The Entrepreneurial Method

• We have been living in the dark (grey?) ages preceding Novum Artificium

• In other words, we throw away millions of people

• We waste the potential in human nature just as our pre-

scientific ancestors did not realize the potential in nature

• But we are beginning to spell out entrepreneurial

effectuation – just as Bacon began spelling out scientific experimentation

I don’t have a brilliant idea

• Bird-in-hand principle: Start with your means and do the doable

I don’t have enough money

• Affordable loss principle: Invest only what you can afford to lose

I am not a risk taker

• Pilot-in-the-plane principle: Create the future – not bet on it

I am afraid to fail

• Lemonade principle: Embrace and Leverage surprises

I don’t know how to make it happen

Who I am

What I know

Whom I know

What can

I do?

Effectual stakeholder

commitments

Interactions with other people

(Affordable loss)

• Crazy Quilt principle: Build a network of self-selected stakeholders

Effectual Logic = Non-predictive control

Co-create

Plan

Persist

Adapt

Low

High

Low High

PREDICTION

CONTROL

= Non-predictive control

How do you control a future you cannot predict?

You co-create it through stakeholder commitments

Plan

Persist

Adapt

Expert Entrepreneurs Build Markets

Who I am

What I know

Whom I know

What can

I do?

Effectual stakeholder

commitments

Interactions with other people

New means

New goals

NEW MARKETS

AND NEW FIRMS

Expanding cycle of resources

Actual Means

Converging cycle of constraints

Actual courses of Action possible

(Affordable loss)

Who We are

What We know

Whom We know

What can

We do?

The Market for Engineering

KBL produced 6 iron ploughs in 1904

They remained unsold for two years

The Market for Electric Bulbs

Year Cost Price Sales Price Quantity 1 1.25 0.40 20-30,000

2 0.70 0.40 50-80,000 3 0.50 0.40 100-300,000

4 0.37 0.40 > 1 Million

The Market for Money

The moment of “change”

The Entrepreneurial Method

• The scientific method is about unleashing the power of nature to develop new means to achieve our ends

• It is about finding out about existing worlds

• The entrepreneurial method is about unleashing the power of human

nature to create new ends as well as new means

• It is about making new worlds

Markets and Worlds: Made through the Entrepreneurial Method

Not like a jigsaw puzzle

More like a crazy quilt

www.effectuation.org

EFFECTUATION E l e m e n t s o f

E n t r e p r e n e u r i a l E x p e r t i s e

N e w H o r i z o n s i n E n t r e p r e n e u r s h i p

SARAS D. SARASVATHY