At uni I had a special love for “Entrepreneurship & Innovation”. Having already been invovled in business for over 12 years prior, it was encouraging to learn there were business life-cycles, frameworks and ways of thinking that I had not even realised were universal and experienced by most businesses. I lost track of the amount of times I would think to myself “Oh wow! You too?!”
One of the frameworks we covered in class which I found fascinating is the difference between causal thinking vs. effectual thinking* and the role it plays in traditional management vs. an entrepreneurial approach to business.
According to our lecturer, many postgrad businesss/MBA programs are designed to equip students with the skills to be excellent management material (e.g identify the goal and use what we have to achieve it) but not so great at promoting entrepreneurial thinking (e.g what skills and resources do we already possess and what can we create with them?) which is where the Five Principles of Effectuation come in to play.
The Five Principles of Effectual Thinking
Bird in the Hand Principle – Start with your means (rather than working with pre-set goals that require outside resources to achieve them, start with what you have; who you are, what you know and the people around you and imagine the possibilities of what it may become.)
Affordable Loss Principle – Focus on the downside risk (aka limit risk by understanding what you can afford to lose at each step of the process and then make choices where there is an upside even if the downside ends up happening)
Lemondade Principle – Leverage contingencies (make lemonade out of lemons and welcome “surprises” and unexpected events! Instead of spending time making “what-if” plans for worst case scenario, take bad news and unexpected surprises as they come and view them as potential opportunities to change your business or create new markets).
Crazy Quilt Principle – Form partnerships (bring new people and ideas into the equation. Each new person or idea introduced has the potential to lead to new goals, new markets and new products).
Pilot-in-the-Plane Principle – Control vs. Predict (Choose to take action on the path you believe you have the most control over the outcomes rather than predicting what might happen as there will always be outside factors you have no control over. The pilot inside the plane can change the way he flies a plane but he can’t change the weather)
Effectuation.org : What is Effectuation?
Effectuation.org : Effectuation 101