This is a question some of us ask by choice. Maybe we have decided that the corporate world is not for us. So we decide to start on a different journey.
Or it could be that the loss of jobs due to automation (or other reasons) forced this journey upon us.
Or as a leader you want to cultivate an entrepreneurial and innovative culture in your workplace because nowadays, corporations have to think like entrepreneurs too.
Therefore this question is relevant in all the above situations.
A good place to find answers is the Effectuation strategy I had introduced in an earlier post. It was first discovered by Saras Sarasvarthy as to how entrepreneurs really work.
I must admit that understanding Effectuation can be a bit confusing at first but let me try and break it down and simplify it to reduce any confusion.
The Effectuation Cycle (or Effectuation In Action)
This cycle basically has 4 steps:
Step 1: Means
The key questions you ask at this point are:
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Who Am I? (i.e. my values, gifts, strengths, passion etc.)
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What I Know? (i.e. my skills, experience, knowledge etc.)
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Whom I Know? (i.e. your friends, family, professional network etc.)
This is an interesting departure from corporate managerial thinking which starts with deciding the goal first. Then start gathering the means to achieve it.
Let’s give another example. A parent might think “I want my child to be a doctor”. What should I do to make this happen? How much money should I set aside for his education? Which school should he go to? This is the traditional strategy planning. You begin with the end in mind.
Effectuation starts, instead, with what are my child’s interests and gifts? Let’s go with that first and see how that turns out.
I thought another important question that should be added was “What resources do I have access to?” Unless I am missing something, this question is different from the previous 3.
It should become clearer what I mean when you watch the video at the end of this post.
With that, you then move on to the Goals.
Step 2: Goals
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What Can I Do?
Based on Step 1, we decide what we can do. Personally, I decided to break this question down into smaller sub-questions. So this is my own take on it.
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What service/product/solution can I offer?
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What market can I serve?
Step 3: Interaction
In this step you start to interact with people with the intention of enlisting them in your enterprise – whether as a partner or customer.
Whether you are successful in enlisting them or not, you can still profit from the interaction by gathering useful feedback. We can use this new information to reshape the answers to Steps 1 and 2. This is not explicitly shown in the original description. But in my personal experience, I feel this is a very important part of the process I need to highlight.
Step 4: Commitments
In this step, you get commitments from customers (purchases or even pre-purchases); investors and other stakeholders. Along with these new commitments and resources from your stakeholders, you in turn will have to make commitments to them. You will have new obligations and constraints.
As a result you have to revisit Step 1 and/or Step 2 to review your new Means and new Goals.
This is the basic Effectuation Cycle. And it repeats as new products, firms and markets are created.
The 5 Principles Of Effectuation
This is where it gets a bit confusing.
Sarasvathy also introduces 5 principles. If you try to neatly fit these 5 principles into the Effectuation Cycle, you may have a hard time. It is best to think of these Effectuation Principles as separate from the Effectuation Cycle, yet providing a foundation for the Cycle.
Principle 1: The Bird In Hand
This means begin with what you have. And this matches precisely Step 1 (Means). This is simple enough.
Principle 2: Affordable Loss
Rather than just focusing on the upside, you should also look at the downside. And only invest what you can afford to lose. To me, this principle supports both Steps 1 and 2. We need to look at what we have and what we can do without taking huge risks.
Principle 3: Patchwork Quilt
The idea here is you cannot go it alone. You need partnerships. And commitments from you partners. This means you also have to make commitments to them. This principle straddles Steps 3 and 4.
Principle 4: Lemonade
When life hands you lemons, make lemonade!
The environment in which the entrepreneur operates is unpredictable. Things do not always turn out as planned. So, you need to see failures and setbacks as potential opportunities.
Think 3M and their yellow sticky notes. Or Edison getting one step closer to a solution for his light bulb with each failure.
When there are setbacks or changes in the environment, you need to take these into account and revisit Steps 1 and 2. Because these situations provide new info and insights and you may have to re-adjust your goals.
And finally…
Principle 5: Pilot In The Plane
The idea here is you should focus on activities within your control. Rather than trying to predict things you have no control over. This is based on the belief that you cannot predict the future, instead you make the future happen.
The last thing I want to do in this post is to leave you a video to illustrate some of what we discussed. This video by Professor Stuart Read shows how a company, Freitag, started. Although his discussion focuses on Step 1 (Means) and the Bird In Hand Principle, you will notice the the Frietag story also demonstrates other aspects of Effectuation as well.
Enjoy and see you in the next post! We will talk more about Effectuation then.