A brief overview of effectuation and lean start up methodologies for the enthusiasts

1. Sachidananda Benegal
N S Raghavan Center for Entrepreneurial Learning
4/24/2014 1(c) Sachidananda Benegal

2. • A few questions:
– In context of firms
– Equilibrium
• Where do new firms
come in!
– Is there a role for
entrepreneurship?
– What role does an
entrepreneur play?
We all know!
4/24/2014 2(c) Sachidananda Benegal

3. Who is an entrepreneur?
4/24/2014 3(c) Sachidananda Benegal

4. They vary in...
PurposeScale
Geography Value
Creativity
Goal
Vision
Dream
Networks
Technology
etc...
4/24/2014 4(c) Sachidananda Benegal

5. HOW DOES AND ENTREPRENEUR
THINK?
4/24/2014 5(c) Sachidananda Benegal

6. Causal Logic is predictive
Control of outcomes achieved through
accurate predictions,
clear goals,
and avoiding or protecting oneself against the unexpected
To the extent you can predict the future, you can control it
Conventional Wisdom: Causal Logic
4/24/2014 6(c) Sachidananda Benegal

7. The Problem Space
Ref: Presentation of Prof Saras
4/24/2014 7(c) Sachidananda Benegal

8. Classic Causation Model from Marketing Textbooks
Process of Effectuation Used by Expert Entrepreneurs
SINGLE CUSTOMER
Segment Definition
Market Definition
Segmentation
Targeting
Positioning
Understand
Customer
Adding Segments/Partners
Def of one of many possible markets
Marketing Process Inversion
4/24/2014 8(c) Sachidananda Benegal

9. Effectuation Principles:
1. Bird in Hand Principle – Start with who you are, what you know and whom you know,
and not necessarily with a predetermined goal or a pre-envisioned opportunity
2. Affordable Loss – Invest only what you can afford to loose
3. Crazy Quilt – Create an expanding network of self-selected stakeholders, each of
whom commits only what he or she can afford to loose. Focus on partnerships rather
than on competitors.
4. Lemonade – Be open to surprises and leverage them. Treat them as useful inputs
rather than hindrances to be avoided.
5. Pilot in the Plane – Co-create the future with things within your control and with self-
selected partners
If you use these principles you can shape your future and transform your environment in
ways that matter to you and your stakeholders.
4/24/2014 9(c) Sachidananda Benegal

10. Who I am?
What I know?
Whom I know?
What Can I Do?
Interaction with
others
Effectual
Stakeholder
Commitments
Who we are?
What we know?
Whom we
know?
New
means
Expanding cycle of resources
What can we
do?
(Affordable loss)
New
Goals
Actual course of
action possible
Converging cycle of constraints
New Markets
and New Firms
The process!
4/24/2014 10(c) Sachidananda Benegal

11. How is this different from how Managers think?
4/24/2014 11(c) Sachidananda Benegal

12. How is this different from how Managers think?
Effectual Causal
Start with your
means
Focus on your
downside risk
Leverage
Contingencies
Form
Partnerships
Control Vs Predict
Pre-set goals and
opportunities
Expected Returns
Avoiding
Surprises
Competitive
analysis
Inevitable trends
4/24/2014 12(c) Sachidananda Benegal

13. CAN WE THEN SAY WE DON’T NEED
MANAGERS?
4/24/2014 13(c) Sachidananda Benegal

14. Firm Life-Cycle and Entrepreneur’s Career
Causal
Tethered to goals
and predictive
Effectual
Tethered to means
and non-predictive Time
Expert
entrepreneurs
do not always
manage to
bridge this gap
Expert
Entrepreneur
Startup
Firm
Large
Firm
NoviceEntrepreneur
R
e
s
o
u
r
c
e
s
Low
High
4/24/2014 14(c) Sachidananda Benegal

15. LEAN STARTUP
4/24/2014 15(c) Sachidananda Benegal

16. Lean Start-up: A Special
Case!
Lean Manufacturing
+
Toyota Production System
+
Agile Development
Recollect the Notion of: Uncertainty
How it different from Risk?
4/24/2014 16(c) Sachidananda Benegal

17. Traditional Product Development
Unit of Progress: Advance to Next Stage
Waterfall
Requirements
Specification
Design
Implementation
Verification
Maintenance
Problem: known
Solution: known
4/24/2014 17(c) Sachidananda Benegal

18. Agile Product Development
Unit of Progress: A line of Working Code
Problem: known
Solution: unknown
“Product Owner” or in-house customer
4/24/2014 18(c) Sachidananda Benegal

19. Product Development at Lean Startup
Unit of Progress: Validated Learning About Customers ($$$)
Problem: unknown
Solution: unknown
Customer Development
Hypotheses,
Experiments,
Insights
Data,
Feedback,
Insights
4/24/2014 19(c) Sachidananda Benegal

20. Minimize TOTAL time through the loop
LEARN BUILD
MEASURE
IDEAS
CODE
DATA
4/24/2014 20(c) Sachidananda Benegal

21. And much more...
4/24/2014 21(c) Sachidananda Benegal

22. 4/24/2014 22(c) Sachidananda Benegal
I own right over none of the images used here – copyright is still with the owners

23. Reference:
• effectuation.org
• Presentations by:
– Prof Saras Saraswathy
– Eric Ries
4/24/2014 23(c) Sachidananda Benegal