I already wrote about the VentureLab Twente concept, but now it was time for the first three day training covering several interesting topics of venturing. This article will focus on an excellent one-day workshop and masterclass about effectuation, lectured by Professor Saras Sarasvathy.
Let’s first start with the definition of effectuation, before we take a dive into the details and research-backgrounds, as well as an overview of the Venture Training.
Definition Effectuation
“Effectuation consists of teachable and learnable principles that together form an overall logic for creating new ventures and new markets in a variety of sectors including technological, non-technological and social. The logic was developed through a cognitive science based study of 27 expert entrepreneurs each of whom had over 15 years of experience building ventures ranging in size from $200 million to $6.5 billion.”
The training program starts with filling out a questionnaire about four different venture business cases, where you need to make some strategic choices in terms of strategy, market research, manufacturing, etc. The questionnaire provides a perfect starting point of the workshop, since the same questionnaire is developed as part of Professor Sarasvathy’s research.
What are can teachable and learnable elements of entrepreneurial expertise, and how can these be discovered ? In concept it might sound simple: interview expert entrepreneurs and compare them to novice entrepreneurs or even non-successful entrepreneurs. Professor Saras Sarasvathy interviewed 27 expert entrepreneurs, compared them with novices, and later with corporate managers and angels or venture capitalists. The results in different reasoning can be summarized in the graph below.
Slides used with permission of Professor Saras D. Sarasvathy
The essence is that corporate managers are mainly driven by causal logic, while the expert entrepreneurs try not to get locked into causal logic and use effectual logic. What is effectual logic ? The figure below provides an overview of the different forms of logic that entrepreneurs use, however the effectual logic (= non-predictive control) is mainly used by the expert entrepreneurs. But remark that not just one form of logic is used, but it’s more a combination and the extend to which one type of logic is used in a specific phase of the venture.
Slides used with permission of Professor Saras D. Sarasvathy
Furthermore the protocol analysis of the expert entrepreneurs resulted in the development of five effectual principles, which are very valuable combined with the different types of logic presented above.
Effectual Principles
- “Bird-in-hand principle; Start with Who you are, What you know and Whom you know
- Affordable loss principle; Invest what you can afford to lose
- Crazy Quilt principle; Build a network of self-selected stakeholders
- Lemonade principle; Embrace and leverage surprises (every day)
- Pilot-in-the-plane principle; The future comes from what people do”
With these effectual principles in mind and complemented with the different types of logic, a highly usable model can be developed which is called the effectual network. This model could be very helpful for practitioners and starting entrepreneurs. Although some participants in the VentureLab Twente program are experienced entrepreneurs it’s also a useful model to use when developing your own venture or business. It incorporates at least three of the effectual principles, and to just play the game you should go through the cycle more than one time.
Slides used with permission of Professor Saras Sarasvathy
With most of the important elements of effectuation covered it is time to apply the knowledge to a business case. In my opinion this is the best way to gain deeper understand of the theory and see the practical value of it. Our group worked on a business case about solar panels, and the fine thing was that the case simply flew by using the theory above. Unfortunately due to a non disclosure agreement I can’t and won’t elaborate more on the content of the business case, but personally it was a great exercise.
After the presentations and open discussion about the business cases Professor Saras Sarasvathy elaborated more on practical examples like EBAY and Starbucks, as well as her own personal experiences of being an entrepreneur herself.
Final thoughts & experiences
At first it was an honor to meet, and openly discuss with a top-of-the world professor on the topic of entrepreneurship and venturing. Second the way of teaching, using role plays, let everyone in the group thoroughly think about the theory and “What would you do yourself in situation X?” Third the theory was lectured in different layers, starting at with an overview by filling in the survey and than gradually developed on top of the base layer. Therefore my compliments for Professor Saras Sarasvathy, who both combined scientific theory as well as her practical experience during the workshop. Finally the open discussions with her and within the group were great, and foremost highly interesting and constructive. Both VentureLab Twente as well as Professor Sarasvathy thank you for this awesome workshop / training! I invite you readers all to have a look at the Effectuation.org website.
Professor Saras D. Sarasvathy
“As an Associate Professor at the Darden Graduate Business School at the University of Virginia, Saras D. Sarasvathy teaches entrepreneurship, organic growth and ethics to MBAs and executives, as well as several doctoral courses and the research seminar on Markets in Human Hope. In 2007, Saras was named one of the top 18 entrepreneurship professors by Fortune Small Business Magazine. Saras is a leading scholar on the cognitive basis for high-performance entrepreneurship and is the author of Effectuation: Elements of Entrepreneurial Expertise. “
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