The Effectuation Way to Entrepreneurship

Entrepreneurs tend to be always on the look out for new ideas and opportunities. They are frequently seen as innovative and as risk takers. They are always making decisions. By their very nature, they often go through situations of uncertainty. The principal of effectuation, as introduced by Dr. Saras Sarasvathy in 2001, is a thinking framework or a logic of thinking that serves entrepreneurs in starting a business and 'provides a way to control a future that is inherently unpredictable'.

Expert entrepreneurs tend to employ a set of decision making principles when faced with uncertainty and effectuation includes these. Effectual logic is important in helping start yor business but eventually you move away from it. There are five principles that make up effectual logic:

1. Bird in hand
Expert entrepreneurs start with their means i.e. who I am, what I know and who I know and then imagine possibilities that originate from their means. This contrasts with causal reasoning where you might examine your means after a goal is set.

2. Affordable Loss
Expert entrepreneurs, somewhat surprisingly, focus on the possible losses, not possible profits. They understand what they can afford to lose at each step, instead of first setting a goal and then looking to minimise the risk.

3. Lemonade
Instead of trying to minimise unexpected outcomes, expert entrepreneurs welcome surprises. They won't view surprises as worse-case scenarios but rather clues to create new markets.

4. Crazy Quilt Principle
Expert entrepreneurs build partnerships with stakeholders they can trust and b obtaining pre-committment from these stakeholders, they limit their affordable loss.

5. Pilot in the Plane
Expert entrepreneurs focus on activities within their control. This way they can control many of the factors that determine the future.
 

Effectual logic provides a way of thinking about making decisions, when non-predictive control is required. It is not prescriptive but rather a set of 'heuristics' that uniquely apply to the challenges that entrepreneurs tend to face.

Achieving Product / Market Fit

“The only thing that matters is getting to product/market fit” 
Marc Andreesen

Make a product that nobody wants and it doesn’t matter how great your marketing is or how masterful your sales people are – it is doomed to fail. Yet there are countless examples of organisations making new, innovative and sometimes great products (on the face of it) that fail miserably - because nobody actually wants them. The idea of Product/Market Fit is about being in a good market with a product that can actually satisfy that market.

It doesn’t matter how good the team you’ve got is. It doesn’t even matter how amazing the product is. The best team, with the very best product is still doomed to fail if you don’t have the market. Having a good product is of course important, as is having a great team but it’s not as critical as having a product that solves a defined need.

How do you achieve Product/Market Fit? Marc Andreesen would say you need to do whatever is required, “including changing out people, rewriting your product, moving into a different market, telling customers no when you don't want to, telling customers yes when you don't want to, raising that fourth round of highly dilutive venture capital -- whatever is required”. In Four Steps to the Epiphany, Steve Blank, a Silicon Valley entrepreneur discusses his “customer development process”, to sit alongside the product development process. Blank’s concept is based on understanding your customers’ problems and needs, and tweaking your products as necessary to address these demands. He recommends that a business should ‘pivot’, so they should change during the development process based on customer data and real evidence.

Interestingly, at online retailer Amazon, before any new product can be developed, it’s company policy that the product manager submits a press release for that product to their reporting manager - before the team starts developing it.  Why do Amazon insist on this? Quite simple – it’s to force their team to think about why the product should be developed in the first place, what’s special about it and who the market is for it.

Sean Ellis, author of The Lean Startup, says that the best way to get Product/Market Fit is to create a Minimum Viable Product, which I’ve discussed in a blog of its own HERE.  

Are You Open to Open Innovation?

Open Innovation is the exact opposite of the innovation that has traditionally occurred - and still does occur - in many organisations. As we all know, traditionally innovation has been very 'closed' in the sense that everything happens almost secretly within the organisation. Maybe the R&D department comes up with a number of ideas, before these are then whittled down and eventually a product is created and taken to market. Open Innovation, on the other hand is a much more participatory and more decentralized approach to innovation. It is based on the idea that knowledge is so widespread in this day and age that no company, no matter how resourceful can really innovate on its own.  

Henry Chesbrough, credited as being the originator of open innovation, describes it as a way of making greater use of external ideas and techonologies within an organisation - and on the flip side letting others outside your own organisation use ideas that you have decided not to pursue. In this model, ideas are generated through your own R&D but also from programs your organsation has developed to leverage ideas from outside, through the likes of universities or startups. This is a process that big techonlogy firms in particular are using today. Organisations, like INTEL, would then also build platforms so that others can build upon or take advantage of their technology. This 'openness' is not just restricted to the ideas phase i.e. ideas coming in to the organisation - the 'openness' also carries over to when ideas are coming out and being taken to market. For example, internal ideas that are not being used by an organisation could be taken to market through the likes of join ventures and licences.

While big technology organisations like INTEL or HP with their "HP Labs Open Innovation" are using Open Innovation, we are seeing it in many different industries. Big FMCG organisations like P&G use their "Connect & Develop" program to invite external innovators and companies to submit innovations. P&G claim that their open innovation strategy has "enabled us to establish more than 2,000 successful agreements with innovation partners around the world". The Bounce fabric softener is once such successful story, where an inventor developed an innovative fabric-care solution that P&G licensed, combined it with existing P&G R&D work and then brought the product to market.

The Role of Management in Innovation & Creativity

"Technology is nothing. What's important is that you have faith in people, that they're basically good and smart, and if you give them tools, they'll do wonderful things with them." - Steve Jobs

 

Innovation is one of the major driving forces behind the success of organisations in many industries. But perhaps for the first time, innovation is now being given the recogniton it deserves. In his Forbes article, 'How to Manage Innovation', Greg Satell says that innovation has become "management's new imperative". In 'Creativity & The Role of the Leader', Teresa Amabile and Mukti Khaire state that we are now in an "innovation driven economy".

Everybody wants to be the next Netflix, not the next Blockbuster. Perhaps then it’s no surprise that innovation and creativity increasingly enjoys the focus of managers attention and a place "at the top of the management agenda", as Amabile and Khaire describe it. Given creativity and innovation are now being recognised for their importance, it seems only natural that organisations would attempt to manage this process. But is it something that can or should be managed?

In 'Creativity & Innovation: The Leadership Dynamics', Emmanuel Agbor states that since creative organisations do not emerge by accident, that management is certainly required. However he advises against that old fashioned, traditional management style of prioritising particular projects and then assigning certain people to complete them. Instead he favours a leadership approach. Since innovation can come from all levels of the organisation, not just from the top, it is the leaders job to encourage creativity and foster an environment conducive to creativity.

In 'Creativity & The Role of the Leader', Teresa Amabile and Mukti Khaire advise organisations to leverage the fact that they'll have employees with different backgrounds, attitudes and skillsets working for them, who will have many different approaches to tackling a problem. They add that employees should know the strategic goals and vision of the organisation, since this helps create a participatory environment where employees are all working for a common goal. They also point out that leaders must actually free up employees and give them the necessary time and resources to be creative and to produce solutions. In the last organisation I worked for, we would actually visit different parts of the country and sometime the world when it was time to branistorm and devise new concepts and ideas.

It took a long time for creativity and innovation to be seen as a priority on the management agenda. Organisations must now realise that effective leadership is necessary to manage the process and maximise its potential.

Creating Your Buyer Persona In The Digital Age

At a recent HubSpot event I attended at their European headquarters in Dublin, we learned all about 'Marketing Mary' - a 42 year old married woman with two kids. 'Marketing Mary' is a marketing manager at a mid sized company who manages a team of five. Her goals in work are to manage company communications, build awareness and support her sales teams with collateral and leads. Her challenges are that she has too much to do and isn't really sure how to get there. She loves Hubspot because they have easy to use tools that make her life easier.

There's just one other thing about Marketing Mary - she doesn't exist.

What I have outlined above is the primary 'buyer persona' at Hubspot. A buyer persona, as Hubspot describe it, is a semi- fictional representation of your ideal customer based on real data and some select educated speculation about customer demographics, behavior patterns, motivations and goals. They are essentially fictional characters that represent your dream customers. 'Marketing Mary' as described above, is Hubspot's dream customer.

Buyer Personas are not real people or even target markets. They are common behaviour patterns and shared pain points. They are the wishes, hopes and dreams of your ideal customers. They generally contain demographic, pychographic and geographic details of your ideal customers.

Creating buyer personas are important for many reasons - from helping get the right leads and customers to aiding product development. You can create better products and better marketing campaigns if you have a real sense of who your customers are.

In the Digital age, we've never had more resources than we do right now to help us create and communicate with our buyer personas. Customer data is now everywhere from analytics information regarding the visitors to our website to our Facebook fans and Twitter followers. We can integrate this wealth of information from these different sources to find customers most like our persona. For the Irelandhotels.com website, which I manage, Google helps us create customer profiles based on the data from our best actual customers. This way, we can identify new users with similar attributes, finding more of our ideal customers that way. We can now identify and communicate with new customers in a way previously only dreamed of. Without a clear definition of what we're actually looking for i.e. a buyer persona, this would be extremely difficult. 

Writing A Compelling Product Concept

Creating a compelling product concept is a hugely important part of innovation and product development. There is both art and science to writing a compelling product concept - the science coming from having the right elements included and the art from the language used to bring the elements to life.

There are many reasons your organisation should consider writing product concepts. The organisation can better understand the product's importance to consumers. Is there a real need and is the need sufficiently widespread that it is likely to bring an attractive level of business? A product concept will also help communicate the new idea to the consumer, though it is worth noting this is not copy development for a product (notwithstanding the fact that it will likely aid in this process).

There are a number of different formulas, templates and advice on how to go about creating your product concept. However there are a number of core elements common to most - an insight, a benefit(s) and a reason to believe. Many will start with a headline, which is a way to quickly express the main idea in the concept. From here, you would have an insight, followed by a benefit (emotional and / or rational), followed by a 'reason to believe'.

Starting with an insight, the idea is to set up the 'why' part i.e. why the consumer needs the product. It could be defined as the problem to be solved, though this is not always the case. It's essentially the premise for the story you're about to tell. In a recent brainstorming session, my innovation team came up with the idea of "The Swords / City Centre Underground", an underground transport system taking commuters from the city centre to swords in 18 minutes. The insight that we could develop could stem from the research from the American Psychological Association, which shows that those spending 2 hours or more per day travelling to and from work show they are 500% more likely to develop series stress related illnesses. The trip from Dublin city centre to swords is on average 1 hour and 10 minutes each day at peak times and up to 90 minutes at certain times of the year. In contrast our proposed product does the same journey in 18 mins. The emotional benefit to customers could be the removal of stress, while the rational benefit is the time saver of doing the journey in less time. The reason to believe then follows, which is something to give credibility to the product - how can the product deliver the benefit. In the example above, our reason to believe could be something like "It's the fastest way to get from city centre to Swords that doesn't fly".

From here, unsurprisingly the next step is to edit. You might start off with something quite rough but then it's time to refine and focus it so it clearly communicates what you want to consumers. You must have the science and the art down to make a product concept truly compelling!

Creating A Minimum Viable Product

"I prefer the discipline of knowledge to the anarchy of ignorance”

David Ogilvy

Well researched products can and do still fail. It’s well known that many customers will turn up at focus groups or answer questionnaires telling organisations that they would buy a particular product – until it actually comes time to buy it. To really test whether a product is likely to be successful, Eric Ries, author of The Lean Startup, recommends launching with a Minimum Viable Product. 

Ries states that too many organisations begin with an idea for a product that they think they really want – but don’t really know. He recommends that a company should not bother wasting time and money building products when we don’t yet know if they’re going to be successful. Instead he suggests maximising learning – spend time testing and refining a minimum viable product to test if it’s worth it. That minimum viable product will usually have core features only, the minimum that allow the product to be deployed but no more. Organisations can then learn from these customers, if and how they;re using the product, what features they use and don’t etc. In this way, organsations can test the product hypothesis and reduce the chance of failure.

How does this work in practise? For websites, an organisation could build a website with only one page, perhaps with a link for "more information" or to "purchase". But instead of linking to a purchasing system at that point, the information is simply recorded by the organisation. That’s exactly what Eamonn Grant, local businessman did when he launched his business Photobooth.ie. The company specialises in bringing photo booths to weddings but at the time Eamonn started the business, the concept did not exist in Ireland. Instead of building the product without knowing if there was a real demand for it, Eammon instead built a website with a landing page and an order form. He then drove traffic to the site. Without yet even having a product, Eamonn had dozens of orders in the first few months of the website going live. So began to take bookings. Then...he went about building the product!

In the example above, Eamonn spent a few hours and a relatively small amount of money building a two page website and driving traffic there. Using the concept of minimum viable product, the full website or the physical product did not yet exist until Eamonn was absolutely sure he had a product that people wanted. Now he could build the product in confidence!