Venturing - Effectuation in Action

What is effectuation?

(Effectuation. (n.d.). What is Effectuation? Effectuation 101. Effectuation.org )

Effectuation is a way of thinking and decision-making that is based on the idea that entrepreneurs create their future by taking action and making things happen. It is focused on creating opportunities and solving problems by using the resources that are available to you, rather than making predictions and trying to plan for the future. ‌(Stilwell,2023)

Effectual logic happens in mind of an individual, where it provides a way of thinking about making decisions when non-predictive control is required. The effectual cycle represents the thinking process in a form used in creating products, markets, and ventures. It’s not a prescriptive “do this, do that” algorithm, but rather a set of heuristics that uniquely and universally apply to the challenges that entrepreneurs are bound to face.

1- Can effectuation also be used in companies? Or is it useful only for entrepreneurship? 

(WebFX Team. The 6 Companies That Own (Almost) All Media. WebFX Blog).

Effectuation does not refer only for entrepreneurship, it may also be used for companies. Even though it is more common in new company startups, effectual thinking can be applied under conditions that engender uncertainty. Consciously find yourself in a spot when you are completely unaware of what will happen afterwards. The moment of the effectuation is where the process starts. It just means that you will be able to figure out on your own what are the alternatives in case you don't have advance methods done.(McKelvie et.al,2019)

Both large companies and businesses encounter uncertainty, for example, when they make something new or enter the new market. The unpredictability of what just may happen when you don’t have the full picture can be hard to deal with. For example, they will be on their own, without anything to compare to, when they are trying something for the first time.

Effectuation stands as the source of knowledge and wisdom, which is then used to deal with the various situations. Instead of forecasting what will happen to them, they concentrate on what they have right now and try as much as they can to use their resources well.

2-What is the key difference between effectuation and other approaches in entrepreneurship? 

The main difference between this approach and business modelling is that effectualism is about creating a consideration set available means whereas opportunity based approach waits for the perfect opportunity to emerge. Contrary to that, the other schools of thought don't have any clear focus, they start with the hope of hitting a jackpot and when they don't, they lose interest. On the one hand, a casual approach employs a return-targeting methodology and then is careful to avoid losses.(McKelvie et.al,2019)

3-Are the effectual approach and the traditional (casual) approach mutually exclusive? 

The effectual approach and the traditional causal approach are not mutually exclusive; they can work together effectively. It's like having different tools in a toolbox – you use the one that fits the job best. Effectuation is like a flashlight you use when you're exploring a dark cave; it helps you navigate when you don't know what's ahead. On the other hand, the causal approach is like a map that guides you on a familiar road; it's useful when you know where you're going.(Eberz, 2017)

For example, imagine starting a new business in a completely new industry where there's little information available about customer preferences or market trends. In this situation, using effectuation to experiment with different ideas and adapt based on feedback can be more effective than trying to predict the future using the causal approach.

However, as the business grows and becomes more established, there may be more data and market insights available. In this case, switching to a causal approach for detailed planning and execution could be beneficial for sustaining growth and managing resources efficiently.

Ultimately, the key is to use the right approach at the right time – effectuation for uncertainty and adaptability, and causation for stability and predictability. Both approaches have their strengths, and combining them strategically can lead to better decision-making and business outcomes.

4-Does effectuation mean: “not planning”? 

(E-Learning Could Develop Students’ Critical Thinking Skills, n.d.)

Effectuation offers a different take on planning compared to traditional methods. While traditional planning involves setting specific long-term goals and mapping out detailed strategies to achieve them, effectuation takes a more flexible approach. Instead of starting with fixed objectives, effectuation begins with what's available – the resources at hand. It's like planning a trip without knowing the final destination but being open to adapting the route based on what you have and what you encounter along the way.

In effectuation, planning is an iterative process that evolves as new information emerges. Goals gradually take shape based on the resources and opportunities that present themselves. This means that planning isn't about sticking to a rigid roadmap but rather about being adaptable and responsive to change.(Arteaga et.al, 2013)

For instance, imagine starting a business with a general idea but not a specific long-term goal. As you explore different opportunities and gather feedback from customers, your initial idea may evolve into something entirely different. Perhaps you discover a new market niche or realize a different way to solve a problem – these are the twists and turns of the effectual planning process.

5-Are Effectuation and Lean Startup compatible?

(Model, S., & admin. The Lean Startup Approach for Creating Successful Startups. SlideModel.)

Effectuation and Lean Startup may seem different, but they actually have a lot in common. Both understand that starting a business involves a lot of uncertainty, and they both believe in trying things out and learning from the results rather than sticking to a strict plan.

Effectuation is more about using what you already have – your resources – to create opportunities. Lean Startup, on the other hand, is about quickly testing ideas and getting feedback from customers to see what works. Despite these starting points, they can work well together.(Helder, 2014)

For example, a Lean Startup might start with an idea for a product and quickly build a prototype to test it out. Meanwhile, an effectual entrepreneur might focus on finding partners or using existing resources to make the idea a reality. By combining these approaches, entrepreneurs can learn and improve their business models over time.

Both Effectuation and Lean Startup are about learning from experience and adapting to what works. By bringing them together, entrepreneurs can create businesses that are both innovative and sustainable in today's ever-changing world.

References:

• ‌(Stilwell, B. (2023, April 13). The 5 Principles of Effectuation: A New Way of Problem-Solving for Veteran Entrepreneurs. Military.com. https://www.military.com/veteran-jobs/5-principles-of-effectuation-new-way-of-problem-solving-veteran-entrepreneurs.html)

• (McKelvie, A., Chandler, G. N., DeTienne, D. R., & Johansson, A. (2019). The measurement of effectuation: highlighting research tensions and opportunities for the future. Small Business Economics. https://doi.org/10.1007/s11187-019-00149-6)
• (Eberz, S. (2017). Effectuation oder Causation? Springer-Verlag.)
• (Arteaga, S., Grepperud, H.-G., & Hermansen, M. (2013). A Comparison of Students use of Effectuation and Causation Principles with that of Practitioners MSc in Innovation and Entrepreneurship. https://core.ac.uk/download/pdf/30892128.pdf)
• (Helder Sebastiao, (June 2014), How Effectuation + Lean Startup = Lean Entrepreneurial Thinking & Acting (LETA). (n.d.). Www.linkedin.com. https://www.linkedin.com/pulse/20140612225801-11777433-how-effectuation-lean-startup-lean-entrepreneurial-thinking-acting-leta)