Lecture 2 Elements of Effectuation

What is effectual logic? How do you control a future you cannot predict? Effectual Logic Causal Logic Visionary Logic Adaptive Logic Low High LowHigh PREDICTION CONTROL = Non-predictive control

Principles of Effectuation Bird-in-hand principle: Affordable loss principle: Crazy Quilt principle: Lemonade principle: Pilot-in-the-plane principle:

Bird-in-hand principle: Imagine possibilities that originate from your means. –Who you are Legitimacy and risk reduction –Who you know Network of cocreators –What you know Legitimacy and knowledge NOT –Pre-set goals or opportunities –Causal reasoning, which works inversely by assembling means after a goal is set.

Affordable loss principle Risk what you can afford to lose –Reduces stress and decreases the likelihood of future problems NOT –Targeting a return, then working to minimize associated risk.

Crazy Quilt principle Build partnerships with self-selecting stakeholders. –Grows the set of established contributors Obtain pre-commitments from these key partners early on in the venture –Reduces uncertainty –Co-creates the new market with its interested participants –Adds legitimacy NOT –Competitive analysis, which presumes that competitors are rivals and nothing else.

Lemonade principle Invite and embrace surprise –Reduces the likelihood of stopping Interpret “bad” news and surprise as potential clues to create new markets. –Changes in inputs and changes in perceptions of customer requirements NOT –Making “what-if” scenarios to deal with worst-case scenarios –Avoiding surprises –Spendig excess effort to reduce the probability of unexpected outcomes.

Pilot-in-the-plane principle Focus on activities within your control –Reduces risk, increases ease of effort Believe your actions will result in the desired outcomes. –Self-fulfilling prophecy Believe that the future is neither found nor predicted, but rather made. –Reduces risk by redefining failure and success NOT Focus on inevitable trends A belief that established market forces will cause the future unfold.

Dynamics of the effectual network Who I am What I know Whom I know What can I do? Effectual stakeholder commitments Interactions with other people (Affordable loss)

What is effectual logic? How do you control a future you cannot predict? Through EFFECTUAL Co-creation Effectual Logic Co-create Causal Logic Plan Visionary Logic Persist Adaptive Logic Adapt Low High LowHigh PREDICTION CONTROL = Non-predictive control

Dynamics of the effectual network Who I am What I know Whom I know What can I do? Effectual stakeholder commitments Interactions with other people New means New goals NEW MARKETS AND NEW FIRMS Expanding cycle of resources Actual Means Converging cycle of constraints Actual courses of Action possible (Affordable loss) Who We are What We know Whom We know What can We do?

Relationship between Causal and Effectual Logic