What is Entreprenuership? Entrepreneurship is the development of a business from the ground up — coming up with an idea and turning it into a profitable business. But while the definition of entrepreneurship may be simple, its execution is much more difficult.

"Entrepreneurship is the journey of opportunity exploration and risk management to create value for profit and/or social good," said Ajay Bam, a lecturer at the Lester Center for Entrepreneurship at the University of California, Berkeley's Haas School of Business.

Bam said entrepreneurship entails recognizing the right opportunity, finding resources — such as funding and tools — to pursue the opportunity and creating the right team to do so. People who are thinking about starting their own business must really be aware that successful entrepreneurship involves much more than having a great concept. Most people think being an entrepreneur is all about coming up with an idea, but that's just one part. It's also important to know right from the start how you will reach interested customers in an effective and affordable way.

An entrepreneur is someone who can take any idea, whether it be a product and/or service, and have the skill set, will and courage to take extreme risk to do whatever it takes to turn that concept into reality and not only bring it to market, but make it a viable product and/or service that people want or need.

Examples of Entrepreneurs

Many of history's top business leaders earned their success thorough entrepreneurship, such as:

Bill Gates, founder of Microsoft. There are probably not many people that have not been touched by one of his products, such as Microsoft Windows, Microsoft Office and Internet Explorer.

Steve Jobs, co-founder of Apple computers, which produce Macs, iPods and iPhones, as well as Apple TV.

Mark Zuckerberg, the founder of Facebook. Pierre Omidyar, founder of eBay. Arianna Huffington, founder of the Huffington Post, a well-known online

news site. Caterina Fake, co-founder of Flikr, which hosts images and videos on

the internet.

Effectuation

Effectuation is a way of thinking that serves entrepreneurs in the processes of opportunity identification and new venture creation. Effectuation includes a set of decision-making principles expert entrepreneurs are observed to employ in situations of uncertainty. Situations of uncertainty are situations in which the future is unpredictable, goals are not clearly known and there is no independent environment that serves as the ultimate selection mechanism.

Founding

Effectuation is a principle introduced by Saras Sarasvathy in 2001. Since 1997 Sarasvathy conducted a research among 27 expert entrepreneurs. Sarasvathy interviewed the entrepreneurs and let them solve cases in order to see how they think and where they start. It appeared that 89% of the expert entrepreneurs used effectuation more often than causation. Causation is the opposite of effectuation. Where effectuation is used in situations of uncertainty, causal reasoning is used when the future is predictable. With causal reasoning, entrepreneurs will determine goals to achieve and look for the resources to do so. At the opposite with effectuation, entrepreneurs will determine goals according to the resources in their possession.

Causation invokes search and select tactics and under-lies most good management theories. Causal thinkers believe that "If I can predict the future, I can control it."

Effectuation evokes creative and transformative tactics. Effectual logic is the name given to heuristics used by expert entrepreneurs in new venture creation. Effectual thinkers believe that "If I can control the future, I do not need to predict it."

An example

The most simple and clear example Saras Sarasvathy gives to describe effectual reasoning and to distinguish effectual reasoning from causation is about a chef cooking a meal. By using causation, the client chooses a menu in advance and the chef prepares this menu by looking for the right ingredients and following the recipes to make the dishes. In the effectual process, the approach would be rather different. The client would not ask for a specific menu, but he asks the chef to make something with the ingredients available. The chef chooses one of the many different meals he is able to make with the available ingredients.

The most important difference between causal reasoning and effectuation is therefore that an entrepreneur using causation has a given goal and searches for means to reach his goal. If the entrepreneur uses effectuation instead, he will start with the means he has and from this point he looks at possible goals.

Principles of Effectuation

Most aspiring entrepreneurs tend to give up on their entrepreneurial dreams because they think they do not have an idea, have no money, are risk averse, or do not have the right partnerships in place. To tackle these challenges, Prof. Saras has come up with these effective actionable principles:

BIRD IN HAND (Start with your means)

Entrepreneurs start with what they have:  Who they are, what they know and who they know – For example, if a cook were to act entrepreneurially, he or she would concoct an unknown dish with whatever ingredients were available in the kitchen pantry, not follow a known recipe (nor necessarily a vision).  The bird in hand principle or “making do with resources at hand” was first introduced by Levi-Strauss in 1967 specifically in the context of Arts, Crafts and Science and has since been carried to the field of entrepreneurship by a slew of other scholars and practitioners.  This principle essentially says ‘Just Start!’, instead of waiting for the perfect conditions to arrive (which is not the same as advising to ‘Just Do It!’, meaning to faithfully following your gut towards an inflexible end goal

without a care for proof along the way). (eg. Husk Power Systems for electricity micro-grids in Bihar villages).

LEMONADE (Leverage

Contingencies)

Obviously inspired by the aphorism “If life deals you lemons, make lemonade” .Go with the lemons and make lemonade if that’s what you have. Embrace surprises that arise from uncertain situations, remaining flexible rather than tethered to existing goals.

The way this principle is stated also emphasizes the upside of being flexible or open to change, not simply the notion that flexibility is primarily designed to avoid failure – flexibility is also the best way to fight complacency – to constantly seek something better (play offense, not simply defense).   The Lean Startup movement has unfortunately taken on the meaning of an effective philosophy to ‘avoid failure’ – “When are things going so wrong that one needs to pivot?” – Is often the question asked vs. “How do we know when we’ve exhausted the upside of this beautiful thing called a strategic pivot and should finally focus on the current direction?.”

Innovation in general, for that matter, is usually brought about in a negative, “innovate or die” dictum vs. “Who cares about your eroding competitive advantages or threat of disruption – The world needs additional sources of human happiness – so please get out there an innovate more!”

(eg. Jim Poss, founder of Big Belly solar-powered garbage compactors).

CRAZY QUILT (Form Partnerships)

Form partnerships. Talk to potential customers and partners and build a network of self-selected stakeholders who will jointly commit to the partnership – rather than doing competitive analysis. You never know what may come of talking to customers, experts and other companies – a much better use of time than insipid market research or planning exercises based on competitive paranoia (as a startup, you’re an ant – you have no competitors).   Partnerships can fuel a given business model design as well as provide inspiration for a new business model altogether

(they can create new means to new ends).   Partnerships (and key commitments, of course) can also provide the missing proof of business-model scalability that gains the confidence of investors.  Market making, industry-control issues are certainly important in the growth of a startup (so careful with partnering terms), but avoiding contact in the early stages has never been proven as a formula for toughness and resilience.

(eg. Greg Gianforte, founder of Right Now Technologies). 

What is the effectual cycle?

 Effectuation isn't a static, one-time exercise. It is a logic and process that can be used as the firm develops in the "0-60mph" (early startup) phase of growth. Expert entrepreneurs follow the process to gain early customers and committed partners who then create new means and new goals as resources and viewpoints are added to the mix. Thus, instead of having a stated goal and finding means to reach it, expert entrepreneurs use the new means and new goals to drive the creation of the venture in ways they hadn't expected, leveraging surprises as they present themselves. Effectuators use the process to lower the risk of the venture (by getting customers and income early, setting affordable loss, and spreading risk to others) and finding truly new and useful market opportunities by leveraging constraints and new

information.

Summary

Effectuation is a valuable theory based on solid field research to explain what entrepreneurs actually do.

It complements other theories of entrepreneurship such as Lean Startups and Bricolage that recognize the uncertainty of venturing into unknown markets vs. the certainty of executing in known markets.

In its advice on how we can reduce uncertainty, Effectuation is practical, sensible, inspiring and inclusive – Just start with what you have, risk what you can afford, be open to pleasant surprises, and seek relationships with others.

People ask me all the time, 'How can I become a successful entrepreneur?' And I have to be honest: It's one of my least favorite questions, because if you're waiting for someone else's advice to become an entrepreneur, chances are you're not one.

Michael Dell