- Success/failure of a , opportunity is totally different from , success/failure of the investor
- High failure rates of ventures , shows , standard entrepreneurship education is not enough
The term ‘ Effectuation Theory ‘ does n’t exactly roll off the tongue. Nor will you find a single startup founder, publish a funding round, excitedly declaring,” We’re going to develop the talent pool, double down on existing markets, start in X industry, increase the platform, invest in marketing, AND, I’m going to participate in a program to increase my entrepreneur skills ( be it on Effectuation Theory or anything else )”. That just does not occur.
So when Dhakshinamoorthy Balakrishnan or Dash reached out to me about the topic and how his search for more meaningful relevance in the world of startup entrepreneurship ( readers will recall that he used to be a pillar of the startup ecosystem in Malaysia ) had led him to believe that the introduction of the Theory of Effectuation and understanding how its application to their ventures can really help them, I still was n’t convinced. Even though he had now decided he was going to take the leading expert in this area, Prof Saras Sarasvathy, to Malaysia for a website on Tues, 22 Oct.
Yet though Dash has a sizable amount of social investment throughout his career, this is unfortunate. However, as they say, schedule is all, and as I recall my conversation with Dr. Hari Narayanan, CEO of Penang Skills Development Corp. and my doubts regarding whether exposing our habitat to the concept of effectuation might help, I recalled a recent conversation.
Hari, a skilled C-suite head with over 20 years of leadership and management expertise, including six decades as managing director at Motorola Solutions Malaysia, said something that really struck me. Over the course of my profession, I’ve come to the conclusion that management is what sets businesses apart from those with business success.
But perhaps there was something around. From the site effectuation. In the very unexpected startup phase of a venture, I discovered that effectuation is a a logic of innovative expertise that both novice and experienced entrepreneurs can use to lower the cost of failure for the entrepreneur.
What made the fact that Efficient theory is a type of issue solving , which was based on a mental science-based review of 27 owners of businesses ranging in size from US$ 200 million to US$ 6.5 billion that Sarasvathy conducted.
It turns out, what makes great businesses is n’t genetic or character traits, risk-seeking attitude, wealth, or perspective. Effectuation research has found that there is a , science , to enterprise and that great entrepreneurs across industries, geographies, and occasion use a , popular logic, or thinking process, to address entrepreneurial problems.
So, maybe Dash was on to something. And that’s how I ended up with the ebullient Sarasvathy, the Effectuation guru herself, in a late-night chat.
She teaches MBA and doctoral courses in entrepreneurship at the University of Virginia’s Darden School of Business in Strategy, Entrepreneurship, and Ethics. Originally, she is a faculty member.
Although Sarasvathy has a lengthy resume, it would be remiss of me if I did n’t mention that she has the 2022 global award for Entrepreneurship Research, which is considered the highest level of recognition for research in the field of entrepreneurship. The Swedish Entrepreneurship Forum and the Research Institute of Industrial Economics ( IFN) award it.
Confession of an editor
Confession. I have a hard time interviewing academics, especially those who have established themselves in other fields of study. They are the only ones who are knowledgeable about their subject matter and are ready to answer questions until the cows arrive home. And, unlike startup founders, they love tough questions.
And so it was that I expressed my doubts about the relevance of a relatively unknown theory about entrepreneurial expertise to Malaysian business owners, not when Paul Graham, one of the most well-known names in the Silicon Valley, is currently the subject of the hot leadership debate in the startup world about” Founder Mode.”
Sarasvathy laughed. ” That’s like seven questions in there”. Predictably she did n’t break a sweat addressing my skepticism. ” Let me break that down into three parts”, she began.
But before this, I wanted to understand her motivation for wanting to research successful entrepreneurs, though she prefers to call them’ expert entrepreneurs’, for her doctoral dissertation. Turns out, her interest in learning what makes successful entrepreneurs the success they are comes from her own journey as a serial entrepreneur, being one of the founding teams of five different ventures spread across three continents.
She took a keen interest in the field of entrepreneurship after her fifth venture was destroyed by flooding, which led to her getting a Masters and a PhD right away, both in the US. The theory was developed after her dissertation on what made successful entrepreneurs the winners they are.
But first she corrects me, teacher style. ” Everyone tells me I came up with a theory, but the fact is that I did a big piece of research on the experiences of what I call expert entrepreneurs, out of which the theory came”, she explains.
That took three years, with Sarasvathy publishing the theory paper, as she prefers to call it, in 2001. ” The whole idea behind my research was to try to understand, what is it that entrepreneurs learn through their experiences, that we can also learn and then teach”, she said.
It took her time to understand how to teach the subject right, so this was n’t as simple as it sounds. It’s not a simple matter to conduct research before instructing.
She continued her investigation into knowledgeable businesspeople while creating educational materials. Not one piece of research is sufficient. ” A textbook came out in 2011 but between 2001 to 2011 we were continuing to gather data, do research and develop material with all the case studies”, she explained.
That’s a lot of work to truly comprehend and effectively teach the fundamentals of effectuation leadership. This demonstrated to me how seriously she was taking her work and how determined she was to try to capture the essence of what made “expert entrepreneurs” so prosperous in order to then be able to assist others in her classes.
Does anybody know what makes for a successful entrepreneur? Does Elon?
Now, even though we were not chatting face to face, it was a video call, but she anticipated my next question. ( Have to work on my game face. )
” The issue is not whether my theory is superior, and I can produce successful entrepreneurs,” That is the wrong question. Does anybody know this”?
You pick the most successful entrepreneur, say the founders of Airbnb or Elon Musk. Do they actually know, and can they create the next success ( in others )? The answer is No, she stresses.
Then I got the student treatment. I’m going to treat you for a moment like a student. Think deeply about that. Why is that”?
She claims that this is because the venture’s success or failure is indistinguishable from the entrepreneur’s success or failure. In fact, I teach my students that the most crucial lesson to learn is how to fail if you want to be a successful entrepreneur. And then, you know, build on a whole bunch of small failures, a whole bunch of small successes, so that you as an entrepreneur, over time, will be successful. So we have done quite a bit of work on really unpacking these relationships”, she said.
” Effectuation offers a different approach that emphasizes gaining from mistakes and accumulating small victories over time,” says the author.
And that is what participants at her coming forum on Tuesday,’ RethinQ Entrepreneurship – Build Effectual Entrepreneurs. Learn about the” Build Enduring Companies.”
It will be very different from what one would anticipate from an ordinary forum on entrepreneurship. It will be entirely worthwhile to watch Sarasvathy shake and challenge your understanding of what makes for successful entrepreneurship.
Sarasvathy, who believes her work is also very relevant in the world of entrepreneurship and startups, is convinced that the venture funding model, with its typical 10 % success rate, has failed. It has also been worth it for her.
The US has the oldest and most prosperous venture capital market in the world. You would assume they are knowledgeable about creating a successful business, no? False because they have a nine out of ten failure rate. However, most businesspeople will frequently ask you to make an introduction to them.
She contends that that the high failure rates of ventures, even those backed by venture capitalists, shows that traditional entrepreneurship education is not sufficient. She has something to offer that is more valuable.
Make the time. Attend RethinQ Entrepreneurship.
DNA is an ecosystem partner for RethinQ Entrepreneurship. Here are still available for purchase. You can listen to an interview Prof Sarasvathy