Lecture 2Elements of Effectuation

What is effectual logic?

How do you control a future you cannot predict?

EffectualLogic

CausalLogic

VisionaryLogic

AdaptiveLogic

Low

High

Low High

PREDICTION

CONTROL

= Non-predictive control

Principles of Effectuation

• Bird-in-hand principle:

• Affordable loss principle:

• Crazy Quilt principle:

• Lemonade principle:

• Pilot-in-the-plane principle:

Bird-in-hand principle:• Imagine possibilities that originate from your means.

– Who you are• Legitimacy and risk reduction

– Who you know • Network of cocreators

– What you know• Legitimacy and knowledge

• NOT– Pre-set goals or opportunities– Causal reasoning, which works inversely by

assembling means after a goal is set.

Affordable loss principle• Risk what you can afford to lose

– Reduces stress and decreases the likelihood of future problems

• NOT– Targeting a return, then working to minimize

associated risk.

Crazy Quilt principle• Build partnerships with self-selecting stakeholders.

– Grows the set of established contributors • Obtain pre-commitments from these key partners

early on in the venture– Reduces uncertainty– Co-creates the new market with its interested

participants– Adds legitimacy

• NOT– Competitive analysis, which presumes that

competitors are rivals and nothing else.

Lemonade principle• Invite and embrace surprise

– Reduces the likelihood of stopping• Interpret “bad” news and surprise as potential clues to

create new markets.– Changes in inputs and changes in perceptions of

customer requirements

• NOT– Making “what-if” scenarios to deal with worst-case

scenarios– Avoiding surprises– Spendig excess effort to reduce the probability of

unexpected outcomes.

Pilot-in-the-plane principle• Focus on activities within your control

– Reduces risk, increases ease of effort• Believe your actions will result in the desired outcomes.

– Self-fulfilling prophecy• Believe that the future is neither found nor predicted,

but rather made.– Reduces risk by redefining failure and success

• NOT• Focus on inevitable trends• A belief that established market forces will cause the

future unfold.

Dynamics of the effectual network

Who I am

What I knowWhom I know

What canI do?

Effectual stakeholder commitmen

ts

Interactions with other

people(Affordable loss)

What is effectual logic?

How do you control a future you cannot predict?

Through EFFECTUAL Co-creation

EffectualLogic

Co-create

CausalLogicPlan

VisionaryLogicPersist

AdaptiveLogicAdapt

Low

High

Low High

PREDICTION

CONTROL

= Non-predictive control

Dynamics of the effectual network

Who I amWhat I knowWhom I know

What canI do?

Effectual stakeholder commitmen

ts

Interactions with other

people

New means

New goals

NEW MARKETSAND NEW FIRMS

Expanding cycle of resources

Actual Means

Converging cycle of constraints

Actual courses ofAction possible

(Affordable loss)

Who We areWhat We knowWhom We know

What canWe do?

Relationship between Causal and Effectual Logic