Dr Nick Williams, Dr Tim Vorley, Dr Rob Wapshott and Natalie NortonHEA Seminar December 2013

EFFECTUAL THINKING IN ENTREPRENEURSHIP EDUCATION

• 10.30 - Introduction & Icebreaker • 11.10 - Seminar Presentation on

Effectuation • 11.45 - Effectual Thinking Task • 12.30 - Lunch• 13.30 - Effectual Thinking Task Feedback • 13.50 - The Effectuator App • 14.20 - Roundtable Discussion • 14:50 - Conclusion & Close

Outline of the Day

SOME CONTEXT…

• Are entrepreneurs born or made?

• Can entrepreneurship be taught? Or does education suppress entrepreneurial tendencies?

• Courses have focused on: – 1) orientation and awareness; – 2) new enterprise creation; and– 3) small business survival and growth.

Teaching entrepreneurship

• Late 1970s – adoption of entrepreneurship education

• 1980s – final year option for business school students and postgrads

• 1990s – over half of all HEIs offering courses and modules in new venture creation and small business management

• Mid-2000s – entrepreneurship education widespread

In UK HEIs

Source: Hannon (2007)

• Studying entrepreneurship is not just about starting businesses (Gibb, 1996)

• Business plan still dominant• Debates about the usefulness of business

plans

Business plans

• Aim is that students become more enterprising / entrepreneurial

• Develop a portfolio for learning and teaching

• Neck and Greene (2010) propose teaching entrepreneurship using a portfolio of practice-based pedagogies, as opposed to a single or static approach

What are we aiming for?

• Karlsson and Moberg (2013) contend that curricula are often dated and not informed by current entrepreneurship research

• Research helpful in better understanding entrepreneurial learning and the development of entrepreneurial competences, as well as how to incorporate new theories (Fisher 2012; Fayolle, 2013).

The role of research

IDENTIFYING YOUR STRENGTHS AND NETWORKING

ICE BREAKER

Who’s who

• Too many people and too little time

• Need to get to know other people and make new connections

• You need to make the effort but we will give you a kick-start

What are your strengths

• On the paper provided list 5 strengths that make you effective either at work, at home or in life in general

• Think of examples of what you mean and when you have used these skills

One of my skills is establishing partnerships. I build and shape good teams by identifying people who can work together…

Articulating Strengths

• Many times our strengths are in our area of “unconscious competence” and seem natural

• Often we might not realise what all our strengths are or even important.

• Knowing strengths can help a person – and their team – make the most of it!

Some people are very skilled at listening and then asking insightful questions

Speed networking

• Networking is important in all spheres of life

• Time is short so we need to do it quickly…

• Find people that you have not met before

• Introduce yourself, share your skills/assets and explain why it is valuable

• Try to find out a memorable fact

Speed networking

STAND UP & GET STARTED

YOU HAVE UNTIL THE BELL

Points for reflection

• What was it like sharing your strengths?

• What was it like listening to someone describe his/her strengths?

• What is the value in knowing our own strengths?

AN INTRODUCTION TO EFFECTUATION

EFFECTUATION PRESENTATION

Entrepreneurial Conventions

Three big questions about entrepreneurship1. A entrepreneurs born or made?2. Are opportunities created or

found?3. What makes entrepreneurs

different?

Dispelling Some Myths

Many myths around entrepreneurship

1. Entrepreneurs Are Introverted Loners

2. Entrepreneurs See Business Building As A Path To Riches

3. Nothing Succeeds Like Success

4. Entrepreneurs Are Risk-taking Gamblers.

5. With A Great Idea and Enthusiasm, Anyone Can Achieve Entrepreneurial Success.

Entrepreneurial Successes

• We see these entrepreneurs as successful – but what is success?!

• Why do we consider them so successful – they did not set out to achieve what they are known for now.

• Are we looking at the right thing?

WHAT IS EFFECTUATION

Entrepreneurship as Rational

• This approach underlies much entrepreneurship research (Foss & Klein, 2005; Sautet, 2002)

• Entrepreneurs thought to notice or discover a tangible opportunity such as a new product or venture

• To implement an entrepreneurial idea a normative decision-making process is followed

• Involves gathering relevant information and systematically evaluating alternatives before choosing the optimal option

A Managerial Approach

Causal reasoning to achieve a given goal – following pre-existing pathways

GOAL

M1

M2

M3

M4

M5

A Strategic Approach

Causal reasoning to achieve a given goal – involves creating of new pathways

GOAL

M1

M2

M3

M4

M5

Effectual Approach

• Effectuation and considers entrepreneurship as a series of decisions (Sarasvathy, 2001)

• Decision-making can be applied in uncertain settings

• Entrepreneurs imagine outcomes using these means and move into action without elaborate planning

• All entrepreneurs begin with three types of means:

1. Who they are – their traits, tastes and abilities;

2. What they know – their education, training, expertise, and experience;

3. Whom they know – their social and professional networks.

An Entrepreneurial Approach

• Effectual reasoning - imagining new possibilities using a given set of means

M1

M2 M3

M4 M5

E1

E2

E3

E4

E5

Effectual Reasoning

• Sarasvathy (2001) find effectual reasoning offers an alternative to causal rationality

1. While causal reasoning focuses on expected return, effectual reasoning emphasizes affordable loss;

2. While causal reasoning depends upon competitive analyses, effectual reasoning is built upon strategic partnerships; and,

3. While causal reasoning urges the exploitation of pre-existing knowledge and prediction, effectual reasoning stresses the leveraging of contingencies.

Theory of Effectuation

Interactions with other people

Effectual Stakeholder

Commitments

NEW GOALS

NEW MEANS

Expa

ndin

g Re

sour

ces

NEW VENTURE/ MARKET CREATION

Who WE areWhat WE knowWho WE know

What can WE do?(Affordable loss)

Interactions with other people

Who WE areWhat WE knowWho WE know

What can WE do?(Affordable loss)

Effectual Stakeholder

Commitments

Effectual Stakeholder

Commitments

NEW GOALS

NEW MEANS

Taking & Managing Risk

Low HighReturn

High Low

Risk

EFFECTUATION

Principles of Effectuation

• Bird in Hand Principle - Start with your means rather than wait for the perfect opportunity. Start taking action, based on what you have readily available

• Affordable Loss Principle - Set affordable losses and evaluate opportunities based on whether the downside is acceptable, rather than on the attractiveness of the predicted upside.

Principles of Effectuation

• Crazy-Quilt Principle - Form partnerships with people and organizations willing to make a real commitment to jointly creating the future--product, firm, market--with you.

• Pilot the Plane – Take control and remember that the future is in the making and not predetermined

Principles of Effectuation

• Lemonade Principle - Leverage contingencies Embrace surprises that arise from uncertain situations, remaining flexible rather than tethered to existing goals.

EFFECTUAL THINKING

Preparing Dinner

When you go to cook dinner how do you cook?

1. Have a specific menu, shop for the ingredients, follow the recipe

or

2. Have a look in the fridge, see what’s in date and make dinner accordingly

Cooking Dinner

• Both causal and effectual approaches will get dinner cooked

• Both for causal and effectual approaches demand skills and training

• But…

Having Prepared Dinner…

… effectual reasoning requires more…

Imagination

SalesmanshipSpontaneity

Risk-taking

U-Haul (example of effectuation)

• Discharged from the Navy in 1945 aged 29 Leonard Shoen and his wife, Anna, wanted to rent a van to move their things from Los Angeles to Portland Oregon

• No one at that time seemed willing or able to serve that need by renting a van one-way.

The U-Haul case

• Seeing Shoen and his wife started the U-Haul company (with the help of $5,000 from the her family).

• He painted his trailers bright orange with advertising on the truck “U-Haul Rental Trailers, $2.00/day”

The U-Haul case

• They were not an “overnight success” and in the beginning, they were broke and had to move in with her parents.

• Shoen convinced friends, family, and customers to make down payments and then lend him money to buy his first trucks

• He contracted with service station outlets to help sell the rentals

• He offered early customers a discount if they established a U-Haul rental agent at their destination!

The U-Haul example

• By 1949, they had already built a coast-to-coast moving service

• Today, the annual mileage of North American U-Haul trucks, trailers and tow dollies would travel around the Earth 194 times per day, every day of the year

Effectuation and U-Haul

• Means: Shoen started with what he knew:– He had his own needs (to rent a trailer one

way) and figured others would want to do the same

– He started with small amounts of cash.

• Attitudes towards others: Shoen partnered with suppliers, investors, customers

• Risk, return: Affordable loss—– Shoen didn’t start with a big investment. He

improvised as he went along.

INTERNATIONAL EFFECTUATION

Going Global

• Lot of talk about ‘instant international’ and ‘born global’ businesses

• Entrepreneurs do not follow causal reasoning when exploring international markets

• Despite limited experience entrepreneurs are effectual at internationalising

International Effectuation

• Evidence about entrepreneurs developing international operations suggests: – the entrepreneurs had a limited

knowledge of the international market, – they did not know how to and did not

prepare an internationalisation plan – the actions of entrepreneurs preceded

the collection of market information• Internationalisation characterised by new

means, stakeholder commitment and new goals

SO WHAT?

Effectuation Successes

• These entrepreneurs are the same as everyone else but they are successful because they are master effectuators

• These entrepreneurs simply adopt a different approach to problem solving – they believed the future is shaped by human action and they shape it

The Effectuator App

The Effectuator App

An iPhone app to get you to imagine more entrepreneurial possibilities and make better use of your means

Adding & Outlining Ideas

Add you Idea Describe the Idea Rate your Mean Use your Networks

Effectuating Ideas

Effectuate your idea to maximise your means and networks and develop the enterprise

Toolbox Content

• The ‘Toolbox’ contains some additional background and resources on effectuation

• Additional recommended reading on effectuation

• General info about app development team and funder

• Standard terms of use agreement