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 LeviStrauss 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 thats 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 weve 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, youre 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