The traditional romantic belief about entrepreneurship is that it starts with writing an excellent business plan and raising lots of money. These stories usually end with a hockey stick growth and a retirement at the Bahamas.
Don’t get me wrong. Writing a business plan is a great way to start a company. However, it is not the only way. There are also other strategies that expert entrepreneurs apply. That’s what the book Effectual Entrepreneurship is about.
If you are in for an academic perspective on entrepreneurship, here are my key learnings on the theory of effectuation.
Learn to deal with uncertainty
They say that predictions are hard, especially about the future. This joke illustrates how long-term plans and forecasts have limited value when starting a venture, especially in a new market where there are no historic data.
You can also identify the most important risks and prepare for potential mitigation scenarios. That will give you at least a feeling of control, but is that enough? Life is full of surprises.
Maybe you don’t need to predict the future. Expert entrepreneurs have strategies in place that control an unpredictable future. That is the core promise of effectuation.
History learns that many ventures were not pre-conceived. Even with a business plan in hand, businesses are not created on paper. Their plans evolve all the time. That’s why the founding team and their ability to course-correct that business plan is equally important.
Expert entrepreneurs know what they control in uncertain circumstances and they don’t try to predict what they can’t control. Hence, their focus is on controlling inputs, not on estimating the outcomes of their efforts.
Start with what you already have
Traditional entrepreneurship starts with defining a goal and then accumulates all means to achieve that pre-determined goal. But did you know that it can also work the other way around? What if you would first identify what you already have?
Think about. Most likely, you know a lot of people. You may have lots of knowledge gained through formal education and experience (on the job, or in life). And, you are someone with values passions, hobbies and interests. (I hope.)
If you first identify all these means, then you can imagine a multitude of possible destinations. In other words, you can get started right away.
Know what you can afford to lose
If you risk little, the impact of a failure is limited. So, when starting a venture, you need to know what you can afford yourself to lose.
Money is usually the first thing people want to protect. Depending on your aversion for risks, you may want to protect your long-term savings and your family home.
Next to money, there is time. Any hour you invest in one venture, is an hour you cannot put into other opportunities. But since time is endless, it’s a very different currency than cash. You can always spread your efforts over time and start slow.
Finally, there is also the opportunity cost of not starting a venture. In that case, you may be stuck forever at your dull office job.
Search for win-win partnerships
Creating partnerships with other entrepreneurs is a great way to extend your means. At the same time, it will limit your affordable losses. If you think win-win, every supplier or customer is part of a potential partnership.
In that sense, it’s important that you don’t hesitate to ask what you need. You always got a “no”, you can often get a “yes”.
Another great question to form partnerships is: “What would it take for you to work together?” Instead of focusing on a specific ask, you’ll open a totally different conversation. You may go far beyond what you had initially in mind.
Embrace all surprises on your journey
One thing is certain: you will encounter lots of surprises on your entrepreneurial journey. Don’t fight them, adapt or even better: leverage surprises to your benefit.
When something unplanned happens, it may impact your means and end-goal. That original end-goal may not in reach anymore, but you can also look at it with the glass half-full. Maybe this event created opportunities for new outcomes?
Surprises are also not always events but also new information (e.g. about your market) that you gain or new people that you encounter. So, be open for new experience and exercise that muscle to frame new opportunities.
And much more
There is so much more in Effectual Entrepreneurship, like the chapter on the balancing act between ownership, equity and control, or the ideas of entrepreneurial culture and venture identity. And then there are dozens of case studies, research references and questions for reflection. That makes the book ideal for usage in entrepreneurial education but also for any would-be entrepreneur.
Many thanks to Bart Derre who pointed me into this direction:
In any case, this book gave me a lot of food for thought. I am now going to look in my fridge and check out the ingredients I have left. I am sure there are a multitude of dishes that I can make. I just need to figure out which one.
