ENTREPS 214
A1 NOTES
JANUARY 1, 2023
, EFFECTUATION
Describe the effectuation cycle/ process and how expert entrepreneurs use and
implement the process of effectuation.
Explaining the Process
Means – refers to the individual entrepreneur – his own knowledge & experiences shapes his
take on an entrepreneurial venture.
Goals – refers to the value proposition of the entrepreneur and their potential business venture.
Interactions – refer to first potential customer segments; the individuals you know & who will
probably support your business.
No commitment/ on hold – early feedback that is not necessarily positive could result in the
entrepreneur re-evaluating their idea, putting it on hold, or scratching it completely.
Stakeholder commitments – build entrepreneurial network by acquiring stakeholders.
Means – at this point in the process, one is enabled with the opportunity of finding greater mean
to pursue one’s business venture.
Then, new means help develop:
Key partners
Key resources
Key activities
OR, develop new goals to reshape the value proposition – this allows for the recycling of these
outcomes (goals) to become new inputs
As new goals are continually formed & the constraints on the project change, the
cycle returns to interactions with more individuals to get more opinions.
Aim of going back in the loop: refine product & knowledge of customers.
As this continues, networking builds, allowing for increased people reached by the
business idea – idea becomes tangible.
Ultimately, a new firm/product/market is created.
2
, Describe the 5 principles of effectuation.
Bird in Hand ACRONYM - Be A Loving Punctual Person
When expert entrepreneurs set out to build a new venture, they start with their means: who I
am, what I know, and whom I know. Then, the entrepreneurs imagine possibilities that
originate from their means.
Affordable Loss Principle
Expert entrepreneurs think i.t.o. affordable loss rather than expected returns.
Decide: what they are willing to lose rather than what they expect to make.
Limit risk by understanding what they can afford to lose at each step, instead of
seeking large all or nothing opportunities.
Brings other stakeholders on board and leverage what they can afford to lose
together in process of building the project. An estimate of affordable loss does not
depend on the venture but on the person.
They choose goals and actions where there is upside, even if the downside ends up
happening.
Acknowledges that uncertain new venture opportunities are difficult to value upfront,
whereas the investment of time, money, and other resources is quantifiable,
manageable, and controllable.
Lemonade (leverage contingencies)
Anything and everything is potentially a surprise that can lead to a valuable opportunity.
Expert entrepreneurs invite the surprise factor. Instead of making “what-if” scenarios
to deal with worst-case scenarios, experts interpret “bad” news and surprises as
potential clues to create new markets.
Patchwork Quilt (co-creation partnerships)
Expert entrepreneurs: focus is to build partnerships (with self-selecting stakeholders)
rather than beat competition.
You can change my vision / idea / direction – if you invest (A-Loss)
New – market unknown; nearest potential customer
Obtaining pre-commitments from these key partners helps reduce uncertainty (risk)
and co-create the new market with its interested participants.
Pilot in the Plane (Control vs Predict)
Human behaviours relate to control striving in some way and are intrinsically linked to
healthy human functioning.
For example, personal control is linked to the development of self-esteem and the
reduction of stress, whereas loss of control increases the likelihood of feelings of
helplessness and depression.
Many entrepreneurs instinctively recognize the importance of personal control
Control enables entrepreneurs to work on things they think are important, set their
own schedules and work with whom they want. Many entrepreneurs attest that they
feel differently about running a business they own as compared with working for a
wage, and that they value being in control.
A high desire for control may motivate someone to become an entrepreneur, but the
experience of working for himself may strengthen the desire even further—he may
not be able to imagine working for anyone else again.
3
, Describe the effectuation approach to resources acquisition & lowering risk.
Effectuators use the process to lower the risk of the venture by
Getting customers and income early,
Setting affordable loss,
Spreading risk to others,
Finding truly new and useful market opportunities by leveraging constraints and new
information.
Expert entrepreneurs follow the process to gain early customers and committed partners
who then create:
New means and
New goals as resources and
Viewpoints are added to the mix.
Instead of a stated goal and finding means, expert entrepreneurs use the new means and
new goals to drive the creation of the venture in ways they hadn't expected, leveraging
surprises.
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