While effectuation is a relatively new technique that is being taught in business schools it actually draws on the kinds of skills that successful entrepreneurs practice intuitively. In this talk, Carlo gets the audience to be more mindful about the way they approach developing their businesses and products, and to apply the lessons of agile software development to the practice of growing the business.
Effectuation is the opposite of the think-plan-act approach that most of us were trained in at school. That sort of planned, causal logic is great for the kinds of highly controlled situations where we can predict the relationship between cause and effect. But for entrepreneurs, that level of prediction is usually an unattainable luxury. Instead, we need to respond flexibly to ever-changing circumstances. The good news is that, contrary to what they teach in business school, you can control what you can’t predict.
Effectuation is a process of evaluating each decision point, no matter how small, by looking at your resources and the possibilities that they afford. Your resources are the things you own, the things you know and the people you know. At every moment you can choose how best to deploy these resources.
Carlo suggests that the most important thing that startups have on their side is speed. Because you can move fast you can fail quickly and cheaply, learn from the data you collect, and aim to be more successful in the next phase. He suggests working on the “acceptable loss” principle – keep investment in each stage small and don’t risk more than you’re prepared to lose.
Each decision opens up new possibilities, new learning and new successes. That means that you need to review your plan to determine what you can do now that you couldn’t do before. The same goes for surprises and mistakes: sometimes you’ll be blown off course by an unexpected event, good or bad. Incorporate what you’ve learned and respond appropriately.
Business management can be as lean as product development if, at every stage, you take an inventory of your assets, develop an idea of what you want to achieve with those assets, and interact with people to test out your ideas.
You can’t predict the future, but Carlo’s talk will explain how you can respond nimbly to whatever it may throw at you.