April 9th, 2013
Effectual Cycle Blocks
At the end (or is it?) of a long period of recession and downturn, we are faced with the problem (or opportunity) of what we should do to develop and grow a business. The future is unknown and, possibly, unknowable. Yet, we probably feel that we should be doing something to ensure that growth returns to our businesses.
The Government is depending on us growing our individual businesses because Growth (with a big G) as a nation can only come from business. Government can move wealth around, mostly by removing it from us and not giving it away to others (aka tax rises and spending cuts).
We are faced with a choice. Place a stake in the ground, build goals around that and then figure out how we get from here to there. We’ve had many articles on that approach. Where it sometimes falls short is in the setting of the goal. What is ‘realistic’ (in the SMART sense) and do we either sell ourselves short or alternatively overwhelm ourselves with the sheer ambition of the goal?
There is another approach and one that, according to a study performed by US Associate Professor Sara D Sarasvathy, is more successfully employed by entrepreneurs. She calls it ‘effectuation’ and it is an approach that is gaining traction, especially on MBA courses. It may also have uses in day to day business.
There are five principles –
- Bird in the Hand
Start with the means you have to hand. Who we are, what we know and who we know. From there begin to imagine the possibilities that originate from those means.
- Affordable Loss
Understand what you can afford to lose at each step. Avoid the all or nothing risks, the ones where you bet the company on the outcomes. If a risk fails to pay off, restart with the revised means and set off again.
You’ve seen the expression ‘when life sends you lemons, make lemonade’. This principle is exactly that. If surprises happen, whether they are good or bad, use them productively. Leverage circumstances – there is no failure, only feedback that can be used.
- Patchwork Quilt
Build partnerships with ‘self-selecting’ stakeholders. Involve potential partners early in the process and use them in co-creation of products and services.
- Pilot in the Plane
Effectuation is about controlling rather than predicting the future. Focus on activities and outcomes that are within your control and you make your own future.
The essence of this process is that it is heuristic, that it runs in cycles which result in new means and new goals. Find a 3-page PDF on the Principles here. So progress can move the business where the markets suggest, by their actions, that you should move. Your agility improves because the feedback inherently in the market shows you where your next moves should be.
I am not suggesting that you ditch your successful approaches overnight, rather that you consider this to be another approach you can use in developing growth in your business. Some of you will be doing this – formally or informally – already.
To learn more about Effectuation, start here. There are many good resources linked from this site.
If you do consider this approach, you may want to consider it in conjunction with The Business Model Canvas which is set out briefly in a further article in this newsletter along with links to get you started.