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Entrepreneurship Sachidananda Benegal N S Raghavan Center for Entrepreneurial Learning 06/26/2022 1 (c) Sachidananda Benegal

Entrepreneruship- Effectuation & Lean Start up

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A brief overview of effectuation and lean start up methodologies for the enthusiasts

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Page 1: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 1

EntrepreneurshipSachidananda Benegal

N S Raghavan Center for Entrepreneurial Learning

Page 2: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 2

• A few questions:– In context of firms– Equilibrium

• Where do new firms come in!– Is there a role for

entrepreneurship?– What role does an

entrepreneur play?

We all know!

Page 3: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 3

Who is an entrepreneur?

Page 4: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 4

They vary in...

PurposeScale

Geography Value

Creativity

Goal

VisionDream

Networks

Technology

etc...

Page 5: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 5

HOW DOES AND ENTREPRENEUR THINK?

Page 6: Entrepreneruship- Effectuation & Lean Start up

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Causal Logic is predictive

Control of outcomes achieved through

accurate predictions, clear goals,

and avoiding or protecting oneself against the unexpected

To the extent you can predict the future, you can control it

Conventional Wisdom: Causal Logic

Page 7: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 7

The Problem Space

Ref: Presentation of Prof Saras

Page 8: Entrepreneruship- Effectuation & Lean Start up

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Classic Causation Model from Marketing Textbooks

Process of Effectuation Used by Expert Entrepreneurs

SINGLE CUSTOMER

Segment Definition

Market DefinitionSegmentation

Targeting

Positioning

UnderstandCustomer

Adding Segments/PartnersDef of one of many possible markets

Marketing Process Inversion

Page 9: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 9

Effectuation Principles:1. Bird in Hand Principle – Start with who you are, what you know and whom you know, and not necessarily with a predetermined goal or a pre-envisioned opportunity

2. Affordable Loss – Invest only what you can afford to loose

3. Crazy Quilt – Create an expanding network of self-selected stakeholders, each of whom commits only what he or she can afford to loose. Focus on partnerships rather than on competitors.4. Lemonade – Be open to surprises and leverage them. Treat them as useful inputs rather than hindrances to be avoided.

5. Pilot in the Plane – Co-create the future with things within your control and with self-selected partners

If you use these principles you can shape your future and transform your environment in ways that matter to you and your stakeholders.

Page 10: Entrepreneruship- Effectuation & Lean Start up

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Who I am?What I know?

Whom I know?What Can I Do? Interaction with

others

Effectual Stakeholder

Commitments

Who we are?What we know?

Whom we know?

New means

Expanding cycle of resources

What can we do?

(Affordable loss)

New Goals

Actual course of action possible

Converging cycle of constraints

New Markets and New Firms

The process!

Page 11: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 11

How is this different from how Managers think?

Page 12: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 12

How is this different from how Managers think?

Effectual Causal

Start with your means

Focus on your downside risk

Leverage Contingencies

Form Partnerships

Control Vs Predict

Pre-set goals and opportunities

Expected Returns

Avoiding Surprises

Competitive analysis

Inevitable trends

Page 13: Entrepreneruship- Effectuation & Lean Start up

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CAN WE THEN SAY WE DON’T NEED MANAGERS?

Page 14: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 14

Firm Life-Cycle and Entrepreneur’s CareerCausal

Tethered to goalsand predictive

EffectualTethered to meansand non-predictive Time

Expert entrepreneurs do not always manage to bridge this gap

ExpertEntrepreneur

StartupFirm

LargeFirm

Nov

ice

Entr

epre

neur

Resources

Low

High

Page 15: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 15

LEAN STARTUP

Page 16: Entrepreneruship- Effectuation & Lean Start up

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Lean Start-up: A Special Case!

Lean Manufacturing +

Toyota Production System+

Agile Development

Recollect the Notion of: Uncertainty

How it different from Risk?

Page 17: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 17

Traditional Product DevelopmentUnit of Progress: Advance to Next Stage

Waterfall

Requirements

Specification

Design

Implementation

Verification

Maintenance

Problem: known

Solution: known

Page 18: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 18

Agile Product DevelopmentUnit of Progress: A line of Working Code

Problem: known

Solution: unknown

“Product Owner” or in-house customer

Page 19: Entrepreneruship- Effectuation & Lean Start up

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Product Development at Lean StartupUnit of Progress: Validated Learning About Customers ($$$)

Problem: unknown

Solution: unknown

Customer Development

Hypotheses,Experiments,Insights

Data,Feedback,

Insights

Page 20: Entrepreneruship- Effectuation & Lean Start up

04/11/2023 (c) Sachidananda Benegal 20

Minimize TOTAL time through the loop

LEARN BUILD

MEASURE

IDEAS

CODEDATA

Page 21: Entrepreneruship- Effectuation & Lean Start up

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And much more...

Page 22: Entrepreneruship- Effectuation & Lean Start up

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I own right over none of the images used here – copyright is still with the owners

Page 23: Entrepreneruship- Effectuation & Lean Start up

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Reference:• effectuation.org• Presentations by:

– Prof Saras Saraswathy– Eric Ries