How Expert Entrepreneurs Create New Markets - effectuation - Edward Bricker, Darden School of Business

Partial Excerpts (antilibrary)

Copyright © 2006

The Entrepreneurial Method: How Expert Entrepreneurs Create New Markets

For several centuries, people “did” science without explicitly understanding the scientific method. Prevalent explanations for discoveries consisted either in some kind of magical, mystical abilities possessed by certain individuals and not others, or were based on chance, fate, and circumstance. Some people were said to be able to “read the signs” of nature; or were geniuses who leapt out of bathtubs shouting “Eureka!” It was only when Roger Bacon and later Francis Bacon and others began spelling out elements of the scientific method―observing, hypothesizing, testing, revising the hypothesis, reaching valuable conclusions--that science came out of the realm of personality

We can make a similar case for entrepreneurship. Although well-known feats of entrepreneurship such as Apple, eBay, and Starbucks might still be a matter of luck and/or genius, we can still teach and learn the entrepreneurial method

*Furthermore, just as the scientific method is fueled by the logic of experimentation, the entrepreneurial method operates through the logic of effectuation.

Elements of the Entrepreneurial Method

*In sum, researchers have traditionally studied entrepreneurship as either (1) a set of personality traits that explains the success or failure of the firms an entrepreneur creates or (2) a set of circumstances or attributes giving rise to the opportunity and the environment that contains the seeds of a venture’s success or failure.

*Recently, however, there has been a new focus on entrepreneurial expertise. Expertise consists in tacit as well as learnable and teachable aspects of experience that are related to high performance in specific domains.

the expertise lens focuses on understanding

commonalties across a variety of experts in a single domain, given high levels of performance

*elements of the effectual logic they use are beginning to be clarified. Those elements have also begun to be evidenced in the early histories of new firms and new markets/industries. We can summarize the results so far in three parts as follows:

Process Elements

• They focus on what they can do and do it, without worrying much about what they ought to do. (incremental)
• *Some of the people they interact with self-select into the process by making commitments to the venture. *
• Each commitment results in new means and new goals for the venture.

Principles

The crazy quilt principle

The affordable loss principle

The bird-in-hand principle

*involves negotiating with any and all stakeholders who are willing to make actual commitments to the project, without worrying about opportunity costs, or carrying out elaborate competitive analyses

Furthermore, it is who comes on board that determines the goals of the enterprise, not vice versa.

• cf Open Space Technnology: Whoever comes is the right people

The lemonade principle

The pilot-in-the-plane principle

Each of those five principles embodies techniques of nonpredictive control