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On Effectual vs. Causal Entrepreneurship
1. On Effectual vs. Causal Entrepreneurship
Ziya G. Boyacigiller
This presentation was created and given by Ziya
Boyacigiller who was leading Angel Investor and a loved
mentor to many young entrepreneurs in Turkey. We have
shared it on the web for everyone’s benefit. It is free to
use but please cite Ziya Boyacigiller as the source when
you use any part of this presentation. For more about
Ziya Boyacigiller’s contributions to the start-up Ecosystem
of Turkey, please go to www.ziyaboyacigiller.com
2. Effectual vs Causal
Entrepreneurship*:
Ziya G. Boyacıgiller
*Based on work by
Saras D.SarasvathyShort-Version (c) Ziya G. Boyacigiller 2012 2
How to Plan Your Business
– or, Should You Plan at All?
3. Q:
Where is Entrepreneurship Needed?
A. For-profit / Not-for-profit organizations
B. Governmental / Private sectors
C. Low / High technology industries
D. New / Established companies
Ziya G. Boyacigiller (c) 2008 (c) Ziya G. Boyacigiller 2012 3
5. Ziya G. Boyacigiller (c) 2008 (c) Ziya G. Boyacigiller 2012 5
Who is an entrepreneur?
6. Research Shows:
Ziya G. Boyacigiller (c) 2008 (c) Ziya G. Boyacigiller 2012 6
When comparing the attributes of entrepreneurs to
others, no single attribute is a good predictor of who is
more likely to become an entrepreneur
No unique bundle of attributes appears to be "required"
for entrepreneurial activity
Entrepreneurs and non-entrepreneurs are, in general,
similar in their attributes
Entrepreneurs and non-entrepreneurs have been shown
to be risk averse, but entrepreneurs are slightly less risk
averse than others
Source: Amit and Mueller (1993)
7. Effects of Mental State
realism & optimism
Ziya G. Boyacigiller (c) 2008 (c) Ziya G. Boyacigiller 2012 7
8. Working Definition of
Entrepreneur
Founder or executive of an
enterprise,
who creates a new stream of
revenues
by building a new business
(i.e., organizing a venture)
Ref: Christoph Zott, IESE, Prof of Entrepreneurship
Ziya G. Boyacigiller (c) 2008 (c) Ziya G. Boyacigiller 2012 8
9. Why do you
want to be an
entrepreneur?
Ziya G. Boyacigiller (c) 2008 (c) Ziya G. Boyacigiller 2012 9
19. Ziya G. Boyacigiller (c) 2008 19
games to learn to
Prepare for Life
Deterministic
Chess / Go
Bridge
…
Teaches game-theory –
HOW TO ANALYZE TO
MAKE A DECISION
Stochastic
Backgammon
Poker
…
Teaches probability –
HOW TO ANALYZE TO
TAKE A CHANCE…
(c) Ziya G. Boyacigiller 2012
20. Ziya G. Boyacigiller (c) 2008 20
Find a way to win in
Tic-Tac-Toe
(c) Ziya G. Boyacigiller 2012
21. Ziya G. Boyacigiller (c) 2008 21
Find a way to win in
Checkers
(c) Ziya G. Boyacigiller 2012
22. Ziya G. Boyacigiller (c) 2008 22
Can you find a way to win
in Chess?
(c) Ziya G. Boyacigiller 2012
23. Ziya G. Boyacigiller (c) 2008 23
Can you find a way to win
in Backgammon?
Bet
Luck
MULTIPLIER
UNCERTAINITY
Can you
affect luck?
(c) Ziya G. Boyacigiller 2012
24. Ziya G. Boyacigiller (c) 2008 24
How much of an “EDGE” do
you have?
(c) Ziya G. Boyacigiller 2012
25. Ziya G. Boyacigiller (c) 2008 25
What…
… does all this have
to do with starting a
new business???
(c) Ziya G. Boyacigiller 2012
26. Ziya G. Boyacigiller (c) 2008 26
… and Entrepreneurship !
game venture
board setting initial situation
moves actions
dice throw uncertainty (ambiguity)
initial bet (ante) initial investment
increasing bets follow-on investments
piece advantage physical advantage
positional advantage strategic advantage
- - - - - -
next game next venture
(c) Ziya G. Boyacigiller 2012
27. Ziya G. Boyacigiller (c) 2008 27
Every game/venture…
…is a “test” – a learning
opportunity…
What makes one aWhat makes one a greatgreat business person?business person?
(c) Ziya G. Boyacigiller 2012
28. Entrepreneurship is a Profession.
Be a “Serial Entrepreneur”,
Not a “One Time Entrepreneur”
Improve
skills
{take a
challenge}
Use status-quo
skills
{stay in comfort
zone}
29. Ziya G. Boyacigiller (c) 2008 29
In 2000, there were 454 spinoffs, within all American academic
institutions, pp57
In 2000, average was 4.2% spinoffs-to-disclosures ratio within 26
selected universities (~37% of total with spinoffs) in USA. Pp68
During 1980-1996, MIT spinoffs = 134, went public = 24, 18% public
“spin-off ratio, pp19 & pp30
Using 4.2% and 18%, we get 0.76%. This means
only ~8 spinoffs for each 1,000 disclosures
succeed to go public (IPO). (Note that this ratio is for MIT and is much
higher than non-academic success rates. For example, the rate for most
startup companies is probably over 100 times worse!)
< 8 in 1,000 success rate…
(c) Ziya G. Boyacigiller 2012
30. Ziya G. Boyacigiller (c) 2008 30
?
Now, you may have more
questions than answers…
1. Can a business be “planned” when there is so much detail and ambiguity
looking into the future?
2. How can I write a business plan when the competitive environment is
changing all the time? My plan will be obsolete by the time I’m done
with it, if I waste my time planning.
3. Will writing a business plan really help me? Or, should I just start the
business without a plan?
4. Doesn’t luck have a lot to do with success in business?
5. - - - - -
6. Is there such a thing as “Entrepreneurial Thinking”?
7. Can anyone be an Entrepreneur? Or, are you born one?
8. Can you teach Entrepreneurship?
(c) Ziya G. Boyacigiller 2012
31. Ziya G. Boyacigiller (c) 2008 31
Develop a business plan for:
A. Simit vendor
in Bebek
B. Global IPTV*
set-top box
manufacturer
* IPTV = Internet TV
(c) Ziya G. Boyacigiller 2012
32. Ziya G. Boyacigiller (c) 2008 32
How would you plan your
“business” ?
1. If your business is like tic-tac-toe?
2. If your business is like
backgammon?
(c) Ziya G. Boyacigiller 2012
33. Ziya G. Boyacigiller (c) 2008 34
Cooking as an Analogy
Case 1:
Causal Approach:
Your friend asks you to cook
“imam bayildi”.
You plan what you need before
you start. You decide that
you will need eggplants,
tomatoes, onions, olive oil,
garlic, salt, pepper.
You go shopping since there are
no eggplants in the house.
You know exactly what to do
at each step of the cooking
process.
Case 2:
Effectual Approach:
You decide to cook for your
friend.
You open the refrigerator and
find tomatoes, onions, olive
oil, garlic, parsley,
eggplants, flour, eggs, salt,
pepper…
You can cook with these “imam
bayildi” or “pasta with
marinara sauce” or
“eggplant salad”. You end
up creating your “own dish”
while cooking since some
ingredients are not fit to
use...
Why can’t you write a
detailed plan in Case 2?
(c) Ziya G. Boyacigiller 2012
34. Ziya G. Boyacigiller (c) 2008 35
Business Schools (often)
teach “Causal Reasoning”
Causal or Predictive
reasoning is used in
all business
functional areas;
when developing a
business plan or
planning to achieve
business goals.
(c) Ziya G. Boyacigiller 2012
35. Ziya G. Boyacigiller (c) 2008 36
“Causal Planning” is like
building a Jig-Saw Puzzle…
The picture you will end up with is known (it is on the box),
There is ONLY ONE SOLUTION !
The pieces are all available (inside the box),
What you do is: make them fit together…
(c) Ziya G. Boyacigiller 2012
36. Ziya G. Boyacigiller (c) 2008 37
Causation Models…
…are based on the logic of prediction,
To the extent that you can predict
the future,
you can control it.
(Translation: You believe that the more exactly you can
predict the future, the more precisely you can control it.
Therefore, before you shoot you spend a lot of your time
and attention on aiming…)
(c) Ziya G. Boyacigiller 2012
37. Ziya G. Boyacigiller (c) 2008 38
Causation Models…
Puzzle Business
Causal reasoning begins
with a given goal to be
created
the picture on the box vision for a business
and consists of
principles, techniques,
and criteria
shapes, colors,
pictures of the puzzle
pieces
business skills,
knowledge and tools
based on the logic of
prediction for generating
and selecting between
possible means /
alternatives
puzzle pieces courses of action
to achieve the given
goal.
to build the puzzle to build the business
(c) Ziya G. Boyacigiller 2012
38. Ziya G. Boyacigiller (c) 2008 39
Real Life Entrepreneurs use
“Effectuation”
Build the
mountain as
you climb !
(c) Ziya G. Boyacigiller 2012
39. Ziya G. Boyacigiller (c) 2008 40
Effectual Planning is like
Building a Lego Sculpture…
Here, you have an idea of what you want to build (but you don’t have an exact
picture of it). There are approximate shapes available as Lego bricks (but you
have to improvise as to which piece to use where). What you do is, use creativity to
pick and fit together the best pieces available to form the exact shape “as you go one
brick at a time”… Note that, you can end up with many different-looking results with
this approach. If the expected result is to build a man, there are multitude shapes
that this man could end up with – fat, thin, black, white, short, tall, bald or hairy,
etc..
Build “a man”
out of Lego
bricks
(c) Ziya G. Boyacigiller 2012
40. Ziya G. Boyacigiller (c) 2008 41
Effectuation Models…
…are based on a logic of control,
To the extent that you can control the
future,
you do not need to predict it.
(Translation: If you think that you can be in control no matter what
would take place in the future, you don’t need to predict exactly
what will take place in the future. You assume you will “find a
way” to deal with any situation in the future… So you shoot first,
and aim later…)
(c) Ziya G. Boyacigiller 2012
41. Ziya G. Boyacigiller (c) 2008 42
Effectuation Models…
Legos Business
Effectual reasoning
begins with a given
set of means, and
the Lego bricks knowledge,
resources, assets
consists of principles,
techniques, and
criteria
shapes, colors,
types of Lego bricks
business skills,
experience, tools
based on the logic of
control for generating
and selecting between
possible effects and
results
Lego brick
combinations
courses of action
that can be created
with those means as a
result
to build the Lego
sculpture
to build the
business
(c) Ziya G. Boyacigiller 2012
42. Ziya G. Boyacigiller (c) 2008 43
Comparing Causal vs Effectual Planning
Causal Planning is useful
in domains where
Rationality
Pre-existent goals
Environmental
selection
are primary factors that
influence outcomes.
Effectual Planning is
useful in domains
where prediction is
Untenable
Goals are ambiguous
Decisions influence the
environment,
and functions in a non-
random fashion to
make reasonable and
informed choices.
(c) Ziya G. Boyacigiller 2012
43. Ziya G. Boyacigiller (c) 2008 44
Two Approaches to Business
Planning
Causal: Jig Saw has a given solution that you are
driven to achieve – a defined goal.
Effectual: Lego has no specific solution – you can
end up with many different solutions and results.
(c) Ziya G. Boyacigiller 2012
44. Ziya G. Boyacigiller (c) 2008 45
Effectuation Rules in Chaos:
Like Intel or PayPal did, it
is quite possible…
… to start moving with a plan in mind
(Plan A),
and as time goes by,
to end up with a quite different
plan (Plan n).
(c) Ziya G. Boyacigiller 2012
46. Definition of
Entrepreneurship
“The Pursuit of Opportunity
Without Regard to Resources
Controlled”
Howard Stevenson
Harvard Business SchoolZiya G.
Boyacigiller (c)
2008 (c) Ziya G. Boyacigiller 2012 47
47. Improved Definition of
Entrepreneurship
“An entrepreneur is someone who is
always on the lookout for problems that
can be turned into opportunities, and
finds creative ways to leverage limited
resources to reach their goals.”Tina Seelig
Stanford Business SchoolZiya G.
Boyacigiller (c)
2008 (c) Ziya G. Boyacigiller 2012 48
48. Ziya’s Definition of
Entrepreneurship
“An entrepreneur is someone who is
motivated to solve a problem,
imagines a solution and decides it is a
worthwhile opportunity to pursue,
then works passionately and patiently
to find-a-way to make this
dream come true.”Ziya G. Boyacigiller
Ziya G.
Boyacigiller (c)
2008 (c) Ziya G. Boyacigiller 2012 49
49. Ziya G. Boyacigiller (c) 2008 50
What …
…are the
differences
between
successful
entrepreneurs
and others? Saras D. Sarasvathy study,
(c) Ziya G. Boyacigiller 2012
50. Ziya G. Boyacigiller (c) 2008 51
Recipe for Entrepreneurs
What they use to create their businesses
1. Who they are
(their traits, tastes, abilities, values,…)
2. What they know
(their education, training, expertise, experience…)
3. Whom they know
(their social and professional networks)
(c) Ziya G. Boyacigiller 2012
51. Ziya G. Boyacigiller (c) 2008 52
Recipe for Entrepreneurs
What they use to create their businesses
4. plus Effectual Reasoning !
(c) Ziya G. Boyacigiller 2012
52. Ziya G. Boyacigiller (c) 2008 53
Effectual Reasoning “finds a
way” when no path exists…
Unlike causal reasoning, which comes to life through careful
planning and subsequent execution (aim first/shoot next),
effectual reasoning lives and breathes execution (shoot
first/aim later).
Plans are made and unmade and revised and recast through
daily action and interaction.
Yet there is always a vision that keeps the team together, a
picture of an attractive future or a compelling story
that attracts in more stakeholders in a journey into
unmapped territories, and keeps them motivated to reach
out further and deeper than ever...
(c) Ziya G. Boyacigiller 2012
53. Ziya G. Boyacigiller (c) 2008 54
While Causal Thinkers are like
generals seeking to conquer
fertile land,
Effectual Thinkers are like
explorers setting out on
voyages into uncharted waters.
(c) Ziya G. Boyacigiller 2012
54. Ziya G. Boyacigiller (c) 2008 55
Why are Entrepreneurs Right
to Use Effectual Reasoning?
If you are in a predictable market, there
can always be someone else with more
resources who can
• predict it better than you, or
• execute better than you
If you are in an uncertain market, you
have equal chances to create the market
as others. (Creativity is to see what
others fail to see…) more on this later
(c) Ziya G. Boyacigiller 2012
55. Ziya G. Boyacigiller (c) 2008 56
Edison “Creating the Future”
What do you
think?
Did Thomas Alva use
Effectual or Causal
planning when he
changed the world
with his inventions?
(c) Ziya G. Boyacigiller 2012
56. Ziya G. Boyacigiller (c) 2008 57
An option…
1. Risky but predictable future
2. Risky and “to be created” future
(what entrepreneurs believe in – their vision -
when they use effectual logic)
By the way, Edison succeeded to created the
light-bulb but failed in concrete
(c) Ziya G. Boyacigiller 2012
57. Ziya G. Boyacigiller (c) 2008 58
How does one control an
unpredictable future?
Is future a continuation of the
present?
To what extent can human action
change its course, or “Create the
Future”?
(c) Ziya G. Boyacigiller 2012
58. Ziya G. Boyacigiller (c) 2008 59
Did Microsoft Create the
Future? Did Intel?
When Bill Gates decided to develop the
DOS for IBM PCs, he had no picture in his
mind of what the world would look like
today. Nor did Andy Grove /Robert
Noyce/Gordon Moore (founders of Intel,
left to right).
They just kept on planning for the next
step, and taking that next step…
The steps that they chose to take, (and
steps they did not take) resulted in
“today” as we know it. They created the
future we live in today with their next
choices…
If you could ask them “if they were trying
to create the future”, they would say “of
course not”. They were simply trying to
control the next decisions to be made
so it would be best for their businesses…
(c) Ziya G. Boyacigiller 2012
59. Ziya G. Boyacigiller (c) 2008 60
Where is Luck in all this…
In an uncertain environment, luck is the throw of dice that
determines what it is that the future holds for you.
Effectual planning accepts that luck will show the options
available, and knows that there are infinite possible options in
the future – therefore, defers the “decision making” to the time
when the dice are thrown and the options are visible. Keeps
options available to the last second… Choices you make “Creates
the Future” as you go…
Your goal is to keep the initiative – so you force the others to
respond to your moves, rather than make their choices freely.
Causal planning assumes that options are predictable ahead of
time (minimal effect of luck), and plans a course of action for
each option so they will reach the goal.
(c) Ziya G. Boyacigiller 2012
60. Ziya G. Boyacigiller (c) 2008 61
Ying-Yang in
Entrepreneurial Thinking
One person can use both “causal” and
“effectual” thinking at different times depending
on what the circumstances call for…
(c) Ziya G. Boyacigiller 2012
61. Ziya G. Boyacigiller (c) 2008 62
Applying What We Learned:
1. Create a vision
(“Best way to predict the future is, to create it.”)
2. Pick a business within your means
(i.e. “means” you now have or can
get/buy/develop/create)
(c) Ziya G. Boyacigiller 2012
62. Ziya G. Boyacigiller (c) 2008 63
Applying What We Learned:
3. Develop a detailed plan only for the next
“foreseeable phase” of your business.
(“When driving in the fog, you can only plan to drive as far
as you can see…”)
(c) Ziya G. Boyacigiller 2012
plan to
drive only
as far as
you are able
to seeto minimize risk
63. Ziya G. Boyacigiller (c) 2008 64
Once Again:
Three Principles of
Effectual Entrepreneurship
1. Effectual reasoning is about committing the fewest
resources to a new idea, not generating the highest
returns from it.
( plan to minimize risk, find your 1st
customer and get help from
them from the beginning and then on…)
2. Effectual reasoning depends on strategic
partnerships, not on competitive analyses.
( transform 1st
customers and suppliers into partners to shape new
product and new market…)
3. Effectual reasoning is about leveraging the
unexpected, not making predictions.
( make lemonade when you are given lemons… Key skills are
“creative mindset + deal making + negotiation” (don’t accept the
status quo, don’t be afraid to walk into the forest to see what is next,
have a bias for action, fail often & fail small …)
(c) Ziya G. Boyacigiller 2012
64. Ziya G. Boyacigiller (c) 2008 65
In summary:
Predictable businesses are started with a
written business plan that is detailed and implies
that this plan can be followed to the letter with
controllable changes.
Unpredictable businesses are started with a
flexible plan (using a slide presentation and a
short written executive-summary), which implies
that plans will change in the future as the
assumptions and/or the environment changes.
Only the foreseeable future is planned in detail.
(c) Ziya G. Boyacigiller 2012