Effectuation Stories

          Case studies, lessons and stories about Effectuation!



          U-Haul, or transforming uncertainty into success

          In 1945, newly married and with barely US$5,000 in his pocket, Leonard Samuel (L.S.) Shoen and his wife, Anna Mary Carty Shoen, initiated a sequence of events that led to the creation of U-Haul.

          In just four years, the duo had founded a company that made it possible to rent a trailer one-way from city to city throughout most of the United States. When we examine these events, we find that this could not have been accomplished by using prediction or by trying to measure risk. In fact, when students today set out to write a business plan for this venture, they invariably conclude that the plan is financially infeasible, and even psychologically infeasible, since it requires a large and risky capital outlay, most of which gets locked up in relatively worthless assets such as trucks and rental locations. Moreover, the logistics of starting the business on a much smaller scale and growing it as fast as Shoen did overwhelms the analytical prowess of the best of forecasters. The lack of any entry barriers to
          imitators with deep pockets is seen as another insurmountable obstacle to success.

          Means over prediction

          Shoen, however, did not do elaborate market research or detailed forecasting and fundraising in the sense we generally use those terms. Instead, using who he was, what he knew and who he knew (what we call effectual means), he plunged into action, creating the market as he grew the business, working from the observation that people kept coming to his father-in- law’s garage asking whether they could borrow the truck that was parked in the back. In his own words:

          Since my fortune was just about enough to make the down payment on a home and furnish it, and knowing that if I did this we would be sunk, we started the life of nomads by putting our belongings in a trailer and living between in-laws and parents for the next six months. I barbered part time and bought the kind of trailers I thought we needed to rent from anybody who happened to have one at a price I thought was right. By the fall of 1945, I was so deep into the trailer rental deal economically that it was either make it or lose the whole thing.

          Building with partners

          Shoen moved with his wife and their young child to the Carty ranch in Ridgefield, Washington. There, with the help of the Carty family, the Shoens built the first trailers in the fall of 1945. They painted them in striking orange with the evocative name U-Haul on the sides, and they used the ranch’s automobile garage (and milk house) as the first manufacturing plant. Shoen often gave renters discounts on their trailer rentals if they would find a reputable gas station that would agree to rent U-Haul trailers in the cities to which they moved.

          In the 1950s, the company established a fleet ownership program that enabled investors (including dealers and eventually employees) to purchase trailers for the U-Haul fleet in return for future dividends. Shoen established a dealer network by partnering with service stations across the country. U-Haul provided the trailers (trucks were added in 1959), and the gas station provided the unused land and labour to service U-Haul customers. U-Haul benefited from new business, and the service station owner benefited from a second source of income.

          Blocking competitors with partners

          Together, this vast network of stakeholders formed a substantial entry barrier to any imitator, who would have to risk a large capital outlay to compete. Advertising was entirely limited to the Yellow Pages and to the sudden and startling sight of growing numbers of distinctively painted vans driving the freeways of the country.

          Managing affordable loss

          At any given moment, U-Haul could have failed, but the resulting financial fallout would not have been a disaster since the investments were spread across so many stakeholders.

          Looking at the story of U-Haul’s creation, we see that Shoen dealt with uncertainty step by step, using effectual principles—starting from his means, developing partnerships, and setting a limit on the potential downside loss. Of course, we could rewrite history and suggest that he could have done market research, found out about the migration of populations in the US in the late 1940s, borrowed money from investors to set up locations, and so on. But as demonstrated by students’ attempts to create feasible business plans around the idea, this approach probably would have killed the venture.Instead, because he could not and would not measure the risk, he managed the uncertainty as best he could.

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