Entrepreneurship is About Who You Know

Do you have to know someone to be successful as an entrepreneur?  The answer is Yes.  But who you need to know may surprise you. 

When Dr. Saras Sarasvathy was doing research on entrepreneurship, she had a hunch that successful entrepreneurship didn’t originate from a business plan or market research.  She herself had started new ventures and surrounded herself with other successful entrepreneurs who were able to start or grow new businesses without sophisticated forecasting and modeling tools.

So if they didn’t use planning, what did they use?  For this answer, Dr. Sarasvathy sought out the most successful entrepreneurs she could find and put them through a start up problem solving scenario that she recorded.  She interviewed entrepreneurs who started multiple ventures with successes and failures and they all had at least one IPO.  At the conclusion of the interviews she looked for behaviors common to all of these entrepreneurs. 

What she found was that all of them knew someone who helped them get their venture off the ground.  Yet not all of these entrepreneurs had:

• An Ivy League education;
• A parent who worked in venture capital;
• An MBA;
• A family member in a CEO role; or
• The support of a high ranking political official.

If money, power, or influence wasn’t a commonality among these entrepreneurs, what was?  Who was it that played a significant role in getting their ideas to market?  The commonality is that there was no one person in one specific role who made it all happen.  Rather, it was the process of being open to engaging all types of individuals that made these entrepreneurs successful.  Some of those contacted became co-founders and colleagues.  Some became collaborators and advisors, who opened the door to other opportunities beyond those immediately apparent to the entrepreneur.  Others became customers, partners, or suppliers. 

The transcendent factor in all of these relationships was that each stakeholder opted to participate in the venture with the founding entrepreneur.  And their participation was not just verbal.  The stakeholder committed to bringing some of their assets to the endeavor in an effort to jointly grow it beyond its original state. 

For those who think that entrepreneurship is all about who you know – they’re right.  But it’s not about finding the perfect person to connect with - someone with the most money, power, or influence.  It’s really about building a broader network.  About engaging those you know – whoever they may be.  Rank and role becomes secondary to commitment. 

Entrepreneurs can act on these findings by engaging those in their family, personal and professional networks, and even those with whom they have chance encounters.  Talk to people.  Tell them your ideas.  Share your goals.  And if they express interest, ask for more than feedback – ask for commitments.  It turns out that what you ask for – commitments – is even more important than who you ask.  

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Luck of the Entrepreneur

Tom was having a bad day.  He was preparing for a presentation when he ran out of printer ink.  His presentation was the next morning.  He had to have those copies ready.  He jumped in his car and headed out in search of ink.  Driving around, he was unable to find a place open that had the ink he needed. 

Tom was stressed out.  He was between jobs.  This was his opportunity to sell himself to a new team.  If he didn’t have this presentation in hand in hours, he would be out of luck. 

Or would he?

The Tom in this story is Tom Stemberg.  It was Fourth of July weekend, 1985.  He had been an executive at a supermarket chain and had an idea for a new type of food retailer.  He had his business plan sketched out and was typing it up in preparation for a meeting with potential investors the following day.  But he ran out of typewriter ribbon.  He went in search of replacements, but all of the small office supply retailers he visited were closed for the holiday weekend. 

Tom was frustrated by the experience, but it got him thinking.  Instead of following through on his pitch for funding a new grocery, he started talking about creating an office supply superstore.  The result was Staples. 

Was Tom’s experience of not finding what he needed a case of bad luck?  Good luck?  Or was Staples destined to happen all along?

Luck v. Serendipity

The field of entrepreneurship used to place a lot of emphasis on luck and intuition.  Come up with a new idea?  You were in the right place at the right time.  Make new markets happen?  It was in your genes.  Achieve entrepreneurial success?  The stars aligned and you were destined for greatness. 

But the research of Dr. Saras Sarasvathy of UVA Darden’s School of Business upended this traditional view.  Effectuation shows that there is a process that successful entrepreneurs use to create new ventures.  They don’t have a superior knowledge of the future.  It’s not just a matter of fate.  Instead, they work with what they have and what they experience in the present to create the future. 

Luck is something that is brought about by chance, not by action.  Serendipity is finding value in something unexpected.  While similar, they differ in action.  Luck removes the agent from acting.  Instead, they are acted upon.  With a serendipitous event, the impetus is on the agent to convert the unexpected experience they are having into something valuable.

Serendipity aligns with the Effectual Lemonade Principle.  This says that expert entrepreneurs are open to the unexpected.  They do not fear it, avoid it, or seek to eliminate it.  Instead, they embrace it and beyond this, can be seen to create opportunities for the unexpected to thrive. 

Embracing Serendipity

Nicholas Dew, Associate Professor at the Naval Postgraduate School, has written on the difference between luck and serendipity.  He has identified three conditions that improve the likelihood that an entrepreneur will be able to take advantage of an unexpected event.

1 .  Prior Knowledge.  It pays to have a deep understanding of something.  The specific field can be anything – as long as the individual develops competence. What’s important is the knowledge and confidence that emerges from this expertise. 

2.  Contingency.  This is defined as an awareness of things that are occurring around the entrepreneur; happenings in the broader environment.  In contrast to the previous point, this requires a broad view rather than a narrow but deep understanding.  This perspective allows the entrepreneur to identify opportunities to translate their prior knowledge into creating new and innovative markets. 

3.  Searching.  An openness to experimenting and trying new ideas and new combinations, this requires that the entrepreneur be on the lookout for things that appear to be unusual, unique, or innovative.  This does not imply that the entrepreneur will “discover” or “find” a new market.  But that they are open to trying new things in new ways as they work to create a new market.   

Serendipity and Staples

How does our original Staples example show signs of serendipity rather than just luck? 

1.      Prior knowledge.  Stemberg had a deep knowledge of how to run a major grocery store.  He was a Harvard MBA with a strong business skill set and an understanding of how to build and market a retail store. 

2.      Contingency.  Although Stemberg had a very specific need and was focused on finishing his business plan for groceries, he didn’t have such tunnel vision that he overlooked the opportunity before him.  He was open to applying his prior knowledge in one area to a different field.  He was able to identify the commonalities and differences from his experiences in food retail and translate that to an opportunity in office supplies.

3.      Searching.  When he couldn’t find the office supplies he needed in a pinch, he didn’t stop with defining this as just bad luck.  He saw that it didn’t have to be this way - that there might be a solution that could solve more than just his situation.  And that he could be the one to create this solution.   

Being a successful entrepreneur isn’t a personality trait.  And it’s not just good luck.  It comes from following an Effectual process rooted in the notion that the future is not predetermined, but instead created by the collective actions of individuals.  

With these three factors - prior knowledge, contingency, and searching - serving as inputs to understanding, entrepreneurs can be well positioned to change their luck into serendipity and their future into, well, whatever it is they want to create.

 _______________________________________________________

Sources:  What Effectuation is Not:  Further Development of an Alternative to Rational Choice, Wiltbank & Sarasvathy (2010); and Serendipity in Entrepreneurship, Dew (2009). 

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Something Sweet from Something Bitter

When successful entrepreneurs look back at how they began, they can gloss over the difficulties of starting up.  Often, the stories they tell about how they grew their ventures neglect the early stage of what it really took to validate the initial idea in market. 

Dr. Sarasvathy of the University of Virginia’s Darden School of Business noticed this.  It’s what led her to conduct research with some of the most successful entrepreneurs in the United States.  And this resulted in her discovery of Effectuation.  Effectuation is the process used by successful entrepreneurs to start ventures. 

This week, I came across this story of a local entrepreneur in Charlottesville, VA.  Kip McCharen has launched a business making alcohol bitters (http://tinyurl.com/zfgohje).  And all of the principles of Effectuation are evident in his story. 

• Bird in Hand Principle:  Start with who you are, what you know, and whom you know. 

Making bitters is something Kip enjoys.  He was experimenting with some when he ran into a challenge.  He could only buy certain ingredients in bulk.  Rather than let them go to waste, he made a large batch, kept what he wanted for himself, and gave the rest to friends. 

His friends enjoyed the bitters – and asked for more.  From this, the idea of crafting bitters for sale was born. 

• Affordable Loss Principle:  Only risk what you can afford to lose.

While Kip saw an opportunity to make and sell his bitters, he wasn’t ready to give up his existing job yet.  So he decided to test the waters by selling at the local farmer’s market on Saturday mornings.  He called and asked them if they would let him have a presence there some weekend and was surprised that there was an immediate opportunity.  He took it. 

• Crazy Quilt Principle:  Grow through partnerships with committed stakeholders.

Wanting to expand awareness for his product and put it in front of more potential customers, Kip brokered arrangements with local restaurants to feature his bitters.  The restaurants were willing to do so as it gave them something new to offer their patrons.  This has helped Kip to grow beyond customers that he alone can reach. 

• Lemonade Principle:  Turn challenges into opportunities.

This is most evident in Kip’s initial approach to having to order large quantities of ingredients for his own batch.  He didn’t throw away the excess.  He made a large batch and gifted the product to friends and family. 

• Pilot in the Plane Principle:  The future is created, not predicted. 

The market for bitters is relatively untapped.  Even the regulators aren’t quite sure how to address it yet.  Rules around composition and distribution are evolving.  This isn’t stopping Kip from pursuing his venture.  He is working with things he can control and maintaining the ability to adapt and be flexible to meet the needs of this changing environment. 

Kip doesn't know where this venture will end up yet.  The regulations around it are still being formed.  There aren’t many competitors.  Craft bitters are a relatively new concept.  But that’s not stopping Kip.  Instead, he’s viewing this as an opportunity. 

No one can say what this venture might look like in a few years, but for now, Kip is applying Effectuation to grow it.  And we wish him sweet success for his bitter business. 

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Entrepreneurship Doesn’t Have to be so Scary

A classic Halloween horror scenario is a person hearing a knock on a door, opening it, and being met with terror and doom.  That’s how many feel about trying entrepreneurship.  They fear that by opening the door to an entrepreneurial opportunity, they risk inviting terror into their lives. 

The list of fears around entrepreneurship can be long.  People fear the pitfalls they’ve heard about, such as product fails, financial struggles, and unending work.  And they fear the weaknesses they know in themselves or their business models, such as whether they can evolve into a salesperson, whether they have the ability to persevere through the hard times, or whether others will notice that their technology chops aren’t as strong as they’d like them to be.

But often, the bigger fear is what’s waiting around the corner.  It’s the fear of the unknown.  Those pitfalls no one mentioned, or the weaknesses that went unnoticed.  The fear of what may be is often what prevents people from creating their own future, preferring instead to take the known that’s handed to them. 

A Fear with Many Faces

Fear of an uncertain future can take on many forms.  It’s ability to change shape and rear its head at unpredictable moments is a powerful deterrent to many who dream of being entrepreneurs.  By recognizing some of its forms and effects, aspiring innovators can develop techniques to lessen its impact. 

·         Fear of failure

Google “fail” and “entrepreneur” and myriad stats pop up citing the likelihood that an innovative venture is doomed to failure.  It’s no secret that launching a new product or service into the market place is a difficult task.  But instead of abandoning the idea, there’s a better way to manage this risk, and that’s using Effectuation. 

Effectuation, the mindset of successful entrepreneurs discovered and defined by Dr. Saras Sarasvathy at the University of Virginia’s Darden School of Business, provides a framework for creating new ventures that manages risk while simultaneously pushing growth.  Through such actions as setting your Affordable Loss at the outset and growing through the creation of a Crazy Quilt, an entrepreneur lowers their own risk while gaining access to far more resources through strategic collaborations with others. 

Beyond a framework, the research on Effectuation shows that the mindset of successful entrepreneurs can be taught and can be learned.  Anything done for the first time can be scary or intimidating.  Effectual research has shown us that practice and repetition of these entrepreneurial behaviors is an effective way to reduce the fear of failure that many novice entrepreneurs feel.  It boosts confidence and optimism, reducing this fear to one of caution rather than deterrence. 

·         Fear of success

For some, the fear of succeeding can be as paralyzing as the fear of failure.  Imagine hearing a knock on the door and opening it to find a stampede of customers.  For experienced entrepreneurs that might be a dream come true, as they’ve developed the skills to handle this level of demand.  For a novice, it can be overwhelming. 

Experience is a strong tool for battling this fear.  Research shows that this fear is greatest at the beginning of the entrepreneurial journey.  Once innovators launch their ventures, they learn quickly that amassing a horde of customers isn’t easy and that product sell-outs can be few and far between.  What’s more likely to happen is that demand is lower than anticipated, leading one to get creative about drumming up business instead. 

Another strategy to address this is to parse the launch into smaller steps.  Stage manageable pilots and controlled marketing to build confidence and test your products, processes, technologies, and teams.  The overnight success stories you read in the magazines are almost always years in the making, full of small steps and pivots rather than single moment launches.

·         Fear of losing control

Businesses start with a single idea.  However, growth requires interactions, and interactions inevitably lead to change.  When thinking up a business idea many think in terms of segments.  Yet when an idea is in the world people relate to it one on one.  As such, each individual reaction will vary.  In order for an idea to become greater than just a passing thought, it has to be embraced, lived, bought, and believed by others.  This requires some amount of ownership on their behalf.  Other stakeholders have to feel that they have skin in the game and an opportunity to shape the future of the innovation. 

For some, this is the scariest fear of all.  They fear that by the time the product becomes “successful” it will have morphed into something unrecognizable.  That it will have so many handprints on it they no longer feel attached to it. 

Understanding the intrinsic motivation for starting the venture can prevent this.  Ask the following: 

o   Why am I doing this?

o   What do I hope to get out of this?

o   What do I hope that those who participate in this venture gain?

o   What are my non-negotiables? 

Setting these parameters upfront will give the entrepreneur control over what’s important, and will leave room for others to influence the outcomes of the venture as well. 

So Do You Open the Door? 

Despite identifying the fears looming for prospective entrepreneurs and outlining strategies to address them, they don’t go away.  They’re going to continue to be there, lurking in wait for the next daring soul attempting to create something new in the marketplace.

But just because you can’t predict what’s on the other side of the door doesn't mean you shouldn’t open it.  It doesn’t mean you can’t face it, react to whatever it might throw your way, and walk away better for having done so.  The end of your entrepreneurial journey doesn’t have to look like a typical horror flick.  Because in this movie, the ending is what you make it. 

 --Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Technology is Killing Innovation

No one has time for interruptions these days. We do everything we can to avoid the unexpected. Caller ID prevents unplanned conversations. ATMs eliminate superfluous face to face interactions. Amazon wish lists negate unnecessary shopping and returns. Technology has made it possible for us to get exactly what we want when we want it and the way we want it.

By reducing the possibility of encountering the unplanned, has technology diminished the ability to innovate?

Entrepreneurial research indicates that innovation is often driven by the ability to harness the unplanned to create a beneficial outcome. Two things have to be in place to support this:

1. There has to be unplanned occurrences.
2. People have to have the skills to leverage them in a positive way.

Dr. Saras Sarasvathy’s research on Effectuation showed that expert entrepreneurs incorporate the element of surprise to advance their ventures. They look at unanticipated events as opportunities to be exploited. In fact, they don’t just roll with the surprise, they often build on them as competitive differentiators.

For example, LL Bean turned a disastrous first product launch into their brand cornerstone by accepting all product returns, sending new, improved products as replacements, and announcing that they would always honor returns for product quality – no matter how long the customer had or used the item. This extreme level of customer service started in the early 1900s but was the platform that allowed the LL Bean company to grow a worldwide brand from a rural outpost in Maine.

Successful entrepreneurs are adept at using surprise because they exercise three characteristics:

1. Skill. They take smart chances and put themselves in positions to encounter the unexpected. By doing so, they get comfortable with being surprised and they learn how to use it to their advantage.  
2. Confidence. The more they practice their skill, the better they get. They can feel this. It strengthens their comfort with surprise.
3. Optimism. Once they see some positive outcomes, they build on it. They see that this works. So they keep at it – in bigger and bolder ways.

These mutually reinforce each other.

In contrast, most corporate managers fear surprise. They do everything possible to eliminate it. From detailed risk management plans and forecasts to the simple task of team building. (Is anyone still surprised by the birthday cake in the break room???) At the office, surprise is something to be avoided and something to be feared. The longer a manager stays in corporate the more this thinking calcifies. Its contagion spreads between teams until it permeates an entire culture.

So how can corporate managers embrace surprise and use it to their innovation advantage?

1. Acknowledge surprises. Set the tone for your team. They are watching your reaction to the unexpected and will take their behavior cues from you. Talk about your affordable loss at the outset of projects. And when the unexpected does occur, don’t immediately dismiss it. Discuss first if there is a way to leverage it positively before attempting to eliminate it.

2. Allow room for surprises. Refrain from over-engineering processes. Not everything needs to have a defined method of operation. Just because you can standardize doesn’t mean you should. Be strategic. Understand what your team objectives are and ask what you gain and what you lose before you define a process.    

3. Cultivate surprises. Develop growth assignments for innovators. Stretch your corporate innovators by putting them on teams outside of their technical and functional expertise where they can encounter new things. Look at lateral opportunities for high potentials. Put them in positions where they will have to react to surprises.  

Technology is removing the unplanned. But it is still possible to put yourself in situations of surprise. Classic movie fans will remember Inspector Clouseau of the Pink Panther. He paid his assistant to surprise him so that he would always be ready for the unexpected and prepared to act appropriately. Despite his bumbling ways Inspector Clouseau wisely said, “Without warning, I will attack you. In this way, I will keep you vigilant and alert.”

What are you doing to keep your surprise skills sharp? 

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Flip Your Fails Into Sales

When new product launches don’t go your way what’s to blame?  Is it the idea?  Or the process? 

               “We ran out of money before it got traction.”

               “Customers liked it in tests, but we got mediocre sales in market.” 

               “We went out too fast and couldn’t meet customer quality expectations.”

               These are three excuses I’ve heard recently from corporate managers who struggled with unsuccessful innovation efforts.  In each case, they identified the end result as a product failure.  They talked about the loss incurred and how their teams were sent scrambling for a better idea. 

               Companies generally respond to these types of failures in one of three ways.

1.     Restructure the team.  They put a new innovation manager in place.  Or they pull the innovation team out from the business and put it into an incubator.  Or they change the titles of the team members and rebrand the squad.  In the end, it often amounts to a cosmetic change and rarely gets to the root of what caused the innovation failure and how to turn things around. 

2.     Revisit the pipeline.  Most companies are not lacking for ideas.  When one doesn’t work, they dig up the list from past brainstorming sessions and consultant plans.  They put the same process in place to bring the next idea to market. 

3.     Re-research the market.  Seeking better data on customers, the economy, and competitors is often an easy fallback for companies when new products and services don’t behave as desired.  The infrastructure is already there in most organizations.  And every employee wants to be able to answer the “what went wrong” question with stats and charts. 

But maybe it wasn’t the idea that failed.  Maybe it was the process. 

Effectuation shows us that successful entrepreneurs are able to turn all of these excuses into market successes.  Nobody intentionally tries to exhaust all of their start up funds, launch something that doesn’t resonate, or bring a less than ready product to market.  But the act of creating leads to unknowable outcomes.

Expert entrepreneurs use them to their advantage.  Effectuation refers to this as the Lemonade Principle.  They turn lemons into lemonade. 

Here is how successful entrepreneurs react in similar situations.

1.  “We ran out of money before it got traction.”

Precommitments and partnerships are a way around this.  Have customers pay prior to development for investment heavy products.  It ensures a buyer for what you’re building. 

Partnerships also help to spread the risk and expand the network of possible payers for your innovation.  Resource constraints also force creativity.  In all likelihood if you are having trouble funding the venture, others are as well.  This opens opportunities for collaboration.  

2.  “Customers liked it in tests, but we got mediocre sales in market.” 

View your customers as partners in your innovation venture.  One way to do this is to employ some form of pre sales.  Another way is to actually co-create with them.  How can you take advantage of the skin in the game that early adopters are willing to commit?  Deepen your relationship with them and make them part of your sales force.  

Also, take a wide view of your innovation efforts.  Look not just for what you expect to happen, but what is actually happening.   Is it the product / service that customers are reacting to?  Or is it your distribution channel?  Your marketing?  Your packaging?  Your pricing?  Are they giving you an indication of what they do want that you’re not noticing?  Engage your customers in figuring this out. 

3.  “We went out too fast and couldn’t meet customer quality expectations.”

Things don’t go as planned.  So be it.  What can be controlled is your response to the unforeseen. 

Product flops, quality issues, and marketing gaffes attract customer attention.  Customers are in dialogue with you.  Make the interaction a pleasant one, and you’ll acquire a customer for life.

The lesson for managers and entrepreneurs alike: the failure might be your innovation process, not your products.  Flipping your fails into sales could be well within your control.

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Empowering Graduates to Create their Futures

As graduation season comes to a close, numerous websites offer their take on the best commencement speeches of 2016. Whether delivered with nostalgia, comedy, or regret, they offer graduates inspiration for tackling their next steps as they leave scripted curriculum paths for a world perceived by some as full of opportunity and others as riddled with chaos.

I’ve been thinking about some of my graduates, those who I’ve taught Effectuation to, and their stories. When people reflect on Effectuation and how it’s impacted their lives, I often hear them refer to it as “empowering”. I think the Pilot in the Plane principle has a lot to do with this.

Pilot in the Plane Principle

This is the mindset principle. When teaching Effectuation, some teach this principle at the end as the unifying principle. I prefer to start with it.

I find this principle is foundational. It is the belief that the future does not have to be known and predicted. Rather it can be controlled.

Pilot in the Plane Principle says that what you do matters. That success in innovation is not predetermined. It is not limited to those with an MBA. Or a research team. Or a big product development budget. Or who are located in New York City or Silicon Valley or London or Tokyo. While none of those attributes necessarily inhibit entrepreneurial success, they are not a requirement for it either.

Effectuation is a great equalizer. It recognizes that it’s not a single ingredient, but a combination of things, the process of bringing those things together, and the mindset to believe that you can make an impact, that creates new markets.

Effectual Mindset in Action

I am reminded of a young woman who received some Effectuation coaching recently. She didn’t have a particularly nurturing upbringing. During high school her grades were fairly middle of the pack. She didn’t cause trouble and didn’t attract praise. She enjoyed art and wood shop, things that she could make with her own hands. But she pretty much did as she was told, putting up with “the system” until she graduated.

Not particularly academic, she didn’t pursue college. Instead, she opted to go into contracting. Her focus was masonry and tiling. After working for a few years, she began to be recognized for her handiwork. Eventually, the thought of working for herself began to gnaw at her. Not knowing how to go about setting up her own business, she enrolled in a business class at the local community college.

In class, she was asked to speak about the greatest obstacle preventing her from going off on her own. She answered, “I’m a woman. And most people don’t think of asking a woman to do this kind of work”.

Her “market research” was showing that there wasn’t an opportunity for someone like her in this line of work. She could either change who she is, or what she does.

Fortunately, her teacher was instructing her in the effectual method. He challenged her not to accept the future as determined, but to change her mindset to one of “how can I turn this potential obstacle into a benefit?”

The result? She changed her thinking. Instead of focusing on what she couldn’t do, she thought about how she might be able to impact her career outcomes. She reached out to other women she knew in the industry with different skill sets but similar complaints. They discussed possible collaboration opportunities and decided to create a “by women / for women” contracting agency. They began to understand that many women are responsible for overseeing the maintenance work done by contractors during the day. These women might prefer having a female contractor working in the house while they are home alone instead of a male. Also, they began to look at ways they could better communicate with and educate women on issues in their industry.

When asked how she felt after applying Effectuation to her business, she replied, “I now have a big strength. I can do this because what I once perceived as negative societal factors I now see may give me an edge and put me on top of many established businesses”. She is confident and enthusiastic about creating her future. Now, she wrestles with having more ideas and possibilities for growing her business than time to achieve them all.

So to those who are embarking on something new, something unscripted, something unknown, I encourage you to embrace Effectuation. It won’t give you the power to predict the future, but it will give you the confidence and optimism to face it and the tools to create the future as only you can imagine.

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Take the Sting out of Failing

Failures can be funny. The Pontiac Aztek. New Coke. Microsoft Zune. These have all been the butt of jokes. But the companies responsible for them weren’t laughing with the rest of us.

There’s been a lot written about the need to accept failure as part of developing a culture of innovation. Companies are often criticized for encouraging managers to take risks and experiment with new ideas but abandoning them if the new growth areas fail to take hold. The future success of managers who take on innovation assignments is often tied to the idea they pursue rather than to the process they execute. So if the idea doesn’t take off fast enough, or at all, the manager sees their professional support and future opportunities dissolve.

Why is failure so toxic in large organizations? Because innovation is approached from a causal standpoint rather than an effectual one. Effectuation limits the amount of resources lost in a failure. This takes the sting out of failing.

The causal approach is based on predicting what the future holds and lining up resources to be the first to capitalize on the opportunity when the forecast comes true.

The effectual approach eschews forecasting for control. Managers create opportunities rather than find them.

A critical component of the effectual approach is Affordable Loss. Before setting out to innovate, the parties involved determine what they’re willing to invest with no expectation of return.

The initial assumption is that the innovation will be a failure. So the company invests the minimal amount required to validate that assumption. If, however, that assumption proves to be false, and the idea does in fact gain market traction, the company has the ability at that point to put more investment into the concept. That level of corporate commitment then increases as the idea gains greater market validation.

Innovation and failure go hand in hand. The method of business forecasting most companies currently use for innovation leads them to overinvest in ideas that seem great in the boardroom but often fail to live up to expectations in the market.

Effectuation takes the opposite approach. It uses small bets to bring big results. The organization gains more comfort with innovating because the financial risk is reduced, managers are more confident taking on innovative roles because the downside is limited, and the culture of innovation thrives through effectual experimentation.

This seems like something worth celebrating.

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC   

Effectuation: Innovating like an Entrepreneur

There are a lot of ways to innovate. Googling “how to innovate” elicits over 24 million results. When companies want to explore innovation, they often seek out the wisdom of entrepreneurs. They’ll invite them to speak, share their experiences, and provide tips.

The result? A lot of advice. You’ll get one individual’s take on what made them successful. It’s an “I did this and it worked for me – so you should do it too” approach. While valuable, there are pitfalls in this.

• It’s incomplete. Entrepreneurs often pick up the story from when they started to gain traction on their idea. Many times, the attempts, missteps, and failures along the way are omitted.

• It’s individual. Each entrepreneur has their own set of circumstances that influence their outcomes. These are not necessarily applicable to everyone.

• It’s inconsistent. Each entrepreneur speaks from his/her own perspective. Sometimes their experiences conflict with each other.

So how do you get at what it really takes to develop and launch successful innovations?

The answer is effectuation. Effectuation is the science of how successful entrepreneurs operate. Developed through social science research, it is both an academic discipline and a practical framework for problem solving that results in innovative products, services, processes and solutions. It is based on control rather than prediction.

Before building a business plan or drafting a financial model, successful entrepreneurs put their attention on what they have within their reach – the assets they already have on hand. Then they reach out to others and seek commitments rather than feedback. This dual emphasis on control and commitments is the secret sauce that separates expert entrepreneurs from their novice counterparts. And it ensures truly unique solutions.

How can large corporations with rigid organizational structures gain this entrepreneurial “advantage”? By following the principles of effectuation:

• The Pilot in the Plane Principle: Start with a mindset of control rather than prediction. Make your own opportunities – don’t go looking for them or attempt to replicate what others have done.

• The Bird in Hand Principle: Leverage what’s already available to you. Consider who you are, what you know, and whom you know.

• The Affordable Loss Principle: Failure is inherent in the innovation process. Resourcefulness is a requirement for innovation longevity. Figure out in advance how much you are willing to lose pursuing your idea. Evaluate your opportunities based on this. It will ensure that when you do encounter a bump, it is a mere obstacle rather than a derailer.

• The Lemonade Principle: Embrace the unpredictable. As long as you remain flexible and willing to change based on the real time market data you receive, you are in control of your goals.

• Crazy-Quilt Principle: Form partnerships. Find those people already around you who are willing to make a real commitment and collaborate to jointly create something truly innovative. Feedback is plentiful but develop deeper relationships with stakeholders, inviting them to put some skin in the game to advance your idea. By doing so they will be encouraged to bring their assets to bear and will significantly increase your ability to get traction.

Where can Effectuation take you and your organization? Who knows. That's what innovation is all about. So don’t wait – Effectuate.   

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC