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.