Five Principles of Effectuation

2019-03-15

• The five principles of Entrepreneurial Proficiency in effectuation.

• The principle of non-predictive control. Reduce the use of forecast-based strategies to control uncertain situations.

  • a bird in one’s hand
    • goal-driven (goal-driven), not measure-driven (means-driven)
    • Focus on means, not [objective.
  • The idea is not to “discover new methods to achieve a given goal,” but to “do something new with the means we already have.
  • Tolerable loss
    • Expected profit not tolerable loss
      • Barbell Strategy
  • crazy quilt
    • I don’t care about [opportunity cost
    • [Do not perform a Competitive Analysis.
    • commit Negotiate with all who are willing to
  • Members participating in management determine the purpose of the enterprise, not the other way around.
    • Members determine the purpose of the company.
    • Companies do not determine the objectives of their members.
    • This is going to be rather influenced by the diversity of the organizational culture.
      • Erin Meyer
  • lemonade
  • If life gives you lemons, make lemonade.”
  • Do not avoid uncertain situations
    • Not overcome.
    • Not adapted
  • Use unexpected events as leverage
  • Pilots in airplanes
  • Not limiting entrepreneurial efforts to leveraging external factors (technical projector or trend)
    • Working with people is the primary driver of business opportunity creation
    • I don’t care what I can’t control.

2024-05-24

• Associated with planned contingency and serendipity, but subtle as to where it falls into the five principles
• It’s more like the five principles of effection, which are more detailed and divided into the vague concepts of planned contingency and serendipity.

2024-02-15 I didn’t realize the page existed and let GPT4 explain it.

Professor Salas Sarasvathy of the University of Virginia, USA, proposed the idea in 2001. He explained the five principles of effeciency extracted from the experience of successful entrepreneurs and

Effectuation is a systematized process of decision-making and action that successful entrepreneurs use to overcome the uncertainties they face. The concept, proposed by Professor Salas Sarasvathy in 2001, advocates a way to create the future using available resources as a starting point, as opposed to the traditional business plan based approach. The five principles of effectuation are explained below.

See Pawns (Bird in Hand Principle)

• Entrepreneurs start with the resources they currently have (who they know, what they know, who knows them) and leverage them to explore new opportunities. This means initiating action without a clear goal.

Consider the Affordable Loss Principle (Affordable Loss Principle):

• The principle is that when taking risks, one should focus on the acceptable extent of loss (loss) rather than potential return. This encourages decision-making in situations of high uncertainty. - tolerable loss

Lemonade Principle (Lemonade Principle):

• Emphasize the importance of viewing unexpected events and surprises as opportunities. Even when things don’t go as planned, we should have the flexibility to turn them into advantages.
• It means turning sour lemons into lemonade.

[Patchwork Quilt Principle

:]

• We encourage the creation of new markets through cooperation, not competition. Entrepreneurs build relationships with stakeholders (investors, customers, partners, etc.) to jointly work toward their goals.

[Pilot in the Plane Principle

:]

• The idea is that the future is shaped not by projections, but by the entrepreneur’s own actions. Based on the belief that one’s actions have a direct impact on the outcome, one must proactively shape the future.

These principles provide a practical guide for entrepreneurs to identify and realize new business opportunities by offering creative and effective problem-solving methods in an uncertain environment. Effectuation is a useful approach not only for entrepreneurs, but also for innovators and leaders in all fields.

---

This page is auto-translated from /nishio/エフェクチュエーションの5原則 using DeepL. If you looks something interesting but the auto-translated English is not good enough to understand it, feel free to let me know at @nishio_en. I’m very happy to spread my thought to non-Japanese readers.