Bird In Hand Principle

When expert entrepreneurs seek to build a new venture, they start with their means. These means can be grouped into three categories:

• Who I am—my traits, tastes, and abilities
• What I know—my education, training, expertise, and experience
• Who I know—my social and professional networks.

Using a combination of these means, the entrepreneur begins to imagine possibilities and take action. Most often, she starts very small with the closest means and moves almost directly into implementation without elaborate planning (fire, aim versus aim, fire). With each action, possible outcomes are reconfigured. Eventually, certain emerging effects coalesce into clearly achievable and desirable goals—landmarks begin to appear on the blank map. The end goals are the combined result of the imagination and aspirations of the entrepreneur and the people she has interacted with during the process.

Research Papers :

Affordable Loss: Behavioral Economic Aspects of the Plunge Decision
Configurations of effectuation, causation, and bricolage: implications for firm growth paths
Enhancing the understanding of processes and outcomes of innovation – the contribution of effectuation to S-D logic
HelppoAsu aikoo tehdä Metallicat ja valloittaa maailman effektuaalisesti
Learning from failures in business model innovation: solving decision‐making logic conficts through intrapreneurial efectuation
Metallicalta oppia suomalaiselle elinkeinoelämälle – Kuinka raivataan tie autotallista maailman huipulle ja luodaan uudet markkinat
Offical Response to Arend et al: Co-Creating Effectual Entrepreneurship Research
Siding with the Angels – Business Angel Investing: Promising Outcomes and Effective Strategies
Unreasonable Assumptions in ASB
What Makes Entrepreneurs Entrepreneurial?
Why Metallica changed music world – Effectuation perspective

Articles :

1. 3M: 7 Pillars of Innovation
2. 9 Dragons: A Profit from Waste
3. A Healthy Message
4. A Struggle Between Efficiency and Creativity at 3M
5. Another Man’s Treasure – The Agilyx Story
6. As revenues crash, startups learn to adapt products, services
7. Bacaina Veche
8. Barefoot Wine (in Finnish)
9. Beauty in Business
10. Bio Generation
11. Breathe of Fresh Air the Story of Gore Tex
12. Browning-Ferris (BFI): How to Learn to Let Go
13. Business Activist
14. Business Cycle – Terracycle
15. Business for Dummies the Story of Mannequin Madness
16. Business Legs from Recycling
17. Creator of Dollars and Change – The Story of Ashoka
18. Cube Route to Riches: the Story of Rubik Cube
19. Delivering Entrepreneurship
20. Destination Unknown – The Story of Couchsurfing
21. Do You Need To Be A Risk Taker To Be An Entrepreneur?
22. Eco-Envelopes: Many Happy Returns
23. Empowerment Through Ideas: Teaching Effectuation in Pakistan
24. Entrepreneur Journey
25. Entrepreneurial Advice
26. Entrepreneurship model for biopharma industry
27. Fair Dinkum
28. Forgetful Entrepreneur
29. Founder in First Gear
30. From Cash to Trash: the Story of Plas2Fuel
31. Get your business plan right
32. Identity Chip – The Story of Stacy’s Pita Chips
33. Like Anyone Else
34. Like Science, even entrepreneurship should be taught at the school level: Darden Prof Saras D Sarasvathy
35. Making Waves: the Story of WaveBob
36. Manifesto for Effectual Action / Manifesto para a Ação Efetual
37. Out of Sight – The Story of Unsicht-Bar
38. Picture Perfect
39. Power Shock – The Story of Levant Power
40. Profit with a Purpose – The Story of Vestergaard Frandsen
41. Psychological Entrepreneurship
42. Recycling $100 Bills
43. Social Success Made Simple
44. Sprint Finishes – how Guidewire organizes for innovation
45. Swedish Economic Forum Report of Entrepreneurship Education
46. Testing the Waters: the Story of Aquastasis
47. The code of how great entrepreneurs think
48. The Entrepreneur’s Hand on the Wheel
49. The Little Entrepreneur
50. The Moving Picture Show: One True Media
51. The Price of Social Innovation
52. The Rise of Entrepreneurial Thinking
53. The Story of Gardener’s Eden
54. The Story of OneWorld Health
55. USAID Reports on Effectuation in Youth Entrepreneurship Programs
56. Winds of Change – the Story of Ecotricity

Affordable Loss Principle

In much of the business world, the manager in charge of launching a new product analyses the market and chooses segments with the highest expected value. It is a natural reflex that is the result of years of training around a single mantra: maximize returns by selecting the optimal strategy for your target. Expert entrepreneurs turn this logic on its head—they think in terms of affordable loss rather than expected returns. They decide what they are willing to lose rather than what they expect to make. Instead of calculating upfront how much money they will need to launch their project and investing time, effort, and energy in raising that money, the effectual entrepreneur tries to estimate the downside and examines what she is willing to lose. The entrepreneur then uses the process of building the project to bring other stakeholders on board and leverage what they can afford to lose together. An estimate of affordable loss does not depend on the venture but on the person. It varies from person to person and even across his or her life stages and circumstances. For the Greenwoods (GoodKaarma article), affordable loss did not permit the use of cash, but did include the use of their old farmhouse. By allowing estimates of affordable loss to drive decisions about which venture to start, entrepreneurs stop depending on prediction. Instead, they focus on cultivating opportunities that have a low failure cost and that generate more options for the future. The combination enables cheap failure and learning that can be applied to the next iteration of the opportunity. This does not mean that entrepreneurs choose projects that won’t cost a lot if they fail—or that they do not expect to make a lot of money. It simply acknowledges that uncertain new venture opportunities are difficult to value upfront, whereas the investment of time, money, and other resources is quantifiable, manageable and controllable.

Research Papers :

Affordable Loss: Behavioral Economic Aspects of the Plunge Decision
Configurations of effectuation, causation, and bricolage: implications for firm growth paths
Effectuation in the Management of Knightian Uncertainty: Evidence From the RealNetworks Case
Enhancing the understanding of processes and outcomes of innovation – the contribution of effectuation to S-D logic
HelppoAsu aikoo tehdä Metallicat ja valloittaa maailman effektuaalisesti
Learning from failures in business model innovation: solving decision‐making logic conficts through intrapreneurial efectuation
Metallicalta oppia suomalaiselle elinkeinoelämälle – Kuinka raivataan tie autotallista maailman huipulle ja luodaan uudet markkinat
Offical Response to Arend et al: Co-Creating Effectual Entrepreneurship Research
Selection and Return in Angel Investments
Unreasonable Assumptions in ASB
What Makes Entrepreneurs Entrepreneurial?
Why Metallica changed music world – Effectuation perspective

Articles :

1. 3M: 7 Pillars of Innovation
2. As revenues crash, startups learn to adapt products, services
3. Bacaina Veche
4. Barefoot Wine (in Finnish)
5. Beauty in Business
6. Browning-Ferris (BFI): How to Learn to Let Go
7. Business Activist
8. Creator of Dollars and Change – The Story of Ashoka
9. Do You Need To Be A Risk Taker To Be An Entrepreneur?
10. Eco-Envelopes: Many Happy Returns
11. Entrepreneurial Advice
12. Entrepreneurship model for biopharma industry
13. Fair Dinkum
14. Forgetful Entrepreneur
15. Founder in First Gear
16. From Cash to Trash: the Story of Plas2Fuel
17. Get your business plan right
18. Hydration Technology: Unrisky Business
19. Identity Chip – The Story of Stacy’s Pita Chips
20. Like Anyone Else
21. Like Science, even entrepreneurship should be taught at the school level: Darden Prof Saras D Sarasvathy
22. Luminary – The Story of Lumni
23. Manifesto for Effectual Action / Manifesto para a Ação Efetual
24. Picture Perfect
25. Recycling $100 Bills
26. RETAIL RESUSCITATION AT THE HEART OF ILAB START-UP
27. Social Success Made Simple
28. Swedish Economic Forum Report of Entrepreneurship Education
29. Testing the Waters: the Story of Aquastasis
30. The code of how great entrepreneurs think
31. The Little Entrepreneur
32. The Rise of Entrepreneurial Thinking
33. The Story of Gardener’s Eden
34. The Story of OneWorld Health
35. USAID Reports on Effectuation in Youth Entrepreneurship Programs
36. UVA Darden Effectuation Pioneer Receives Global Legacy Impact Award

Crazy Quilt Principle

The crazy quilt principle of effectual reasoning is the focus on building partnerships rather than beating competitors. Since entrepreneurs tend to start the process without assuming the existence of a predetermined market for their idea, they don’t know who their competitors will be, so detailed competitive analyses have little value. Instead, entrepreneurs generally take the product to the nearest potential customer. Some of the people they interact with make a commitment to the venture, committing time and/or money and/or resources and, thus, self-select into the new-venture creation process. The partnership principle dovetails well with the affordable loss principle to bring the entrepreneur’s idea to market with very little cash expenditure. Obtaining pre-commitments from key stakeholders, suppliers or customers helps reduce uncertainty in the early stages of creating an enterprise. Finally, since the entrepreneur is not wedded to any particular market for his or her idea, the expanding network of strategic partnerships determines, to a great extent, which market or markets the company will eventually end up entering or creating.

Research Papers :

Configurations of effectuation, causation, and bricolage: implications for firm growth paths
Effectual Networks: A Pre-commitment Approach to Bridging the Gap Between Opportunism and Trust
Effectuation in the Management of Knightian Uncertainty: Evidence From the RealNetworks Case
Enhancing the understanding of processes and outcomes of innovation – the contribution of effectuation to S-D logic
HelppoAsu aikoo tehdä Metallicat ja valloittaa maailman effektuaalisesti
Learning from failures in business model innovation: solving decision‐making logic conficts through intrapreneurial efectuation
Metallicalta oppia suomalaiselle elinkeinoelämälle – Kuinka raivataan tie autotallista maailman huipulle ja luodaan uudet markkinat
Offical Response to Arend et al: Co-Creating Effectual Entrepreneurship Research
Unreasonable Assumptions in ASB
What Makes Entrepreneurs Entrepreneurial?
Why Metallica changed music world – Effectuation perspective

Articles :

1. 3M: 7 Pillars of Innovation
2. A Healthy Message
3. As revenues crash, startups learn to adapt products, services
4. Barefoot Wine (in Finnish)
5. Beauty in Business
6. Bio Generation
7. Business Activist
8. Business Cycle – Terracycle
9. Creator of Dollars and Change – The Story of Ashoka
10. Cube Route to Riches: the Story of Rubik Cube
11. Destination Unknown – The Story of Couchsurfing
12. Do You Need To Be A Risk Taker To Be An Entrepreneur?
13. Eco-Envelopes: Many Happy Returns
14. Entrepreneurship model for biopharma industry
15. Fair Dinkum
16. Forgetful Entrepreneur
17. Founder in First Gear
18. Get your business plan right
19. Hydration Technology: Unrisky Business
20. Like Science, even entrepreneurship should be taught at the school level: Darden Prof Saras D Sarasvathy
21. Making Waves: the Story of WaveBob
22. Manifesto for Effectual Action / Manifesto para a Ação Efetual
23. Money from Nothing – The Redhat Story
24. Oat Cuisine – the Story of Oatly
25. Out of Sight – The Story of Unsicht-Bar
26. Picture Perfect
27. Power of Profit – The Story of Husk
28. Profit with a Purpose – The Story of Vestergaard Frandsen
29. Psychological Entrepreneurship
30. Recycling $100 Bills
31. RETAIL RESUSCITATION AT THE HEART OF ILAB START-UP
32. Social Success Made Simple
33. Sole Survivor: the Story of Geox
    
34. Swedish Economic Forum Report of Entrepreneurship Education
35. Testing the Waters: the Story of Aquastasis
36. The code of how great entrepreneurs think
37. The Moving Picture Show: One True Media
38. The Rise of Entrepreneurial Thinking
39. The Story of Gardener’s Eden
40. The Story of OneWorld Health
41. USAID Reports on Effectuation in Youth Entrepreneurship Programs
42. UVA Darden Effectuation Pioneer Receives Global Legacy Impact Award
43. Winds of Change – the Story of Ecotricity

Lemonade Principle

If you come across lemons, make lemonade! The third principle of effectual reasoning is at the heart of entrepreneurial expertise—the ability to turn the unexpected into the profitable. Expert entrepreneurs learn not only to work with surprises but also to take advantage of them. In most contingency plans, surprises are bad—the worst-case scenarios. But because entrepreneurs do not tie their idea to any theorized or preconceived “market,” anything and everything is potentially a surprise that can lead to a valuable opportunity.

Research Papers :

Causation and Effectuation: Toward a Theoretical Shift From Economic Inevitability to Entrepreneurial Contingency
Configurations of effectuation, causation, and bricolage: implications for firm growth paths
Effectuation in the Management of Knightian Uncertainty: Evidence From the RealNetworks Case
Enhancing the understanding of processes and outcomes of innovation – the contribution of effectuation to S-D logic
HelppoAsu aikoo tehdä Metallicat ja valloittaa maailman effektuaalisesti
Learning from failures in business model innovation: solving decision‐making logic conficts through intrapreneurial efectuation
Metallicalta oppia suomalaiselle elinkeinoelämälle – Kuinka raivataan tie autotallista maailman huipulle ja luodaan uudet markkinat
Offical Response to Arend et al: Co-Creating Effectual Entrepreneurship Research
Unreasonable Assumptions in ASB
What Makes Entrepreneurs Entrepreneurial?
Why Metallica changed music world – Effectuation perspective

Articles :

1. 3M: 7 Pillars of Innovation
2. 9 Dragons: A Profit from Waste
3. As revenues crash, startups learn to adapt products, services
4. Barefoot Wine (in Finnish)
5. Beauty in Business
6. Business Activist
7. Creator of Dollars and Change – The Story of Ashoka
8. Do You Need To Be A Risk Taker To Be An Entrepreneur?
9. Entrepreneurship model for biopharma industry
10. Fair Dinkum
11. Founder in First Gear
12. From Cash to Trash: the Story of Plas2Fuel
13. Get your business plan right
14. Identity Chip – The Story of Stacy’s Pita Chips
15. Manifesto for Effectual Action / Manifesto para a Ação Efetual
16. Oat Cuisine – the Story of Oatly
17. Out of Sight – The Story of Unsicht-Bar
18. Recycling $100 Bills
19. RETAIL RESUSCITATION AT THE HEART OF ILAB START-UP
20. Something New Under the Sun – The Story of NanoSolar
21. Swedish Economic Forum Report of Entrepreneurship Education
22. The code of how great entrepreneurs think
23. The Lemonade Principle: Staples, Silly Putty, Honda
24. The Moving Picture Show: One True Media
25. The Rise of Entrepreneurial Thinking
26. USAID Reports on Effectuation in Youth Entrepreneurship Programs
27. UVA Darden Effectuation Pioneer Receives Global Legacy Impact Award
28. Winds of Change – the Story of Ecotricity

Pilot in the Plane Principle

The struggle for personal control is as old as humankind itself—primitive and innate. There is abundant evidence that most people desire control of the events in their lives, indeed over their lives, and that such strivings for control span history and cultures. The venues, mechanisms and instruments for control-striving today are different than they used to be, but the issue remains. In fact, psychological research suggests that an enormous range of human behaviours relate to control striving in some way and are intrinsically linked to healthy human functioning. For example, personal control is linked to the development of self-esteem and the reduction of stress, whereas loss of control increases the likelihood of feelings of helplessness and depression. In other words, having a desire for control over your life doesn’t make you a “control freak” (despite what your friends may say!). Instead, it is normal and healthy. Many entrepreneurs instinctively recognize the importance of personal control: fundamentally, many chose entrepreneurship because they want to be their own boss and choose their own course. Control enables entrepreneurs to work on things they think are important, set their own schedules and work with whom they want. Many entrepreneurs attest that they feel differently about running a business they own as compared with working for a wage, and that they value being in control. For them, the experience of personal control is closely associated with freedom, self-direction and autonomy. The strength of a person’s desire for control can be thought of as an element of his or her means: “Who you are.” While everyone has some desire for control, the intensity of that desire varies among individuals and over the course of a lifetime. For example, a high desire for control may motivate someone to become an entrepreneur, but the experience of working for himself may strengthen the desire even further—he may not be able to imagine working for anyone else again.

Research Papers :

Accounting for the Future: Psychological Aspects of Effectual Entrepreneurship
Affordable Loss: Behavioral Economic Aspects of the Plunge Decision
Beyond hubris: How highly confident entrepreneurs rebound to venture again
Constructing Corridors to Economic Primitives: Entrepreneurial Opportunities as Demand-side Artifacts
Enhancing the understanding of processes and outcomes of innovation – the contribution of effectuation to S-D logic
Entrepreneurship as a science of the artificial
Entrepreneurship as Method: Open Questions for an Entrepreneurial Future
Failing Firms And Successful Entrepreneurs: Serial Entrepreneurship As A Simple Machine
HelppoAsu aikoo tehdä Metallicat ja valloittaa maailman effektuaalisesti
How do Firms Come to Be? Towards a Theory of the Entrepreneurial Process
Immortal Firms in Mortal Markets? How Entrepreneurs Deal with “The Innovators’ Dilemma”
Learning from failures in business model innovation: solving decision‐making logic conficts through intrapreneurial efectuation
Metallicalta oppia suomalaiselle elinkeinoelämälle – Kuinka raivataan tie autotallista maailman huipulle ja luodaan uudet markkinat
Offical Response to Arend et al: Co-Creating Effectual Entrepreneurship Research
On the Entrepreneurial Genesis of New Markets: Effectual Transformations Versus Causal Search and selection
Prediction and Control Under Uncertainty: Outcomes in Angel Investing
Selection and Return in Angel Investments
Siding with the Angels – Business Angel Investing: Promising Outcomes and Effective Strategies
The Coevolution of Institutional Entrepreneurship: A Tale of Two Theories
The Economic Implications of Exaptation
The entrepreneur–environment nexus: Uncertainty, innovation, and allocation
The Role of Prediction in New Venture Investing
Unreasonable Assumptions in ASB
What Makes Entrepreneurs Entrepreneurial?
Why Metallica changed music world – Effectuation perspective

Articles :

1. 3M: 7 Pillars of Innovation
2. A Healthy Message
3. As revenues crash, startups learn to adapt products, services
4. Barefoot Wine (in Finnish)
5. Beauty in Business
6. Bio Generation
7. Breathe of Fresh Air the Story of Gore Tex
8. Browning-Ferris (BFI): How to Learn to Let Go
9. Business Activist
10. Cirque du Soleil – The Show Must Go On
11. Cool in a Crisis – The Entrepreneurial Upside of the Downturn
12. Creating Breakthroughs at 3M
13. Creator of Dollars and Change – The Story of Ashoka
14. Cube Route to Riches: the Story of Rubik Cube
15. Delivering Entrepreneurship
16. Do You Need To Be A Risk Taker To Be An Entrepreneur?
17. Eco-Envelopes: Many Happy Returns
18. Entrepreneur Journey
19. Entrepreneurial Advice
20. Entrepreneurship model for biopharma industry
21. Fair Dinkum
22. Forgetful Entrepreneur
23. Founder in First Gear
24. From Cash to Trash: the Story of Plas2Fuel
25. Get your business plan right
26. Identity Chip – The Story of Stacy’s Pita Chips
27. Like Anyone Else
28. Like Science, even entrepreneurship should be taught at the school level: Darden Prof Saras D Sarasvathy
29. Luminary – The Story of Lumni
30. Make it Personal: Freitag and Sigg
31. Making Waves: the Story of WaveBob
32. Manifesto for Effectual Action / Manifesto para a Ação Efetual
33. Oat Cuisine - The Story of Oatly
34. Out of Sight – The Story of Unsicht-Bar
35. Picture Perfect
36. Power Shock – The Story of Levant Power
37. Psychological Entrepreneurship
38. Recycling $100 Bills
39. RETAIL RESUSCITATION AT THE HEART OF ILAB START-UP
40. Social Success Made Simple
41. Sole Survivor: the Story of Geox
    
42. Sprint Finishes – how Guidewire organizes for innovation
43. Swedish Economic Forum Report of Entrepreneurship Education
44. Testing the Waters: the Story of Aquastasis
45. The code of how great entrepreneurs think
46. The Entrepreneur’s Hand on the Wheel
47. The Lemonade Principle: Staples, Silly Putty, Honda
48. The Little Entrepreneur
49. The Moving Picture Show: One True Media
50. The Price of Social Innovation
51. The Rise of Entrepreneurial Thinking
52. The Story of Gardener’s Eden
53. The Story of OneWorld Health
54. USAID Reports on Effectuation in Youth Entrepreneurship Programs
55. UVA Darden Effectuation Pioneer Receives Global Legacy Impact Award

Effectual Cycle

The entrepreneur’s means provide the starting point. The action begins in earnest when the entrepreneur begins interacting with people. Sometimes the starting point of that interaction is an idea, a provisional goal the entrepreneur uses to initiate the interaction. Sometimes the interaction is specifically initiated in the terms of “what can we do?” as the entrepreneur determines possibilities together with the person she interacts with. Regardless, each interaction can terminate without a commitment. In that case, the opportunity, as the entrepreneur and that specific person she interacts with envisioned, is on hold. Alternatively, that interaction might result in a commitment. As we described upfront, those commitments have two effects. One effect of adding a stakeholder to the venture is the addition of that stakeholder’s means—the possibilities those means suggest. At the same time, new goals also accompany the commitment, adding to the constraints accumulated by the venture and converging it toward a specific direction. At any time in this cycle, unexpected events, information and meetings can change the environment the venture is developing. Those contingencies have similar effects to commitments. On one hand, they present new resources—new means the entrepreneur can use to expand the possibilities of the venture. On the other hand, they present new constraints also, perhaps sending the venture in a more specific direction.

Research Papers :

On the Entrepreneurial Genesis of New Markets: Effectual Transformations Versus Causal Search and selection
Questions from the Effectuation Conference June 6 & 7, Bodo Norway

Articles :

1. A Struggle Between Efficiency and Creativity at 3M
2. Another Man’s Treasure – The Agilyx Story
3. Beauty in Business
4. Business for Dummies the Story of Mannequin Madness
5. Business Legs from Recycling
6. Chocolate Magic – The Story of Manon Chocolatier
7. Clean Start – Good Kaarma
8. Coffee Found or Coffee Made
9. Dead Ringer – The Story of 1-800-Autopsy
10. Delivering Entrepreneurship
11. Do You Need To Be A Risk Taker To Be An Entrepreneur?
12. Driving Backward
13. Driving the Future – The Story of Better Place
14. Entrepreneurial Distinction
15. Fail to Succeed – The Story of MGA Entertainment
16. Founder in First Gear
17. How Great Entrepreneurs Think
18. Hunting with the pack – The Story of Baloo Patel
19. Let the Music Speak – The Story of the Compact Disc
20. Like Science, even entrepreneurship should be taught at the school level: Darden Prof Saras D Sarasvathy
21. Loosen The Reins Without Losing Control
22. Meyer
23. Milk without Cows?
24. Navigating a Sea of Potential Partners
25. New Ventures: The result is rarely the starting point
26. Persist Easy; Swerve Hard – The Story of EasyAuto
27. Pie in the Sky
28. Power in the Air – The Story of Powerkiss
29. RETAIL RESUSCITATION AT THE HEART OF ILAB START-UP
30. Sending a Green Message
31. Surprise in a Glass – The Story of Innis & Gunn
32. Swedish Economic Forum Report of Entrepreneurship Education
33. The Accidental Entrepreneur
34. The Plunge Decision
35. U-Haul
36. UVA Darden Effectuation Pioneer Receives Global Legacy Impact Award
37. Venturing Out? Start with What You Know – The Story of Boing Boing A Struggle Between Efficiency and Creativity at 3M