Lecture slides rwth_brettel

School of Business and Economics
TIME Research Area | Innovation & Entrepreneurship Group (WIN)
Entrepreneurship and Innovation
TU9 MOOC – Introduction to Effectuation
Univ.-Prof. Dr. Malte Brettel | Aachen | October, 20nd 2014

2© Innovation & Entrepreneurship Group
Photo: http://www.darden.virginia.edu/web/Faculty-Research/Directory/Full-time/Saras-D-Sarasvathy/
…Is there a difference between expert
entrepreneurs vs. non-expert entrepreneurs as
concerns how they would deal with risks & returns
in highly uncertain situations?
in form of a think aloud
experiment
Saras examined 27
Expert Entrepreneurs
Sarasvathy discovered that there also different
approaches to starting a business...

Expert EntrepreneursNon-Entrepreneurs vs.
o Start by defining goals
o Based on goals, acquisition of means
o Decision based on expected returns
o Research, competitive analysis …
o ….
o ….
o ….
She examined the differences between expert and
non-expert entrepreneurs
Photo: http://pixabay.com/ CC0 public domain

New
means
Input Process Output
What can I do?
Who am I?
What do I know?
Whom do I know?
1
1 2 3
Expanding cycle of resources
Whom do I
approach?
Craft
stakeholder
commitments
New
goalsConverging cycle of goals
2
Co-Creation of
Company/Market
3
For example, expert entrepreneurs assess their means avail-
able and choose between possible effects to be created...

Start of process with
…
START
Logic
dimensions
… in causal logic
(prediction-based)
… in effectual logic
(action-based)
Goal (ends)-driven action
Estimation of necessary
means
Means-driven action (Bird-in-hand)
Preferences, knowledge ,networks
Unspecified goals
Investment decision
based on … INVEST
Expected returns logic
Calculations
Commitment limit (Affordable loss)
Restriction on downside potential
Moving forward through …
PROCESS
Prediction of the future
Planning, Research
Stakeholder commitments,
Step-by-step development
Dealing w/ contingencies
by … CONTINGENCIES
Avoiding surprises
Plan adjustments
Leveraging contingencies,
Incorporation of external information
Input
Process
Output
123
Input
Process
Output
321Based on: Sarasvathy (2001), Sarasvathy (2008)
Effectuation can be contrasted to causation along
a list of four dimensions, all carrying the notion of design

Social
networks
Whom they
know
Technology
What they
know
Traits,
tastes,
abilities
Who they are
Basic inputs
Based on the given set of means the
technology entrepreneurs start to
develop the project
When they identify limits for further
development, they start contacting
potential partners
NTB
F
MEANS
They bind those stakeholders to the
project who commit to the project,
thereby enlarging the means
Effectuation
Process
Process
converges on NTBF
Source: Based on
Sarasvathy (2005)
In the dynamic model of new technology-based firms
the resource base is being expanded while goals converge

Access your means
1
Reflect your means
2
Transfer your means
3
Write down 10 things
answering the questions:
What are your
strengths?
What are
you good at?
Amend your thoughts by
answering the questions:
In which contexts
did you use
your
strengths?
Which skills &
knowledge were
also needed in
these situations?
Complete your thoughts
by answering the
questions:
In which contexts
do I want to apply
my skills and
knowledge?
Which is the closest
context for me to
use my skills
&knowledge?
Adopted from: Faschingbauer, M. „Effectuation: Wie erfolgreiche Unternehmer denken, entscheiden und handeln“, Schäffer Poeschl, 2010. p.199
Analyzing your skills and your knowledge as well as
settings in which you would like to apply them

Partnerships ≠ Partnerships –
so, what is the difference?
String Quartet
vs.
Jam Session
Photo Orchester: Koninklijke Harmonie Oefening & Uitspanning Photo Jam Session: Kevin Viol

*Dew et al. (2010) Photo: http://pixabay.com/ CC0 public domain
The preferred method of effectual entrepreneurs building a
start-up is “stitching together a network of stakeholders”*
Working with committed
partners bears advantages
Greater pool of
resources & ideas
New ideas changing
business goals
Shared risks and
losses
Higher focus on own
expertise
Higher growth
potential

Causation LogicEffectuation Logic
???
???
ReturnInput
ReturnInput
Effectuation focuses on controlling the level of input,
whereas causation focuses on controlling the level of return

Is your idea
interesting?
(based on
your motives)
What is
the necessary input?
DON’T DO IT !!!
NO
Can the input
be reduced?
DO IT !!!
YES
NO
YES
NO
Does the
input appear
fair?
YES
Understanding your decisions on how to do the next step
without risking severe consequences

Turning contingencies into new opportunities
Photo: http://pixabay.com/ CC0 public domain
In response to a guest complaining about fried potatoes
being too thick, an American cook cut them as thin as
possible
Working on a treatment for heart disease, Pfizer found
that the developed medication could not cure heart
diseases, but..
Percy Spencer found that the chocolate bar in his pocket
melted because he had been working on a radar unit

A B A
X
Y
Z
…
Avoiding contingencies/surprises Using contingencies/surprises as new means
Whereas a causation approach attempts to avoid surprises,
an effectuation approach embraces surprises

Lecture slides rwth_brettel

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