Presentation is loading. Please wait.

Presentation is loading. Please wait.

Gavan Cleary & Norah Cussen

Similar presentations


Presentation on theme: "Gavan Cleary & Norah Cussen"— Presentation transcript:

1 Gavan Cleary & Norah Cussen
Effectuation Gavan Cleary & Norah Cussen

2 Effectuation What is effectuation.. Principles of effectuation: Norah
Short Video Principles of effectuation: Norah Bird in the hand – Leverage your means Affordable Loss- Assess potential loss rather than potential gain Lemonade – Leverage Contingencies Gavan Crazy Quilt – Build partner networks to co-create the outcome Pilot in the plane – Focus on actions which directly influence the outcome Summary, Q&A, Discussion

3 Bird in Hand The effectual cycle begins with the first principle – Bird in Hand. This implies that entrepreneurs use the means available to them to achieve an imagined end. There are three categories of means: 1) Who you are – traits, tastes and abilities 2) What you know - education, training, expertise and experience 3) Who you know - your social and professional networks

4 Entrepreneurial and Non- Entrepreneurial Thinking
Effectual Reasoning Causal Reasoning Imagining possible new ends using a given set of means Selecting between given means to achieve a predetermined goal Sarasvathy, S. (2012) “Effectuation 101”

5 What does this mean? “Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in a yet-to-be-made future that can substantially be shaped by human action; and they realize that to the extent that this human action can control the future, they need not expend energies trying to predict it.” (Sarasvathy, 2012) Common Questions: What are the characteristics, habits, and behaviors of the entrepreneur? Is there a learnable and teachable “core” to entrepreneurship? Effectuation Considers: Is there such a thing as “entrepreneurial thinking” that can be applied across space, time and technology? Does this provide a learnable and teachable “core” to entrepreneurship? Sarasvathy, S. (2012) “What Makes Entrepreneurs Entrepreneurial?”

6 Affordable Loss Effectuation is not just the entrepreneur’s ability to identify the means they have available to them but also their ability to use them effectively. This brings the second principle in the effectual cycle – Affordable Loss Causal models focus on maximising returns by selecting optimal strategies. The entrepreneur will calculate upfront how much they will need to start a new venture and spend time and energy raising this money. Whereas, the “effectuator” will estimate the downside of what they are willing to lose. Making decisions based on the factors within their control Effectuation.org “The Affordable Loss Principle”

7 - their financial condition
The concept is that the ‘effectuator’ is thrifty and at every stage they are asking; - Where do I stand? - How can I use what I have, what I know and who I know to get me to the next stage? - What can I afford to lose on the way? While calculating affordable loss may seem possible it requires the entrepreneur to have a clear understanding of; - their financial condition - psychological estimate of how much they are willing and able to commit.

8 Given the unpredictable nature of the business environment and the ‘entrepreneur type’ I consider:
Can an entrepreneur accurately estimate what they will need to invest? And; Can they estimate their own capabilities without bias?

9 Lemonade The third principle Lemonade - refers to the entrepreneur’s ability to leverage contingencies. The ‘effectuator’ when faced with unexpected events sees opportunity where others see distraction or even catastrophe. The ‘effectuator’ will; Leverage unexpected events and go ‘off road’. Invite the chance of opportunity instead of thinking - “what if” Interpret unforeseen events as the potential for tangent in the business plan hoping it will lead to unexpected growth Effectuation.org. “The Five Princples of Effectuation”

10 However, following unforeseen opportunities can;
Indeed, viewing unexpected events as opportunity can be beneficial and may lead to growth. However, following unforeseen opportunities can; divert from the original business objectives lead the entrepreneur into a negative tangent which can waste time and money all detrimental to the success of the business. Which would lead me to ask; Should new entrepreneurs practice more caution and curb the ‘entrepreneurial streak’ at the beginning of new venture?

11 Not all Opportunities are Good Opportunities
“Be firm in your vision – its what gets you through the dark days” – Jennie McGinn founder of Opsh online fashion retailer Negative Opportunities Increasing Risk Positive Opportunity Business Plan End Goal

12 Entrepreneurs should carefully assess the risks of new opportunities.
Given that 80% of new ventures fail, erring on the side of caution is not to be disregarded. Example; Consider a plumber (Joe) who is a first time entrepreneur. Joe has invested the maximum amount of his resources financial, time and psychological to set up a small business. Is it wise for Joe to chase new opportunities & stakeholders when he is already over run trying to achieve his initial goal?

13 Crazy Quilt – Building Partnership Networks
“Partners are a source of new means, a source of new ideas, a way of sharing risk, and the people who help you to create an opportunity.” (Read, Sarasvathy, Dew, Wiltbank, & Ohlsson, 2010) Carefully selected stakeholders commit differing means in exchange for a chance to influence goals and final outcomes Self-selection is critical – commitment is more important than precise alignment. Partnerships Should: Increase the available means Align to co-create the end result

14 Partner Acquisition All significant stakeholders are potential partners Tools of Influence Reciprocation, Commitment , Consistency, Credibility, Likability, Opportunity cost. Consider What will this partner bring to the venture ? Will s/he fit ? Are you persuadable, willing to re-shape the venture with partners in order to gain their commitment to it?  What are you reluctant to change? Why? In the process of bringing a partner on board, when do you need persuasion and when do you need negotiation? What partners would like to see you succeed? Why?

15 Ownership vs Control Ownership is what remains when commitments are met and bills are paid. Is it better to own 100% of a failing company or 5% of a successful company which you control? Sharing ownership wisely can create more cash than hoarding it. In new ventures, the pie is not fixed. Contracts (meta rules) specify who controls the business. Bill Gates owned 9.4% of Microsoft in 2008 Offering Equity to key partners can incentivise and align interests External stakeholders do not typically seek control of the venture, but want protection from downturns and participation in upturns. Equity can be offered temporarily, and bought back at agreed milestones. Other options include, equity options, profit share, discounted pricing, recognition. Control is rarely simple, never absolute, and frequently illusory.

16 Pilot in the plane principle. Non predictive Control
Focus on activities where you know your actions will directly influence the outcome. Taking action based on your means is more controllable Evaluate actions based on whether the downside risk is acceptable Work with partners who will commit Being flexible gives more control in an uncertain environment than sticking to a pre-defined plan.

17 What is control Causal thinking (Prediction) allows a degree of control, if you are operating in a stable environment. Effectual thinking is particularly useful in uncertain, entrepreneurial situations because it does not rely on the past to predict the future. The control you exercise can be either exogenous ( shaping the environment) or endogenous (shaping yourself). Not everything is controllable, but the effectual entrepreneur focuses on what elements s/he can control to create outcomes that s/he finds desirable.”

18 Control Paradoxes (Read et al, 2010, p184)

19 Summary- 5 Principles of effectuation
Bird in the hand. Leverage your means Who am I, What do I know, Who do I know? Affordable Loss Can I bear the loss if my actions are unsuccessful? Lemonade – Leverage contingencies Am I open to opportunities arising from the unexpected? Crazy Quilt – Build stakeholder partnerships/networks Will I allow and incentivise others to co-create the outcome? Pilot in the Plane – Focus on actions where you directly influence the outcome Will my actions today move me forward?


Download ppt "Gavan Cleary & Norah Cussen"

Similar presentations


Ads by Google