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How Successful Entrepreneurs think- Strategic Coach

A good entrepreneur, looks at the resources they have — their education, personality, character and skills. Read on...

By Senior Sub-editor
How Successful Entrepreneurs think- Strategic Coach

“Effectuation” is the term coined for the lessons that expert entrepreneurs have learned. It’s a unique logic based on nonpredictive control. Normally, we believe that, to the extent that we can predict the future, we can control it. That is thinking causally. Successful entrepreneurs have learned the inverse lesson — that if you control certain things in the present, you can create the future, instead of predicting it. That is thinking effectually.

Business students are traditionally taught to establish goals, predict cost estimates and work backward to determine a business plan. A good entrepreneur, on the other hand, looks at the resources they have — their education, personality, character and skills. Then they look at their network. Who can offer key resources? Who can they talk to? Who might want to join them? Those people come on board with their own resources and tools, and they start co-creating the future based on what they have.

Why is effectuation more successful than traditional methods?

If you use effectuation, your success is likely to be more novel because you are not trying to tailor your work to a particular outcome or prediction. You will end up with something more innovative and probably enjoy a larger magnitude of success.

Furthermore, effectuation reduces the cost of failure because you largely use what you already have. If you fail, you lose nothing more than you can afford to lose.

As entrepreneurs decide what they can afford to lose, use resources they can control and simply start doing what they can. Then someone in their network comes along who can provide a unique resource or advantage, and it snowballs from there.

In another example, a paper in a special effectuation issue of the Small Business Economics journal shows how artists like Pablo Picasso and Georges Braque used effectuation principles to build the cubism movement.

Authored article by Professor Saras D. Sarasvathy, UVA Darden School Of Business

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