Table of Contents

Dear Reader,

Whether you come to this book as an entrepreneurship student, a corporate manager, or a seasoned creator of new ventures, you already know that entrepreneurship is the primary engine of growth, innovation, and that most delicious of personal freedoms—financial self-reliance.

What you will discover in this book is that there is a science to entrepreneurship—a common logic we observe in expert entrepreneurs across industries, geographic locations, and time. We call this logic “effectuation,” a word you probably don’t run into every day.

The concept, though, isn’t new. In fact, the underlying principles are the same ones that:

• Enabled Josiah Wedgwood in the eighteenth century to transform a pottery business into an enduring brand
• Helped Kiran Mazumdar-Shaw turn approximately 120 US Dollars into a 2.8 billion US Dollar global pharmaceuticals firm
• Were the basis for Oprah Winfrey to turn a traumatic childhood and distinct empathetic interviewing style into a globally recognized media empire
• Allowed Muhammed Yunus, the Nobel Laureate founder of the Grameen Bank and microfinance pioneer, to transform the lives of millions of women in Bangladesh

In a nutshell, effectual entrepreneurs work with things already within their control to co-create valuable new futures with people who want to work with them.

As you begin the book, you will come face-to-face with some common misconceptions about entrepreneurship, as well as some of the fears every entrepreneur faces. In the heart of the book, you will find the four core principles of effectuation expert entrepreneurs have learned in the process of creating new ventures, products, and markets.

Each will be explained through cases, stories, thought exercises, and a variety of practical applications. Though simple and easy to put into action, these principles challenge and even invert the traditional logic mature organizations follow:

1. Start with your means. Don’t wait for the perfect opportunity. Start taking action based on what you have readily available: Who you are, what you know and who you know.
2. Set affordable loss. Evaluate opportunities based on whether the downside is acceptable, rather than on the attractiveness of the predicted upside.
3. Leverage contingencies. Embrace surprises that arise from uncertain situations, remaining flexible rather than tethered to existing goals.
4. Form partnerships. Form partnerships with people and organizations willing to make a real commitment to jointly creating the future—product, firm, market—with you. Don’t worry so much about competitive analyses and strategic planning.

Together, these principles enable entrepreneurs to co-create opportunities with other people who choose to work with them. When you can make the future happen by working with people who want to work with you and working with things you control, you don’t need to worry about predicting the future, determining the perfect timing, or finding the optimal opportunity.

We have included entrepreneurial stories from a wide diversity of people, backgrounds, venture types and locations, hoping that you will find many examples which speak to you and your available means and thus inspire you to take action.

As you reach the conclusion of the book, you will find applications of these principles in contexts ranging from social entrepreneurship to large firms. And you will understand the challenges entrepreneurs face, as their lovingly created ventures become mature businesses.

When you start a new venture—for-profit or not, individually or within an existing organization—you are not only trying to make a good living but also expanding the horizon of valuable new economic opportunities. This book is designed to help you do that from start to finish. And, in form and content, the book embodies the expert entrepreneur’s logic—bold, systematic, pragmatic and, always, full of energy, mischief and fun.

We wrote this book for you and are keen to hear what you think of it: what you like, what you don’t like, suggestions for future editions, and what impact it has had on your entrepreneurial story

And though we take on only the topics of how firms communicate their unique identity (Chapter 21), how people deal with technology when creating ventures (Chapter 22), and how the entrepreneurial method is similar to the scientific method (Chapter 23), we hope you will consider these chapters your gateway out into the wide world. And as your voyage faces uncertainties not detailed in this book, we hope you figure out how to apply some elements of effectuation to help you on your way.

The five chapters that constitute the first part of the book present common myths about entrepreneurship and the associated and pragmatic questions that hold individuals back from starting a new venture—namely, “I don't have an idea, the money, I’m afraid to fail, I’m not the type, and I don’t know where to start.” 
These fears arise from misconceptions similar to those ascribed to the pioneering explorers who set sail on the open seas several hundred years ago. History has stylized these early adventurers as visionary heroes, possessing superhuman abilities and extraordinary luck. 
In fact, the process of drawing the map of the world is similar to the process an entrepreneur employs in starting a new venture. Both explorers and entrepreneurs do what they can with the things they have available. Both embrace surprise as an asset. And both create new maps that define our world for generations to come. 
We encourage you to look past the glamorous retelling of entrepreneurial lore and instead focus on the systematic principles that experts follow—principles detailed in this book that you can apply yourself as you create your own map.

Systematic study of expertise in areas that range from chess to taxi driving shows that experts are not different from the rest of us except in how they have learned to think about and solve problems. These differences are what enable the extraordinary performance we have come to associate with experts across domains. 
This section is dedicated to explaining those differences within the domain of entrepreneurship. Here, you should expect to find a clear explanation of what makes the entrepreneurial problem space unique, and fundamental strategies expert entrepreneurs have learned for operating effectively within that problem space. 
As you work through it, we hope you will begin constructing a clear and precise way of looking at the world, so that you can see the world in the same way that expert entrepreneurs have learned to see it. In their view, the world is both uncertain and shapeable at the same time. 
Understanding this perspective helps explain the relationship between the effectual principles we introduce in this section, and the ways that expert entrepreneurs seek to control outcomes through their own actions.

This section is the heart of the book—the point where the venture gets started. We hope you notice the change in tone from one that is more thoughtful in the first two sections to one that is more action-oriented in this section. 
Each of the effectual principles is laid out in detail in the odd numbered chapters, while the even numbered chapters explain how to put the principles to use. So, whether you use this section to organize yourself for your venture, or you navigate through the section as you navigate through the first steps of starting up, we wish you a steady hand and an endless palette of colors.

Having successfully navigated the confusing, sometimes foggy, sometimes unbeaten tracks of entrepreneurship, you face new challenges. Will you want to stay with your venture as it grows? Will your venture want you to stay as it grows? Though not surprising, the very heuristics that help you create new ventures, markets, and products are something of a liability in a larger firm, a bigger operation, serving a mature market where prediction prevails. 
This explains why so many entrepreneurs scale up and then exit the venture for new opportunities. Exiting may mean that the founder resigns from an ongoing operation, or may involve selling the business. Either way, the founder entrepreneur who leads the firm once the firm has advanced into maturity, such as Bill Gates at Microsoft, is something of an anomaly. 
Clearly, Gates was able to make the transition from employing non-predictive strategy at the outset to effectively utilizing prediction as Microsoft grew. But most founders leave or are thrown out. These represent two of the three main paths taken by serial entrepreneurs. The third involves starting again at the first chapter of the book. 
The point is that successful entrepreneurs have dramatically expanded the means available to them. And so, while some may feel trapped having to run “their baby,” the truth is that the range of options available to the successful entrepreneur is not only broader than that, it is significantly broader than when they started “their baby” in the first place. So whatever direction you point your successful venture and your own success, we hope to have an appropriate section for you.

You will have noticed that not all examples of effectual logic in this book are entrepreneurs. In this next section, we delve deeper into the idea that effectuation is a way of describing human decision-making and human action, which can be applied as easily to the starting of a new venture as it can to the solving of a problem in the world. 
And though we take on only the topics of how firms communicate their unique identity (Chapter 21), how people deal with technology when creating ventures (Chapter 22), and how the entrepreneurial method is similar to the scientific method (Chapter 23), we hope you will consider these chapters your gateway out into the wide world. And as your voyage faces uncertainties not detailed in this book, we hope you figure out how to apply some elements of effectuation to help you on your way.