effectuation -nsrcel launchpad participants
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EffectuationSachidananda B S
Presentation for LaunchpaddersNSRCEL-IIMB
05/01/2023 © Sachidananda 2
William Henry
Gates “Bill”
The Myth:
• Bill Gates was the visionary who saw the future that all PCs would run Windows
• Built Microsoft into the biggest software company in the world by himself because of his vision and talentThe Facts:
• Bill’s family was very wealthy, and Bill went to a gifted high school for children of rich families• Bill learnt how to program a computer in high school (in the late 1960s, computers were very rear)• Bill did not “drop out” of Harvard, but rather took a “leave of absence” and could come back any time• Bill’s mother introduced Bill’s new company, Micro-soft, to the CEO of IBM• A few weeks after the introduction, IBM signed a deal with Bill for MS-DOS, allowing Bill to retain the IP
Source: Leap, Rick Smith
05/01/2023 © Sachidananda 3
Elliot
Zuckerberg
Mark
The Myth:
•Mark was a visionary who saw online social networks as the future of online media
• Mark built facebook by himself from the beginning based on his vision and talent
•Through his strong vision and character, was able to raise millions of dollars easily for facebook
The Facts:
• Learned how to write computer programs since he was 10 years old• Worked on many “projects” including Facemash and The Facebook, many of which failed early, but he learned from them• Started The Facebook with just $2000• Had a strong core team who helped him grow facebook before getting external funding• Met Sean Parker who helped him raise money to grown business
Source: The Facebook Effect, David Kirkpatrick
05/01/2023 © Sachidananda 4
Charles Nicholas
Branson Richard
Could you guess how he started Virgin Atlantic?
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HOW DOES AN ENTREPRENEUR THINK?
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Causal Logic is predictive
Control of outcomes achieved throughaccurate predictions,
clear goals,and avoiding or protecting oneself against the
unexpected
To the extent you can predict the future, you can control it
Conventional Wisdom: Causal Logic
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Interpreting the outcomes...Scenario 1
Scenario 2
Scenario 3
Knightian Uncertainty
RiskPredictable
You know the distribution and can clearly predict the scenarios you could get into – very little risk if at all to operate in such a state
The distribution is unknown to begin with, but one could follow the draws to understand what could come next. You could then prepare for the outcomes
You do not know what is going to come next in spite of multiple attempts at the same thing. Outcome is highly uncertain!
It is this sort of uncertainty that we
deal with as entrepreneurs
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Through the study of several such Entrepreneurs….
…Some patterns emerge
The Effectual Principles
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How differently do entrepreneurs think?1. Bird in Hand Principle – Start with who you are, what you know and whom you know, and not necessarily with a predetermined goal or a pre-envisioned opportunity2. Affordable Loss – Invest only what you can afford to loose3. Crazy Quilt – Create an expanding network of self-selected stakeholders, each of whom commits only what he or she can afford to loose. Focus on partnerships rather than on competitors.4. Lemonade – Be open to surprises and leverage them. Treat them as useful inputs rather than hindrances to be avoided.5. Pilot in the Plane – Co-create the future with things within your control and with self-selected partners
If you use these principles you can shape your future and transform your environment in ways that matter to you and your stakeholders.
05/01/2023 © Sachidananda 10
How is this different from how Managers think?
Effectual Causal
Start with your means
Focus on your downside risk
Leverage Contingenci
es
Form Partnerships
Control Vs Predict
Pre-set goals and
opportunitiesExpected Returns
Avoiding Surprises
Competitive analysis
Inevitable trends
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Classic Causation Model from Marketing Textbooks
Process of Effectuation Used by Expert Entrepreneurs
SINGLE CUSTOMER
Segment Definition
Market DefinitionSegmentation
Targeting
Positioning
UnderstandCustomer
Adding Segments/PartnersDef of one of many possible markets
Marketing Process Inversion
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Who I am?What I know?
Whom I know?
What Can I Do?
Interaction with others
Effectual Stakeholder Commitment
s
Who we are?What we know?
Whom we know?
New mean
s
Expanding cycle of resources
What can we do?
(Affordable loss)
New Goals
Actual course of
action possible
Converging cycle of constraints
New Markets and New
Firms
The process!
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How is this different from how Managers think?
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Having said that:Effectuation
is Not an invention or thought of a great mind
is not a Recipe guaranteeing success
does offer Control in an unpredictable Business Environment
does offer Insights how expert entrepreneurs cope with uncertainty
05/01/2023 © Sachidananda 15
Firm Life-Cycle and Entrepreneur’s Career
CausalTethered to goals
and predictive
EffectualTethered to meansand non-predictive Time
Expert entrepreneurs do not always manage to bridge this gap
ExpertEntrepreneur
StartupFirm
LargeFirm
Novi
ce E
ntre
pren
eur
Resources
Low
High
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Before we wind up – here is a Summary of our discussion thus far!
The 10 Myths of Entrepreneurship
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QUESTIONSTHANK YOU
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