Imagine launching a product that does not yet exist. One has to understand how to make decisions in the absence of pre-existent goals. How to make pricing decisions when firm does not yet exist? How to market such product? How do we hire someone or get people to apply? How do we value firms in an industry that does not yet exist?

Effectuation process

Usually people follow causation process – take particular effect as given and focus on selecting between means to create that effect. However, this might not work with something that has not been yet created.

Effectuation process, discussed by Sarasvathy (2008), involves two experiments – one hypothetical and one historical. It takes a set of means as given and focus on selecting between possible effects that can be created with that set of means. It involves elements of dynamism and contingencies of various kinds, including multiple interactions with employees and customers.

Effectuation is more than identification and pursuit of opportunity. It is rather a creation of opportunity as part of implementation of entrepreneurial process.

Bringing the idea to market with close to zero resources

Consider an example of Italian restaurant. Instead of targeting particular segment, which is predetermined by responses of questionnaires and focus groups (which requires a lot of time and analytical effort), proceed inward to specifics from a larger, general, universe target.

First, convince established restaurants to become strategic business partners by doing just enough market research to convince a financier to invest the money needed to start a restaurant. You can also convince a local restaurant to allow you to put up a counter where you could sell Italian food. Further, contact several friends to come down and try it. If they like the food, you might start a delivery serve. If the food tastes horrible, but your personality is something that made them to buy, you might start a coaching business (writing books and giving lectures).

Listen to customers

Then continually listening to customers and building an ever-increasing network of customers and strategic partners, you will be able to identify a workable segment profile. Depending on what customer really wants, you can start defining the market. Effectuation process enables realisation of several possible effects and allows a decision maker to change goals and to shape and construct them over time, making use of contingencies as they come.

Adapted from

Baron, R. and Shane, S., 2007. Entrepreneurship: A process perspective. Nelson Education.

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