entrepreneruship- effectuation & lean start up

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EntrepreneurshipSachidananda Benegal

N S Raghavan Center for Entrepreneurial Learning

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• A few questions:– In context of firms– Equilibrium

• Where do new firms come in!– Is there a role for

entrepreneurship?– What role does an

entrepreneur play?

We all know!

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Who is an entrepreneur?

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They vary in...

PurposeScale

Geography Value

Creativity

Goal

VisionDream

Networks

Technology

etc...

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HOW DOES AND ENTREPRENEUR THINK?

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Causal Logic is predictive

Control of outcomes achieved through

accurate 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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The Problem Space

Ref: Presentation of Prof Saras

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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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Effectuation Principles: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 opportunity

2. Affordable Loss – Invest only what you can afford to loose

3. 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.

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Who I am?What I know?

Whom I know?What Can I Do? Interaction with

others

Effectual Stakeholder

Commitments

Who we are?What we know?

Whom we know?

New means

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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How is this different from how Managers think?

Effectual Causal

Start with your means

Focus on your downside risk

Leverage Contingencies

Form Partnerships

Control Vs Predict

Pre-set goals and opportunities

Expected Returns

Avoiding Surprises

Competitive analysis

Inevitable trends

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CAN WE THEN SAY WE DON’T NEED MANAGERS?

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Firm Life-Cycle and Entrepreneur’s CareerCausal

Tethered to goalsand predictive

EffectualTethered to meansand non-predictive Time

Expert entrepreneurs do not always manage to bridge this gap

ExpertEntrepreneur

StartupFirm

LargeFirm

Nov

ice

Entr

epre

neur

Resources

Low

High

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LEAN STARTUP

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Lean Start-up: A Special Case!

Lean Manufacturing +

Toyota Production System+

Agile Development

Recollect the Notion of: Uncertainty

How it different from Risk?

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Traditional Product DevelopmentUnit of Progress: Advance to Next Stage

Waterfall

Requirements

Specification

Design

Implementation

Verification

Maintenance

Problem: known

Solution: known

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Agile Product DevelopmentUnit of Progress: A line of Working Code

Problem: known

Solution: unknown

“Product Owner” or in-house customer

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Product Development at Lean StartupUnit of Progress: Validated Learning About Customers ($$$)

Problem: unknown

Solution: unknown

Customer Development

Hypotheses,Experiments,Insights

Data,Feedback,

Insights

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Minimize TOTAL time through the loop

LEARN BUILD

MEASURE

IDEAS

CODEDATA

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And much more...

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I own right over none of the images used here – copyright is still with the owners

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Reference:• effectuation.org• Presentations by:

– Prof Saras Saraswathy– Eric Ries