MCQ

Article: Effectuation to BMI

Please craft a questions that is derived from the overall idea of each article

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Wisdom of Crowds:Which of the following does NOT characterize wise crowds?

*a) Intelligence: A crowdmade of particularly smart individuals.

b) Diversity: Each person has private information and opinions.

c) Independence: People's opinions aren't determined by the opinions of those

around them.

d) Decentralization: People are able to specialize and draw on local knowledge.

e) Aggregation: Amechanism exists for turning private judgments into a collective

decision.

Source:Wisdom of Crowds; Chapter #; Page #...

How do they do that?

Are there any universal methods or principles

they use?

What is effectuation?

Entrepreneurs constantly make decisions and take action.

The result? Effectuation

effectuation IS effectuation IS NOT

*research experiment

subjects

27 Expert Entrepreneurs

{founders of companies

from $200M to $6.5B}

method

Protocol Analysis

{80 hours of tape, 500

pages of data}

theory

Effectuation: Elements of

Entrepreneurial Expertise,

2005

DEFINITION

A logic of thinking that uniquely serves entrepreneurs in starting businesses

Provides a way to control a future that is inherently unpredictable

EFFECTUAL LOGIC IS LIKE 1ST & 2ND GEAR

A thinking framework

a set of heuristics

doing the do-able

how to get the sellable products and

services established

a system to tell you what to do

an algorithm

“not planning”

a way to launch an entire business

WHAT DOES EFFECTUATION DO?

Ideas - Effectuation advances ideas toward

sellable products and services with proven

customers.

Stakeholder Commitments - Using

effectuation, the entrepreneur interacts in

search of self-selecting partners to co-create

the venture with.

Decisions - Experts entrepreneurs use a set

of techniques that serve as the foundation for

making decisions about what to do next.

the expert entrepreneur

develop specialized mental framework

You need them to start your business but eventually you shift away from effectual logic.

To answer these questions, Dr. Saras Sarasvathy, a cognitive scientist, conducted a study* of expert entrepreneurs.

This document is intended to be introduced in an educational workshop as one of several supporting materials. Version 0.9. Copyright © 2011 The Rector and Visitors of the University of Virginia

Expert entrepreneurs have learned the hard way that the most in-

teresting ventures are built in a space in which the future is not only

unknown, but unknowable. Still yet, entrepreneurs do shape this

unpredictable future. They use techniques which minimize the use

of prediction and allows them to shape the future. These five prin-

ciples, listed below, make up effectual logic.

Pilot-in-the-plane { control v. predict}

By focusing on activities within their control, expert entrepre-

neurs know their actions will result in the desired outcomes.

An effectual worldview is rooted in the belief that the future is

neither found nor predicted, but rather made.

Bird-in-hand {start with your means}

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 {focus on the downside risk }

Expert entrepreneurs limit risk by understanding what they

can afford to lose at each step, instead of seeking large all-or-

nothing opportunities. They choose goals and actions where

there is upside even if the downside ends up happening.

Patchwork Quilt {form partnerships }

Expert entrepreneurs build partnerships with self-selecting

stakeholders. By obtaining pre-commitments from these key

partners early on in the venture, experts reduce uncertainty

and co-create the new market with its interested participants.

Lemonade { leverage contingencies }

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.

contrasts with...

contrasts with...

contrasts with...

contrasts with...

contrasts with...

Inevitable trends

Causal reasoning accepts that established

market forces will cause the future unfold.

Pre-set goals or opportunities

Causal reasoning works inversely by

assembling means after a goal is set.

Expected return

Causal reasoning first targets a return,

then works to minimize associated risk.

Competitive analysis

Causal reasoning presumes that competi-

tors are rivals to contend with.

Avoiding surprises

Causal reasoning works to minimize the

probability of unexpected outcomes.

Principles of Effectuation

This document is intended to be introduced in an educational workshop as one of several supporting materials. Version 0.9. Copyright © 2011 The Rector and Visitors of the University of Virginia

COMMITMENTSINTERACTIONS

GOALS NEW

NEW MEANS

MEANS GOALS

LEVERAGE SURPRISE

PRODUCTS, MARKETS, AND FIRMS

NEW

AFFORDABLE LOSS

New commitments help crystallize the goals.

Surprises add to means and change goals.

The Effectual Cycle

Overview of Effectuation in Action *heuristic vs. algorithm

An algorithm is a step-by-step proce-

dure with a finite number of steps that

seeks a specific outcome. It’s recursive.

A heuristic is a problem-solving tech-

nique that involves creating a speculative

formulation and self-led investigation to

reach some desired outcome. The most

quintessential heuristic is “trial and error.”

The cycle always starts here

Putting it all together...

Effectual logic happens in mind of an individual, where it provides a way of

thinking about making decisions when non-predictive control is required.

The effectual cycle represents the thinking process in a form used in creat-

ing products, markets, and ventures. It’s not a prescriptive “do this, do that”

algorithm, but rather a set of heuristics* that uniquely and universally apply to

the challenges that entrepreneurs are bound to face.

Next, interact with people to gather stakeholder commitments

who am I what I know

whom I know what can I do?

The individual begins with an inventory of his/her means, from

which s/he imagines goals. The goals s/he chooses to pursue

are within his/her affordable loss. Goal construction and goal

achievement are different sides to the same coin.

Next, interactions drive the process of enlisting others to

join in co-creating the new venture. Committed stake-

holders will influence the entrepreneur by morphing and

appending the original idea into one that a whole network

of stakeholders are committed to. The cycle continues as the effectual entrepreneur grows closer and

closer to a defined, sellable product(s), complete with committed

customers and stakeholders comprising the new market.

MEANS GOALS

INTERACTIONS COMMITMENTS

interact with other

people

gather stakeholder

commitments

New means add to the resources.

This document is intended to be introduced in an educational workshop as one of several supporting materials. Version 0.9. Copyright © 2011 The Rector and Visitors of the University of Virginia