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Effectuation -NSRCEL Launchpad participants
The document discusses how expert entrepreneurs think differently than managers. It presents 5 principles of effectuation that entrepreneurs use - (1) starting with means rather than goals, (2) focusing on affordable loss, (3) leveraging contingencies, (4) forming partnerships rather than competing, and (5) controlling outcomes rather than predicting them. In contrast, managers tend to use causal logic, focusing on pre-set goals, expected returns, and avoiding surprises. The document argues that effectuation offers entrepreneurs more control in unpredictable environments by co-creating the future through stakeholder commitments rather than attempting predictive control.
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Effectuation -NSRCEL Launchpad participants
- 1. Effectuation Sachidananda B S Presentationfor Launchpadders NSRCEL-IIMB
- 2. William Henry Gates 4/28/2016© Sachidananda 2 “Bill” The Myth: • Bill Gates was the visionary who saw the future that all PCs would run Windows • Built Microsoft into the biggest software company in the world by himself because of his vision and talent The Facts: • Bill’s family was very wealthy, and Bill went to a gifted high school for children of rich families • Bill learnt how to program a computer in high school (in the late 1960s, computers were very rear) • Bill did not “drop out” of Harvard, but rather took a “leave of absence” and could come back any time • Bill’s mother introduced Bill’s new company, Micro-soft, to the CEO of IBM • A few weeks after the introduction, IBM signed a deal with Bill for MS-DOS, allowing Bill to retain the IP Source: Leap, Rick Smith
- 3. Ellio t ZuckerbergMark 4/28/2016 © Sachidananda3 The Myth: •Mark was a visionary who saw online social networks as the future of online media • Mark built facebook by himself from the beginning based on his vision and talent •Through his strong vision and character, was able to raise millions of dollars easily for facebook The Facts: • Learned how to write computer programs since he was 10 years old • Worked on many “projects” including Facemash and The Facebook, many of which failed early, but he learned from them • Started The Facebook with just $2000 • Had a strong core team who helped him grow facebook before getting external funding • Met Sean Parker who helped him raise money to grown business Source: The Facebook Effect, David Kirkpatrick
- 4. Charles NicholasBransonRichard 4/28/2016 ©Sachidananda 4 Could you guess how he started Virgin Atlantic?
- 5. HOW DOES AN ENTREPRENEURTHINK? 4/28/2016 © Sachidananda 5
- 6. Causal Logic ispredictive Control of outcomes achieved through accurate predictions, clear goals, and avoiding or protecting oneself against the unexpected To the extent you can predict the future, you can control it Conventional Wisdom: Causal Logic 4/28/2016 © Sachidananda 6
- 7. Interpreting the outcomes... 4/28/2016© Sachidananda 7 Scenario 1 Scenario 2 Scenario 3 Knightian UncertaintyRiskPredictable You know the distribution and can clearly predict the scenarios you could get into – very little risk if at all to operate in such a state The distribution is unknown to begin with, but one could follow the draws to understand what could come next. You could then prepare for the outcomes You do not know what is going to come next in spite of multiple attempts at the same thing. Outcome is highly uncertain! It is this sort of uncertainty that we deal with as entrepreneurs
- 8. Through the studyof several such Entrepreneurs…. …Some patterns emerge The Effectual Principles 4/28/2016 © Sachidananda 8
- 9. How differently doentrepreneurs think? 1. Bird in Hand Principle – Start with who you are, what you know and whom you know, and not necessarily with a predetermined goal or a pre-envisioned opportunity 2. Affordable Loss – Invest only what you can afford to loose 3. Crazy Quilt – Create an expanding network of self-selected stakeholders, each of whom commits only what he or she can afford to loose. Focus on partnerships rather than on competitors. 4. Lemonade – Be open to surprises and leverage them. Treat them as useful inputs rather than hindrances to be avoided. 5. Pilot in the Plane – Co-create the future with things within your control and with self-selected partners If you use these principles you can shape your future and transform your environment in ways that matter to you and your stakeholders. 4/28/2016 © Sachidananda 9
- 10. How is thisdifferent from how Managers think? Effectual Causal Start with your means Focus on your downside risk Leverage Contingencie s Form Partnerships Control Vs Predict Pre-set goals and opportunities Expected Returns Avoiding Surprises Competitive analysis Inevitable trends 4/28/2016 © Sachidananda 10
- 11. Classic Causation Modelfrom Marketing Textbooks Process of Effectuation Used by Expert Entrepreneurs SINGLE CUSTOMER Segment Definition Market Definition Segmentation Targeting Positioning Understand Customer Adding Segments/Partners Def of one of many possible markets Marketing Process Inversion 4/28/2016 © Sachidananda 11
- 12. Who I am? WhatI know? Whom I know? What Can I Do? Interaction with others Effectual Stakeholder Commitments Who we are? What we know? Whom we know? New mean s Expanding cycle of resources What can we do? (Affordable loss) New Goals Actual course of action possible Converging cycle of constraints New Markets and New Firms The process! 4/28/2016 © Sachidananda 12
- 13. How is thisdifferent from how Managers think? 4/28/2016 © Sachidananda 13
- 14. Having said that: Effectuation is Not an invention or thought of a great mind is not a Recipe guaranteeing success does offer Control in an unpredictable Business Environment does offer Insights how expert entrepreneurs cope with uncertainty 4/28/2016 © Sachidananda 14
- 15. Firm Life-Cycle andEntrepreneur’s Career 4/28/2016 © Sachidananda 15 Causal Tethered to goals and predictive Effectual Tethered to means and non-predictive Time Expert entrepreneurs do not always manage to bridge this gap Expert Entrepreneur Startup Firm Large Firm NoviceEntrepreneur R e s o u r c e s Low High
- 16. 4/28/2016 © Sachidananda16 Before we wind up – here is a Summary of our discussion thus far! The 10 Myths of Entrepreneurship
- 17. QUESTIONS 4/28/2016 © Sachidananda17 THANK YOU