Simply stated, the effectuation process describes the phenomena when an entrepreneur starts with what they have and selects among possible outcomes. This is in contrast to the more familiar causal process or thinking style in which one starts with a desired outcome and then focuses energy and effort on activities that generate that outcome. With effectuation, the definition of "what one has” is just who they are, what they know and whom they know. (Sarasvathy, 2006).
It is easy to identify with this type of self-assessment or taking stock of one’s position and identifying what opportunities, solutions and innovations germinate from that analysis. The entrepreneurial mindset and entrepreneurial thinking are not limited to the challenging application of starting a new business. There are applications of effectual thinking or effectuation to the broader context of problem solving and stimulating creativity.
The next time you are considering an idea or opportunity it might be interesting to examine which thinking style you really incorporate. What are your first thoughts? Do you run through a mental list of who you know, what you know and how well your personality and interest align with the idea? (Effectual process). Or, do you immediately have a desired outcome in mind and create a checklist in your mind of tasks to produce the outcome? (Causal process).
In the following five statements, I have taken the liberty to condense and otherwise paraphrase five basic principles that Sarasvathy (2006) outlines to describe the way that entrepreneurs often really think.
1. Patchwork quilt principle: Essentially creating something new with existing means, the patches of the quilt are the "who I am,” "what I know” and "who I know.” The importance lies in what the entrepreneur does with his/her patches not necessarily the patch itself.
- Affordable loss principle: Identifying in advance what one is willing to lose rather than focusing on expected returns.
- Bird-in-hand principle: Negotiating with all stakeholders willing to make actual commitments to the project and therefore help to shape the new venture.
- Lemonade principle: Leveraging surprises rather than trying to avoid or overcome them, thus being able to run with an emerging situation and create value.
- Pilot-in-the-plane principle: Recognizes people as the prime driver of opportunity; entrepreneurs thinking effectually will be concerned with aspects of the future they can control with their own actions, thereby removing the need to predict the future.
This research is quite interesting and likely has direct application to the curriculum and instructional design considerations for authentic entrepreneurship education. For more information on this interesting research, visit the effectuation Web site at www.effectuation.org. This topic and others are typical of material we discuss in our exploratory course ENTR 1500 Successful Entrepreneurship taught at Laramie County Community College.
References: Sarasvathy, Saras. (2006). Effectuation: Elements of Entrepreneurial Expertise. Edward Elgar Publishers.