Effectuation: a précis

The Successful Entrepreneur’s Way of Starting New Ventures

Effectuation is the process that successful entrepreneurs use, and others may learn, in order to start new ventures. It’s planning while executing and executing while planning. Effectuation is radically different from classical corporate strategy: bold envisioning of a clear future, planning, projecting future cash flows and proceeding if the net present value is positive.  The successful entrepreneur does not predict the future; successful entrepreneurs shape it!

The Principles

Start ASAP, with the means at hand. Don’t wait for the perfect opportunity. Start taking action, based on what is readily available to you: current resources, knowledge, experience, skills, relationships and passion for the venture.

Set the affordable loss: Ask: “what am I prepared to throw in to shape my future and also prepared to lose if it doesn’t work out?” Take the plunge, provided the downside is acceptable and, should the venture crash, fail fast and take an affordable loss. Learn and start another venture.

Leverage contingencies: This is about the “dance with chance”; unforeseen developments, even apparent problems, are opportunities to learn and to be leveraged for growth and gain.

Form partnerships: This is about co-evolution and co-production with customers, suppliers, financiers and with others willing to make a commitment jointly to shape the future.

Successful entrepreneurs bootstrap the venture as soon as possible, starting with the means at hand. They strive towards initially modest goals that evolve as the venture takes shape.  They keep the risk of possible loss as low as their appetite for risk allows – always keep it affordable. They quickly secure revenue from customers, and, through serving them, they gain intimate knowledge and understanding as they proceed.  They foster relationships that not only provide new means, but also reduce the risk, by distributing it amongst partners. Once the venture has gained momentum and becomes a viable business, they gradually start using more conventional approaches to growing the business.

Effectuation is about the conviction that human action can influence and shape the future (Path Creation vs. the fatalism of Path Dependence). It is strategy as exploration, an acceptably risky “adventure” into an unpredictable, fuzzy future; it’s not a planned “journey” into the known or an envisioned, clearly conceived future.

Roger Stewart

October 2020

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