Causation and Effectuation

Problem

Causal rationality begins with pre-determined goals and aims to identify optimal route to that goal; creation of alternatives to achieve goal. Effectual reasoning begins with a set of means and allows goals to emerge over time from imagination and commitment. Effectual reasoning demands more imagination, spontaneity, and risk-taking.

Effectual reasoning: The logic

Causal reasoning: To the extent that we can predict the future, we can control it. Effectual reasoning: To the extent that we can control the future, we don't need to predict it.

The affordable loss principle

Causational logic suggets to maximize expected value; effectual focuses on maximizing loss. No traditional market research is done; Don't tie themselves to any market, which results in new ones opening up.

Causation

A process that takes a particular effect as given and focuses on selecting between means to create that effect

Effecuation

A process that takes a set of means as given and focuses on selecting between possible effects that can be created with that set of means

The strategic partnership principle

Effectuation outlines the reduction of competition and uncertainty, through strategic partnerships (instead of competitive rationality) No need for a competitive analysis. Strategic partnerships works well with affordable loss principle to bring idea to the market at low levels of capital.

Principles of reasoning

The affordable loss principle, the strategic partnership principle, and the leveraging contingencies principles.

The leveraging contingencies principle

Ability to turn the unexpected into the profitable. Not all surprises are bad, whether good or bad can be used as inputs into the new venture creation process.

Process

All entrepreneurs begin with three categories of means: 1. Who they are (traits, tastes, abilities) 2. What they know (education, training, experience, expertise) 3. Whom they know (social and professional networks) Using these means, entrepreneurs begin to imagine and implement possible effects that can be created with them.