Most business advice starts with an idea and a plan. Research on experienced founders describes a different order: they begin with what they already have and build outwards from there. In this lesson you look at your own means, put them on a map, and decide how much you can afford to lose while you test.
Learning outcomes
Rate yourself now, and come back at the end of the lesson to rate yourself again, so you can see what has changed.
Guess first
A researcher gave 27 expert founders, and later 37 MBA students, the same set of problems about an imaginary company. What do you think most of the experts did first?
Watch
The research
Saras Sarasvathy studied 27 expert entrepreneurs, each with more than fifteen years of experience and at least one company taken public. She gave them a seventeen-page set of problems about an imaginary company, with ten decisions to make, and asked them to think aloud while they worked through it.
Dew, Read, Sarasvathy and Wiltbank (2009) later gave the same task to 37 MBA students and compared the two groups. The students did what the textbooks teach: they predicted the market first and then made a plan. The experts mostly did something else, because they started from what they already had and asked what they could do with it.
Two ways of reasoning
In causation the goal is fixed, and you look for the means that will get you there. It relies on prediction: you forecast the market first and then plan backwards from the result you want.
You already know this logic from backward design, where the learning outcome comes first and the activities follow from it.
In effectuation the means are fixed, and you ask what you could make with them. It relies on control rather than prediction, because you act on what you can influence today.
You know this one too, from the cover lesson you are handed five minutes before the bell: you look at who is in the room and what is in the cupboard, and you build the lesson from there.
Which logic does each decision follow? Tap a card, then tap the column it belongs to.
Principle 1 · Bird in hand
The first principle of effectuation is to start with your means, which Sarasvathy describes as who you are, what you know and whom you know. In this course we add a fourth column, what you have, because time, money and the materials you have already made matter just as much when you start next to a full timetable. Together these four columns make your Founder Asset Map.
My first clients, from the US, Belgium and Britain, wrote to me before I had a company or even a website. I had no business plan and no strategy, so in Sarasvathy's terms it was what I knew and whom I knew that did the work.
Which assets count
Some assets are worth much more than others. In the resource-based view of strategy, Jay Barney (1991) argued that resources are spread unevenly between firms and that these differences can last. He proposed four tests that show whether a resource can support a lasting advantage, and you can apply them to your own assets in exactly the same way.
Which of these two assets passes more of the four tests?
Your turn
Write at least ten assets across the four columns, each with a short piece of evidence, for example "Fluent Polish: six years of lessons with Polish-speaking families". Then check each asset against the four tests by tapping V, R, I and N. The diagram updates as you go: every asset becomes a numbered dot in its quarter of the circle, and the more tests it passes, the further out it sits, so you can see at a glance where your strengths are and which column is still thin.
Start with the column that feels easiest. Most teachers begin with what they know.
A worked example
Take a secondary maths teacher. Her map shows experience as an exam-board marker (what I know), two heads of department who regularly ask her advice (whom I know), fluent Polish (who I am) and a folder of revision materials she has built over the years (what I have). The effectual question is what these four assets could produce together, in four hours a week, and two quite different directions come out of the same map.
Principle 2 · Affordable loss
The usual question is how much you could earn. The answer multiplies one guess by another (how many schools, how many of them buy, at what price), so it is a guess as well. Effectuation asks a different question: how much money and how many hours can you lose without real harm? You can answer that today, and once you know it, the next question becomes which test will teach you the most inside that limit.
If you filled this in during Week 0, your numbers are already here, so check them again now that you know more.
My own rule is stricter: do not quit your job until you can live for a year without a single client. Not six months, but a whole year.
My practical guideline, not a research finding and not financial advice. Your number depends on your household and your country.Principles 3, 4 and 5
Which principle is each of these teachers using?
A partner school agrees to pilot your workshop and asks whether you could make a version for parents, so that is what you build next.
Only a few teachers sign up for your webinar, but many school leaders do, so you change who it is for.
You stop waiting for the right moment in the market and arrange three conversations for this week instead.
Before you plan any test, you decide that you will spend no more than 300 euros and four hours a week.
What the evidence says
The theory comes from a think-aloud study of 27 expert founders working on an imaginary venture (Sarasvathy, 2001), which was later compared with 37 MBA students doing the same task (Dew et al., 2009).
A meta-analysis by Read, Song and Smit (2009), covering 9,897 new ventures, linked three of the effectual principles to better venture performance.
The original sample was small and unusual, and the venture was imaginary. A description of how experts think does not prove that thinking this way causes success.
Arend, Sarooghi and Burkemper (2015) assessed effectuation as a proposed theory and judged that it had "insufficient empirical testing and critical analysis".
Barney's four tests are judgements you make about yourself, which is why it helps to check them with other people.
That is why this course uses effectuation as a way to start, and not as a promise about how things will end.
Apply it this week
This week, write your assets down before you write down a single business idea. Aim for at least ten across the four columns, because the ideas you develop in the rest of Week 1 will come from what is on this map.
If you are building inside your institution: add your institutional assets too, such as access to decision-makers, internal data or a budget cycle you understand, and count your reputation as part of your affordable loss.
Emilia's tips
Key terms
Reasoning from a fixed goal to the means needed to reach it.
Reasoning from the means you have to the outcomes they could produce.
The principle of starting with who you are, what you know and whom you know.
The money and time you can lose without harm, decided before you start.
The strategy theory that lasting advantage comes from resources that are valuable, rare and hard to copy or replace.
Check yourself
Try to answer each question in your head first, and then turn the card over to compare with the model answer.
Your library
A short, clear overview of all five principles, written by the researchers who developed them.
Open →The practical book on effectuation, written for people who are starting something, with exercises and cases.
See the book →The research book behind the theory, including the think-aloud study with the 27 expert founders.
See the book →The article behind the four tests you used on your asset map. One of the most cited papers in strategy.
Open →Hover over a book to see what it is. On your phone, tap it.
Sources
Your garden
In Week 0 you planted your first seed. From now on every lesson you finish grows one more plant, and each week of the course has its own bed, so by Demo Day the whole field should be in flower. Before you water this one, scroll back up and rate yourself again on the four outcomes.