What is Effectuation and how can this concept change the way you do business – WAU
The concept of Effectuation bets on learning in practice, with errors and empirical experience serving as a basis for structuring a new business. Thus, this strategy has 5 basic principles: bird in hand, accessible loss, patchwork, lemonade and airplane pilot, which assist in directing the entrepreneur’s actions.
The success of any company depends on numerous factors such as: available budget, adopted strategy, competition, correct administration, target audience or even the segment of activity. Thus, what differentiates an entrepreneur from people with good ideas is precisely transform an idea into a sustainable business.
The most common path begins with studies and analysis before taking the idea off the paper: defining strategies, market analysis, rate of return, in short, concepts taught in an MBA or Administration course. The Effectuation theory, however, has become increasingly common and bet exactly the opposite because it is an empirical model.
Unlike the traditional entrepreneurial model, Effectuation has a completely opposite approach to a business plan that you are probably used to. How about, then, know more about this concept and how it can modify the way you undertake? Read on to find out!
What is Effectuation?
Effectuation is the idea of simply doing something with what is available. This concept is based, therefore, on using resources creatively to deal with the surprises and difficulties of implementing an idea.
Created in the late 1990s by Professor Saras Sarasvathy, of the Darden School of Business, at the University of Virginia (USA), Effectuation is based on empirical work. Instead of worrying about long-term goals and objectives, the idea is to work with the resources that are available and, in practice, find out what works and what doesn’t.
After observing that most of the entrepreneurs analyzed in their studies used a methodology focused on the practice and use of what was at hand to solve the cases, the term Effectuation emerged. The use of forecasts – whether budgetary or consumer acceptance – has given way to improvisation and flexibility.
To exemplify the concept of Effectuation, Sarasvathy relied on four basic questions:
- Who I am?
- What can I do?
- Who do I know?
- What resources do I have?
From these answers, it is possible to better understand what are the possibilities of undertaking at the moment. Is it cooking, writing or teaching? Which people can help you with this task? And what do you need to deliver a product or service, what resources are available?
Effectuation, therefore, directs the entrepreneur’s focus to the current situation, that is, for the work he knows and can do at the moment. Leaving aside the predictions, goals and results of that action, simply using what is available to be applied in your work routine.
What is the importance of thinking for Effectuation?
The entrepreneur’s great challenge is to find ways to solve a problem or revolutionize a market with his ideas. Thought is, therefore, a fundamental part of entrepreneurship. Unlike an entrepreneur, who can simply replicate a business model – like a franchise – the idea is to innovate.
From the ideas, create a solution to improve a service or product, whether creating a new company, or improving an existing organization. Other factors end up influencing the final result of your endeavor, that is, if your thinking has, in fact, become something useful or has not left the paper.
The entrepreneur’s focus, however, is precisely on correct thinking, on the idea of innovating, doing differently and offering a more positive experience to the public that a particular service or product is intended for. Part of an entrepreneur’s success lies in ability to think and create with the resources currently available.
The concept of Effectuation, therefore, takes this idea literally: betting on practice and, consequently, learning from mistakes until you find the appropriate solution that works as expected. In this theory, thinking is the most valued factor, since the incentive is to do with what you can count on at the moment.
To illustrate the use of this concept, Luiz’s Brownie is an example that fits what Effectuation consists of: using the available resources in the best possible way. The idea of making money from brownies started at school, when Luiz sold the sweets he made at home between classes.
With the business evolving and the demand increasing, the entrepreneur decided to leave the kitchen at home and expand production by subletting an industrial kitchen. Then, with the increasing need for production and the money earned from sales, he took the next step, opened the factory and formalized the business.
Luiz also realized that he needed help (“who do I know?”) And the business now has five partners. Today, sales have already exceeded R $ 3 million and the company invests in different products for sale, even beers with the brand. A clear example of Effectuation.
After all, Luiz did not see all these advances when selling brownie at school. He gradually became aware of ways to advance and grow with his company. Even though it was not intentional, the entrepreneur applied the main concepts of Effectuation to expand the performance and revenue of his business.
What are its pillars?
According to the principles of Effectuation, no entrepreneur starts a business with objectives and goals, but with the resources he has available. The concept is based on five pillars and in order for you to better understand this theory, we have broken down each one of them. Check out!
Bird in hand
The basic principle of Effectuation is precisely to start undertake with what you have available. The business needs to emerge from the answers to the four basic questions that Sarasvathy poses, without worrying about objectives, goals and a business plan, but rather with what is possible to innovate, with what is at your disposal.
By limiting the resources that can be used to start a business, for example, you know exactly what you can lose by undertaking. So, instead of pushing all-in and taking even more risks, you better understand the risks of your actions and thus spend only what you can.
The old adage “when life gives lemons, make lemonade” is applied perfectly with Effectuation. That is, know how to deal with bad news and any surprises appear. Even better when you are able to accept the obstacles and thus find a new market to act or service to offer.
Luiz’s Brownie story is a good example of what the “patchwork blanket” means: look for partners to establish your business. In the case of Luiz, he realized that the demand was growing and needed five partners to help in the management of his business, working with anyone who wanted to help and thriving even more.
Focus only on what you can control. That way, instead of losing out on predictions that often don’t come true – for better or worse – you focuses on the actions under your control and, thus, increases your chances of achieving better results.
What is the usability of the concept in digital entrepreneurship?
With the digital transformation, entrepreneurship became even easier, after all, it follows the main consumer trends by offering lower costs for those who want to open a new business and the possibility of expanding their operations. Digital entrepreneurship is therefore an increasingly common business model.
So the concept of Effectuation fits perfectly, allowing the entrepreneur to risk more, learning from your mistakes, applying “wrong” ideas repeatedly until you find a formula that works. In other words, empirical work can be enhanced for those who decide to undertake digitally.
In addition, the increasingly online scenario corroborates one of the pillars of this concept: the airplane pilot. When you take to Digital Marketing in search of disclosure for your e-commerce, for example, you start to have a much greater control over your communication campaigns, knowing exactly what works and what doesn’t.
What is the importance of having management tools to undertake?
The management of any business is fundamental, regardless of size, objectives, resources or area of expertise. When you decide to undertake based on the principles of Effectuation, this matter is even more important, after all, the focus is on the entrepreneur himself and, therefore, it is necessary to make the most of each action to be successful.
Being able to efficiently manage your time, your projects and tasks is, therefore, even more important, after all, the performance of your business depends on your actions at the moment. With management tools, you guarantee greater efficiency in all your activities, optimizing the productivity of your business.
After all, with Effectuation applied to your business, a method in which you need to deal with the available resources and control the aspects that are within your reach, nothing better than making the most of what you have in hand, right?
Now that you know better what Effectuation is, its pillars and examples of those who used the theory to undertake, how about checking some resources that can improve the performance of your business? Find out which are the best management tools and methodologies so that you can facilitate your daily processes!