Book review: Effectual entrepreneurship

Aug 12

This is a very worthwhile book that advances a lucid and academically sound perspective on entrepreneurship. It is a view on value creation that goes against the grain of much that is being taught at business schools the world around.

Despite the theory’s academic credentials this book is not an abstract treatise (for a more rigorous treatment, see Sarasvathy’s Effectuation: Elements of Entrepreneurial Expertise). It wants to support aspiring and practicing entrepreneurs in building successful ventures. It is very accessibly written with a minimum of jargon. I was surprised and happy to see my 18-year old son pick up this book and read it in just a few sittings. Since it has offered interesting fodder for family table talk.

So what is `effectual entrepreneurship’ about? Effectuation is a way of creating a business that is prepared to acknowledge irreducible uncertainty: the market cannot be defined; consumers are not aware of their future preferences; new technologies may emerge; available data are incomplete and conflicting. Acknowledging these constraints means that we can only have modest expectations as regards the usefulness of market research and competitive analysis to lead us to new opportunities. So, rather than the prevailing `search and select’ paradigm (identify underserved markets, build business case, implement), a `create and transform’ approach is in order. Therefore, the effectual entrepreneur is more like a hunter, acting on local possibilities and contingencies as she navigates an unfolding landscape: “In the concept of transformation, the creation of a market need not be intentional or even the result of foresight or imagination of possible new markets. It could simply be one way to fulfill an individual’s motivation and/or an unanticipated consequence of people just doing things they think are possible and worth doing.” At bottom, what separates effectual entrepreneurs from others is a different perspective on risk and control. Expert entrepreneurs deal with uncertainty, not risk. They are trying to control a future they cannot predict.

Despite the organic and messy nature of this process, Saras Sarasvathy and Stuart Read have been able to identify a number of principles that guide effectual entrepreneurs. They are:

- Start with your means: don’t wait for the perfect opportunity; start taking action based on what you have readily available.
- Set affordable loss: evaluate opportunities based on whether the downside is acceptable rather than on the attractiveness of the predicted upside.
- Leverage contingencies: Embrace surprises, remain flexible as regards goals.
- Form partnerships: with people willing to make a real commitment to jointly creating the future with you.
- Create opportunities: make the future happen by working with things within your control; don’t worry about predicting the future.

The book gives life to these generic principles through an inspiring patchwork of real-world cases. Hi-tech and low-tech, large and small, American and non-American examples underscore that in real life effectuation rather than the bloodless fiction of business plans is the norm in building successful companies.

The book is structured in three parts: Part I gives a broad-brush account of effectuation and its underlying principles, and deconstructs some of the prevailing myths about entrepreneurship. Part II is a nuts and bolts discussion of effectuation in action. The principles are now discussed in more detail and their implications for financing, partnerships and branding are explored. A final part briefly discusses the relevance of effectuation for large, mature companies and for social innovators. As said, many aspects of the discussion are illustrated with well-selected examples. At the back there is a handy overview chart of all the cases linking them to the effectuation principles they help to illustrate.

The research to support the argument made by this book does not stand on its own. It chimes with much of what we have learned in systems thinking and complexity science about self-organization and emergence. Other streams of research that usefully complement this perspective on entrepreneurship are focused on design thinking, reflexive practitionership, transdisciplinarity and on dealing with ‘wicked problems’.

I notice the Kindle version of this book has been withdrawn. Rightly so as in its electronic incarnation this book is all but unreadable. The sophisticated layout of the printed version, with lots of inset boxes, has been turned into a bewildering mosaic of undifferentiated text blocks. All the more a pity as the e-book was sold at a hefty price. Quite a letdown from this renowned publishing house.

This book offers an inspiring and fun perspective on entrpreneurship and is wholeheartedly recommended but only in its printed format.

Other news

Stafford Beer's short book 'Designing Freedom' remains as fresh and relevant as ever. Our review here:……

more tweets