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EFFECTUATION IN ACTION. EXPANDING CYCLE OF RESOURCES. MEANS. NEW MEANS. CHANGES IN THE ENVIRONMENT. GOALS WHAT CAN I DO?. MEANS WHO I AM WHAT I KNOW WHO I KNOW. INTERACT WITH PEOPLE I KNOW. STAKEHOLDER COMMITMENTS. NEW GOALS. CONSTRAINTS. NO COMMITMENT. DEAD END
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EFFECTUATION IN ACTION EXPANDING CYCLE OF RESOURCES MEANS NEW MEANS CHANGES IN THE ENVIRONMENT GOALS WHAT CAN I DO? MEANS WHO I AM WHAT I KNOW WHO I KNOW INTERACT WITH PEOPLE I KNOW STAKEHOLDER COMMITMENTS NEW GOALS CONSTRAINTS NO COMMITMENT DEAD END OPPORTUNITY ON HOLD CONVERGING CYCLE OF CONSTRAINTS ON GOAL NEW FIRMS, NEW PRODUCTS OR NEW MARKETS
DIFFERENTIAL APPROACH TO RISK BETWEEN ENTREPRENEURS AND BANKERS Entrepreneurs Bankers Step 1 Pick a target return Risk Risk Step 2 Push creatively to increase return High High Step 1 Pick a comfortable level of risk Step 2 Try to reduce risk through insurance, etc. Low Low Return Return Low High Low High For a given level of risk, entrepreneurs feel they can expand the problem space and increase returns For a given level of return, bankers feel they can reduce the problem space and decrease risk.
STRATEGIES WITH RESPECT TO PREDICTION AND CONTROL HIGH Planning Market Power PREDICTION (market or technology) VISIONARY (market or technology) EMPHASIS ON PREDICTION Effectuation Adaptation RISK (market or technology) UNCERTAINTY (market or technology) LOW LOW HIGH EMPHASIS ON CONTROL
CONTROL IN VENTURE ENVIRONMENTS HIGH Planning Market Power PREDICTION Planned Action MONOPOLY Overlooked Action EMPHASIS ON PREDICTION Effectuation Adaptation RISK Inaction: Learned Helplessness UNCERTAINTY Creative Action LOW LOW HIGH EMPHASIS ON CONTROL
SUCCESS RATE OF START-UPS 100% 80% 60% 40% 20% 0% Close with no debt Survive 2 years Survive 4 years Survive 8 years Close with profit IPO
ELEMENTS THAT IMPACT ENTREPRENEURIAL VENTURE SUCCESS Choice of Market Segment Competition Position Channel(s) Location Vertical Industry Strategy Business Model Popularity of Space with Press Execution Economy Technology Definition of Customer Buyer FIRM Culture Team Leader Customer Pain: Aspirin or Vitamin? Partnerships Existing Customers Directors Advisors Relationships with Prospective Customers Popularity of Space with Investors Existing Investors Capital Relationships with Prospective Investors Less — Within the Firm's Control — More
ASSESSING OPPORTUNITY “DOABILITY” FEASIBILITY VALUE Is it doable? Technological feasibility Market feasibility Economic feasibility Is it worth doing? Financial feasibility MARKET Can I do it? What will it take to do it? Whom else do I need? Do I want to do it? What turns me on about it? Why do I want to do it? Exit strategies PERSONAL
CAUSAL vs. EFFECTUAL REASONING Entrepreneurial Thinking (Effectual) Managerial Thinking (Causal) Distinguishing Characteristic Selecting between given means to achieve a pre-determined goal Distinguishing Characteristic Imagining a possible new end using a given set of means IMAGINED ENDS M1 GIVEN MEANS M2 M1 M2 GIVEN GOAL M3 M3 M5 M4 M4 M5 GIVEN MEANS
THE CONTINGENCY PATH TO NOVEL OUTCOMES CONTINGENCIES Information Events People CHANGE YOUR MEANS What you know Who you are Who you know WHICH GIVES YOU NEW MEANS TO LEVERAGE by asking yourself "Now what can I do with my revised means?" WHICH MAY GENERATE NOVEL OUTCOMES i.e. new venture directions
THE UNCERTAINTY PARADOX • How can you control a future you cannot predict? • You create it • THE CERTAINTY PARADOX • How can you create a future in an environment mostly outside your control? • You co-create it with other stakeholders • THE EQUITY PARADOX • How do you bring other people on board to create a non-existent pie? • You let them self-select for a piece of it • THE AUTONOMY PARADOX • How do you share the pie without losing control of it? • You understand that ownership is not control; ownership is about the meta-rules • THE PERSISTENCE PARADOX • What do you do when things go wrong? • You persist, but pre-commit when to give up • THE PERFORMANCE PARADOX • You have built a great organization, a market that’s maturing and becoming predictable • Voila, you now have little control over it! [control shifts to prediction]. CONTINGENCY RELATIONSHIPHow much an individual’s intervention makes a difference
Working with inputs outside your control Working with inputs within your control Low impetus to act Compelling impetus to act Outcomes assumed to be within your control Causal = Need to chase resources Causal = Predicted Outcomes Effectual = Self-selected stakeholders Effectual = Novel Outcomes Causal = Plan and make calculated bets Outcomes assumed to be outside your control Effectual = Be open to changing goals Inaction Learned Helplessness High impetus to act
WORKING WITH AND WITHOUT CONTROL Working with inputs outside your control Working with inputs within your control Causal = Need to chase resources Effectual = Self-selected stakeholders Causal = Predicted Outcomes Effectual = Novel Outcomes Low Impetus to Act Compelling Impetus to Act Outcomes assumed to be within your control Causal = Plan and make calculated bets Effectual = Be open to changing goals Inaction: Learned Helplessness High Impetus to Act Outcomes assumed to be outside your control