As we all know, lately there is a lot of hype – “fuzz an buzz” – related to the subject of entrepreneurship. Damn, nowadays it seems like everybody is working with or starting their own startups. Me being a notorious Devil’s advocate and a supporter of long-term thinking, have a somewhat of a critical standpoint toward this phonomenon of just striking gold and doing it fast. In my opinion, beautiful visions and mision are worth far more than their weight in gold.
The other day I was discussing with a very inspiring professor of Entrepreneurship. To challenge him and this academical subject, I decided to ask the professor for the most intresting and appealing idea wihtin his field that he have come accross. My expectations was to yet again to see emperor’s new clothes. Though as it turned out, I couldn’t have been more wrong.
So what did the professor give me? It was a paper on the philosophy of “Effectual reasoning”.
What is Effectual Reasoning?
Effectual vs. Causal Thinking
As the word “effectual” is inverse of “causal” and originates from the science of entrepreneurship. Causal rationality, or predictive reasoning, “begins with a pre-determined goal and a given set of means, and seeks to identify the optimal – fastest, cheapest, most efficient, etc. – alternative to achieve the given goal” and is often applied in strategic thinking (Sarasvathy, 2001). Thus the underlying logic is that the future is both predictable and controllable.
“Causal thinkers are like great generals seeking to conquer fertile lands (Genghis Khan conquering two thirds of the known world)“
However, effectual reasoning differs in the sense that it does not begin with a specific goal and that the future is unpredictable, but controllable and still to be made (Sarasvathy, 2001). According to Sarasvathy (2001) effectual reasoning “begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with”. Thereby effectual reasoning adjusts and adapts goals according to the surrounding contingencies and unfolding unexpected events.
“Effectual thinkers are like explorers setting out on voyages into uncharted waters (Columbus discovering the new world)”
It is clear that effectual reasoning is “inherently creative” philosophical approach that breaths execution and thus demands something more beyond the regular and domains specific skills and abilities, such as imagination; spontaneity, risk-taking and salesmanship (Sarasvathy, 2001). These features can be compiled into five conceptual principles.
The Five priciples of Effectual Reasoning
The first principle goes by the name “bird-in-hand” and refers to the process where the individual inspect their own means. In general, the means are divided into three categories that involves the audit of: “who they are” – their abilities and traits; “what they know” – experiences and knowledge; and, “whom they know” – social and professional networks (Effectuation, 2011; Sarasvathy, 2001).
The second principle is “affordable loss” which essentially is an evaluation of the potential downside risk for the overall project, if the worst case scenario would occur (Effectuation, 2011). The idea with the affordable loss principle is that it pre-established. That is how much resources is allowed and affordable to lose for a given project. If the pre-determined limit is reached, then the project is automatically rejected.
The third principle is called “lemonade” and revolves around the element of surprise (Effectuation, 2011). This means that contingencies and surprises are the norm for all projects and therefore ought to be welcomed and leveraged, instead of perceived as a misfortune.
The fourth principle is named “patchwork quilt” principle and is about building and establishing strategic partnerships (Effectuation, 2011). Thus, this principle encompasses trust and how to leverage this through collaboration.
The final principle is “pilot-in-the-plane” and is the combination of the previous four principles into an entity that forms “the belief that the future is neither found nor predicted, but rather made” (Effectuation, 2011). In a nutshell, the effectuation as philosophy is about iterating and leveraging competences and means in the most effective and adaptive way.
Thus, the priciples can be summarised in the following picture:
Serendipities – The Core of Effectual Reasoning
The element of surprise is generally perceived as an undesirable and avoided state for any human-being and situation. This Despite the overlooked and powerful opportunities that serendipities potentially can provide with. A serendipity is defined by oxford dictionary as “the occurrence and development of events by chance in a happy or beneficial way”. In other words, serendipities is an actual word for unpredictable occurances and situations that provide with the most insightful knowledge, wisdom, and happiness for us all. Thus, serendipities are the core of effectual reasoning. (To read more about it, check this blog post).
“Serendipities are the occurrence and development of events by chance in a happy or beneficial way”.
On that note, embrace surprises and unpredictive event. These might be the things/opportunities you are actually looking for. And apply the philosophy of effectual reason to make and form your future. Do it. Do it now.
Effectuation, 2011. Principles of Effectuation. [Online] Available at: http://www.effectuation.org
Sarasvathy, S.D., 2001. What makes entrepreneurs entrepreneurial?.