Effectuation 101

General Overview Effectuation is an idea with a sense of purpose – a desire to improve the state of the world and the lives of individuals by enabling the creation of firms, products, markets, services, and ideas. Effectual reasoning is a type of human problem solving developed from a cognitive science based study of 27 founders of companies ranging in size from $200M to $6.5B. Effectuation articulates a dynamic and iterative process of creating new artifacts in the world. Effectual reasoning is a type of human problem solving that takes the future as fundamentally unpredictable, yet controllable through human action; the environment as constructible through choice; and goal as negotiated residuals of stakeholder commitments rather than as pre-existent preference orderings. Effectuation is a logic of entrepreneurial expertise. What makes great entrepreneurs isn’t genetic or personality traits, risk-seeking behavior, money, or unique vision. Effectuation research has found that there is a science to entrepreneurship and that great entrepreneurs across industries, geographies, and time use a common logic, or thinking process, to solve entrepreneurial problems. Effectuation is a logic of entrepreneurial expertise that both novice and experienced entrepreneurs can use in the highly unpredictable start-up phase of a venture to reduce failure costs for the entrepreneur. Context Effectuation is an idea born of a unique look at an age old problem – what makes entrepreneurs entrepreneurial? By the late 1990’s this question had been debated for decades by both academic researchers and practitioners of entrepreneurship with little success. The main focus of academic research had been on two theories: 1) that entrepreneurship either a genetic or acquired personality trait or psychological condition (risk seeking) and 2) that entrepreneurs took advantage of opportunities that were created by inefficient market forces, regulation, and scientific breakthroughs. Even if science had supported these theories, they were of no practical use to the … Continue reading Effectuation 101