Navigating Entrepreneurial Strategies: Exploring Effectuation, Lean Startup, and Beyond in Business and Entrepreneurship

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Effectuation: A Compass in Uncertainty

By Adrico Corson Mulia (TP073788) on April 21, 2024

Effectuation is a transformative approach to strategic decision-making and determining what to do next when confronted with an uncertain situation (Sarasvathy, 2006). Effectuation is not just for entrepreneurs. however, effectuation may also be useful for companies. Companies must use an effectuation strategy to gain customers and committed partners, and then create new means and goals as resources and perspectives are added to the mix.

The key difference lies in its approach. Effectual entrepreneurs use means (effects) rather than causal entrepreneurs, who begin with clear goals (causes) and then look for ways to achieve them. Working with means allows entrepreneurs to capitalize on uncertainty. Surprises generate new opportunities. Causal approaches, on the other hand, are the most common framework in business schools and entrepreneurship training programs. Effectuation and causal-predictive models are complementary, not competitive. Decisions are made based on available information. In high-tech industries, effectuation outperforms the traditional approach; the best method is determined by the situation, not which is better. Effectuation is not about throwing away plans. While traditional planning prioritizes specific goals, effectuation begins with available resources.  In uncertain environments, rigid goals are ineffective. Effectuation employs resources to create flexible goals that can respond to new information and opportunities. 

Lastly, Effectuation and Lean Startup are compatible because they both emphasize adapting to uncertainty. Effectuation helps Lean by recommending the use of existing resources first and the identification of missing pieces through collaboration. This reduces waste and establishes a more accurate feedback loop. Finally, both approaches rely on validated user interactions to drive business development.

Reference

Read, S., & Sarasvathy, S. D. (2005). Knowing what to do and doing what you know. ˜the œJournal of Private Equity, 9(1), 45–62. https://doi.org/10.3905/jpe.2005.605370


How to be a Successful Entrepreneur? 

By So Matthew Christian (TP075241) on April 21, 2024

Being an entrepreneur or “wanting” to be an entrepreneur requires hard work and inquisitive interest. The entrepreneurial process isn’t just defined as an efficient path on the journey, but instead, it is a process of exploration of new opportunities called “Effectuation” It is a concept with a sense of purpose to controlling the means that are already available rather than planning future outcomes (Sarasvathy, 2001). In the Entrepreneurial concept, we always focus on the objectives but it changes when it comes to the market with new resources and facts. This means that rather than desperately hoping and predicting the future, creating opportunities should be made by individuals not by waiting for it. 

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

Certainly, while it is implanted in entrepreneurship, this “Effectuation in Action” may also be useful for companies. Concerning the future, even companies will face a high level of uncertainty. Sometimes it is acceptable not to have previous information on framing the upcoming decisions (Morales, 2020).  Take a sample of advertising something that introduces to new technology, even huge companies can't predict the potential demand on the market since it does not exist yet. Effectuation can be functional in conducting the strategy on it. 

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

Sarasvathy (2020) simplified this question to “How you think about goals and means?” There are two types of entrepreneurs Effectual (effects) and Causal (means) entrepreneurs. Causal entrepreneurs often focus on the goals with less attention on the means, concentrating on the means helps leverage the uncertainties that can open new surprising opportunities. 

Does effectuation mean: “not planning”?

It depends on the word “planning”, planning is setting up certain goals as opposed to effectuation which focuses on what you have now. The resources they have in the first place are the key to gradually setting up the goals.

Are Effectuation and Lean Startup compatible?

Lean Startup's definition is to shorten the product development cycle to build products that customer needs. Both methods are actually incompatible, Even both show different perspectives they could complement each other for certain goals.

For example, Effectuation a concept by Dr. Sarasvathy are emphasize on experimenting on what you haven resulting the most viable product, once you have done The Lean startup could be conducted by doing iterating strategies such as gathering feedback, measuring the product for scaling the business

References:

Morales, C. (2020, April 28). Effectuation in five questions.                    https://www.linkedin.com/pulse/effectuation-five-questions-dr-carlos-morales

Effectuation in entrepreneurship 

 By Brandon Indradjaja (TP072931) on April 21, 2024

Effectuation is a decision making mostly used by startups, it is a process where an entrepreneur will have to make do with their current resources. This typically means that the entrepreneur will have to be willing to take risks. Entrepreneurs using effectuation decision making also has to discuss their goals with their shareholders. Effectuation also requires some degree of planning with the stakeholders to prevent huge losses. 

Causal is another decision-making process where an entrepreneur will calculate/think about what is needed to accomplish the goals predetermined by a company. Causal decision making requires a good amount of calculating based on financial forecasting to maximize expected returns.

While effectuation and causal decision-making sounds impossible to be combined, some companies actually use both of these reasonings in their companies. Companies would rather use effectual decision making in partnerships, affording losses, and controlling the unpredictable future (Henniger et al., 2020). Effectuation is used in unpredictable situations, an entrepreneur can shift their focus to lean startup when the situations become a bit more predictable (Mansoori & Lackeus, 2019).

References: 

Henniger, P., Brem, A., & Goings, F. (2020). Effectuation vs. Causation: Can Established Firms Use Start-up Decision-making Principles to Stay Innovative? International Journal of Innovation Management. https://doi.org/10.1142/S1363919620500024

 

Mansoori, Y., & Lackeus, M. (2019). Comparing effectuation to discovery-driven planning, prescriptive entrepreneurship, business planning, lean startup, and design thinking. Springer Link. https://doi.org/10.1007/s11187-019-00153-w

Effectuation vs. Causation: Blending Entrepreneurial Thinking for Success
By Evan Ferdinand Xie (TP073921) on April 21, 2024

 

Effectuation is a decision-making skill that is mostly used by startup companies. What is effectuation is a logic of entrepreneurial expertise that both novice and experienced entrepreneurs can use in the highly unpredictable start-up phase of a venture to reduce failure costs for the entrepreneur. What is it?

The difference between effectuation and the other thinking that is causal is that causal is goal driven but effectuation focuses on making use what the entrepreneur has to make opportunities rather than already having a goal in mind so basically  effectuation is reacting to the situation on the spot and maximizing what you have to maximize your gain or minimize your loss but causal is already having a plan and gearing your next move to make progress on that plan

What the writer thinks is that combining the two and making use of each thinking advantage will be beneficial. For example, some company use would rather use effectual decision-making in partnerships, affording losses, and controlling the unpredictable future (Henniger et al., 2020).

References

Henniger, P., Brem, A., & Goings, F. (2020). Effectuation vs. Causation: Can Established Firms Use             Start-up Decision-making Principles to Stay Innovative? International Journal of Innovation                 Management. https://doi.org/10.1142/S1363919620500024


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