381.1
Overview of Effectuation
Briefly, effectuation consists in the following principles: • Bird-in-hand principle: Be means-driven rather than goal-driven. In other words,
begin with things already within your control, instead of chasing means you do
not have to achieve some predetermined goal. The canonical example here is
cooking based on a recipe for a preselected dish (causal) vs. cooking based on
what is available in the kitchen and garden, even if that means having to substitute
ingredients or cook up something for which there exists no recipe at all
(effectual). • Affordable loss principle: Instead of placing large bets in pursuit of high expected
returns (causal), invest only what you can afford to lose (effectual). This does two
things—it keeps the downside within your control and removes irrational exu-
berance about predicted upsides. • Crazy quilt principle: Allow stakeholder self-selection. Instead of predicting and
targeting particular stakeholders who can help achieve predetermined goals
(causal), effectuators are open to working with anyone and everyone who self-
selects into the venture by making actual commitments for the opportunity to
shape the goals of the venture (effectual). In other words, those who come on An Effectual Analysis of Markets and States
39board have a say in where the venture is headed, rather than the goals of the
venture determining whom to invite on board. • Lemonade principle: Leverage (effectual), rather than avoid (causal) contingen-
cies. Even when things outside your control inject positive or negative surprises
into the process, consider ways to incorporate these into the effectual process. An
obvious interpretation of this principle is, when life throws lemons at you, make
lemonade. A more nuanced view argues for a radical revision of attitudes toward
failures and successes. For example, separating the performances of entrepre-
neurs from the performances of their ventures. • Pilot in the plane: Futures are cocreated through human action, and environments
are endogenous to the effectual process. This principle emphasizes the role of
human beings (effectual) and dampens the idea of trends or inevitable trajectories
(causal). It rejects the idea that history runs on autopilot.
As mentioned earlier, effectuation explicitly tackles the entrepreneurial problem space consisting of Knightian uncertainty, goal ambiguity, and isotropy.