developments encourage imaginative re-
thinking of possibilities and continual
transformations of targets.
4. Contingency
Perform Competitive Analysis. Protect.
Strategy is driven by potential
competitive threats.
Form Partnerships. Grow. Strategy is created
jointly through partnerships to create new
opportunities.
3. Attitude
Toward
Outsiders
Calculate Expected Return. Pursue the
(risk adjusted) largest opportunity
and accumulate required resources.
Maximize upside potential.
Set Affordable Loss. Pursue interesting
opportunities without investing more
resources than you can afford to lose. Set a
limit on downside potential.
2. Risk, Return
and
Resources
Set a Goal. Goals determine actions. For
example, the goal of achieving X, will
dictate I need person A with skills
matched to X.
Assess Your Means. Take action based on what
you have available:
* Who I am
* What I know
* Whom I know
Example: I have person A, I can achieve X, Y, or Z
1. Where to
Start
Tactics for PredictionTactics for Control
Effectual Decision Making

16. Kevin DeWhitt, Agilyx, affordable loss and co-creation

17. Padmasree Harish, Easy Auto: persistence, inter subsjective, commitments

18. Yan Cheung, ACN to Nine Dragons, transformation, $3,800, 10 years.

21. Take Stock of your means: who, whom, what.
What can you do for near zero; Or where you can afford to lose?
What commitments have you attracted and followed?
What surprises are you taking advantage of so far?
New
means
New
goals
Who I am
What I know
Whom I know
Expanding cycle of resources
Means
Converging cycle of constraints on goals
Goals
What can
I do?
Call people
I know
Stakeholder
commitments
Yngve’s Effectual Process

22. New
means
New
goals
Expanding cycle of resources
Means
Engineer
Summer Travel Biz
Relationship with Sakada
Converging cycle of constraints on goals
Goals
What can
I do?
Interact with
people
Stakeholder
commitments
New markets
Effectuation in Action

23. Take Stock of your means: who, whom, what.
What can you do for near zero; Or where you can afford to lose?
What commitments have you attracted and followed?
What surprises are you taking advantage of so far?
New
means
New
goals
Who I am
What I know
Whom I know
Expanding cycle of resources
Means
Converging cycle of constraints on goals
Goals
What can
I do?
Call people
I know
Stakeholder
commitments
Your Effectual Process

24. Distinguishing Effectuation in Venture Investing
• Select ventures that appear most capable of influencing
critical market elements.
Create and Influence localized markets vs. compete in large “ideal” ones.
• Emphasize current means & capabilities rather than on plans
for acquiring the “best” means to reach original goals.
1. Adjusting goals is less expensive than acquiring means.
2. Commitment is more important than Best.
• Encourage the venture to make smaller investments that get
to cash flow positive rather than investing in the resources
suggested by market research to “hit plan.”
Overhead trails growth
• Avoid prediction as the basis for investment decisions.
Emphasize affordable loss over maximizing expected values.
Effectuation is related to a reduction in failures, but ‘homeruns’ appear random.

25. 25
How we’ve learned
Do experts make decisions differently?
It appears so: very different from novices AND from
expert managers.
Marketing Under Uncertainty: An Effectual Approach.
Journal of Marketing 2009, vol 73 (May) p1-18
with N. Dew, S. Read, S. Sarasvathy
Effectual versus predictive logics in entrepreneurial decision-making.
Journal of Business Venturing 2009, v24(4): 287-309.
with N. Dew, S. Read, S. Sarasvathy

26. 26
How we’ve learned
Does the level of uncertainty actually matter?
It appears so: as uncertainty is greater, groups of
strategic action, and their sequence significantly effect
valuations.
Making Sense: Patterns of Competitive Actions and Valuation of New Firms.
Strategic Management Journal, 2010, v31(13): 1474-1497.
with V. Rindova, W. Ferrier

27. 27
How we’ve learned
Does the use of effectuation affect evaluation?
It appears so: similarities between investors and
entrepreneurs increases likelihood of investment and
investment amount.
I Like How You Think: The Role of Cognitive Similarity as a Decision Bias
Journal of Management Studies 2011 48:7, p 1533-1561.,
with C. Murnieks, M.Haynie, T.Harting

28. 28
How we’ve learned
Does the use of effectuation affect outcomes?
It appears so: effectual angel investors experience fewer
failures and the same rate of homeruns.
Prediction and Control Under Uncertainty: Outcomes in Angel Investing
Journal of Business Venturing 2009, vol 24 p 166-133
with S. Read, N. Dew and S. Sarasvathy.
A meta-analytic review of effectuation and venture performance
Journal of Business Venturing 2009
S. Read, M. Song, W. Smit.