1. Lecture 1 Effectuation and the Effectual Design Cycle

2. Effectuation
A logic of thinking that uniquely serves entrepreneurs in starting businesses
Provides a way to control a future that is inherently unpredictable

3. The Entrepreneurial Quadrant

4. Why Effectuation?
Ideas - Effectuation advances ideas toward sellable products and services with proven customers.
Stakeholder Commitments - Using effectuation, the entrepreneur interacts in search of self-selecting partners to co-create the venture with.
Decisions - Experts entrepreneurs use a set of techniques that serve as the foundation for making decisions about what to do next.

5. Effectuation IS: IS NOT: A thinking framework A set of heuristics
Doing the do-able
How to get the sellable products and services established
A system to tell you what to do
An algorithm
“Not planning”
A way to launch an entire business

6. Effectuation in Action
FIRST:
THEN:

7. Effectual Cycle

8. Startup - Option 1
• Do market research and competitive analyses to figure out target market segments
• Develop marketing strategies, calculate cost/price margins, and make financial projections
• Make a business plan, raise resources, hire a team and build your venture.

9. Startup – Option 2
Begin with who you are, what you know and who you know and begin DOING the doable with as little resources invested as possible
• In particular, begin interacting with a wide variety of potential stakeholders and negotiating actual commitments
• Let the actual commitments reshape the specific goals of the venture
• Repeat the process until the chain of stakeholders and commitments converges to a viable new venture

10. Causal Reasoning

11. Strategic Thinking

12. Entrepreneurial Thinking

13. Two Chefs Chef 1 Plans menu  Buys food  Cooks dinner Chef 2
Explores cupboards and fridge WHILE cooking dinner

14. Entrepreneurial Means
Who they are – their traits, tastes and abilities;
What they know – their education, training, expertise, and experience; and,
Who they know – their social and professional networks.

16. Four Aspects of Effectuation
Bird In Hand
Affordable Loss
Lemonade
Patchwork Quilt
Pilot in the Plane

17. Option 1 – Causal Logic Analysis precedes action
Time and/or other resources are invested in upfront information gathering
Accuracy of prediction and clarity of goals drive the resource-acquisition process
Here the key is to bring the right people on board who can deliver on the pre-selected targets
Control over outcomes is achieved by being one step ahead of the trends and the competition
Risk management involves the careful avoidance of failure at all costs

18. Option 2 – Effectual Logic
Action and interaction with others precede and drive the entire process
Creative energies are focused on building the venture with virtually no resources invested
each stakeholder invests only what he or she can afford to or is willing to lose
Unpredictability itself is seen as a resource – hence the emphasis on non-predictive strategies
Who comes on board determines the goals and shape of the new venture and its market
Control is achieved by doing the doable and continually transforming current realities into new and unforeseen possibilities
Risk management involves keeping failures small and having them happen early, and then building upon them for future success.

19. Staging of Effectual and Causal Logic

20. Relationship between Causal and Effectual Logic