Effectual Entrepreneurship Chapter 2

Effectual Entrepreneurship & Entrepreneurial Opportunity

• Study unit 2, Chapter 2
• Lecturer: Miss Nokuthula Jantjies
• Course focused on effectual entrepreneurship and identifying entrepreneurial opportunities

General Objective

• Understand the elements that shape entrepreneurial thought (effectuation)
• Learn how to spot and implement entrepreneurial opportunities

Learning Outcomes

• Differentiate between managerial and entrepreneurial mindsets
• Define effectual entrepreneurship and its significance
• Differentiate between an idea and an opportunity
• Conduct feasibility studies
• Differentiate causal and effectual thinking
• Explain Sarasvathy's principles of effectuation
• Identify gaps in the market
• Select the most suitable opportunity based on evaluation criteria

Learning Outcome 1

• Managerial vs. entrepreneurial mindset (not covered in textbooks)

Introduction

• Business/management science traditionally teaches causal/predictive reasoning (predetermined problem/idea with resources)
• Strategic thinking involves setting broader goals (mission, vision, etc.)
• Effectual reasoning starts with available means and goals emerge over time based on imagination and aspirations

Learning Outcome 2

• Causal reasoning vs. effectual reasoning

Effectual Thinking

• Effectual thinkers are like early explorers/inventors who discovered solutions through trial and error
• Successful entrepreneurs employ both causal and effectual reasoning, often preferring effectuation in initial stages
• Effectual thinking is inherently creative, unlike causal thinking, which may or may not be creative

Effectual Reasoning as Entrepreneurial Thinking

• Effectual reasoning is a key part of entrepreneurial thinking
• It involves imagining new outcomes using existing resources.

Learning Outcome 3

• Effectual entrepreneurship and its importance

Effectual Entrepreneurship

• Entrepreneurs start with specific means:
  • Who they are (skills, talents)
  • What they know (education, experience)
  • Whom they know (networks)
• Using these resources, they imagine possible outcomes
• Through actions, means and outcomes change and adjust
• The outcomes become achievable and desired goals

Learning Outcome 4

• Describe Sarasvathy's principles of effectuation

Sarasvathy's Five Principles of Effectuation

• Bird in hand: Utilizing existing resources to develop solutions and build relationships with stakeholders
• Affordable loss: Acknowledging uncertainties and committing to tasks within the entrepreneur's acceptable loss tolerance
• Lemonade: Planning for unexpected outcomes and setbacks as potential opportunities
• Patchwork quilt: Generating new ideas using current resources and collaborations
• Pilot-in-the plane: Relying on human & social capital as the primary driver for entrepreneurial efforts

Learning Outcome 5

• Differentiate between an idea and an opportunity.

The Difference Between an Idea and an Opportunity

• Opportunity identification begins with an idea (inspiration, notion, impression) but not all ideas become feasible opportunities
• A solid opportunity meets specific criteria, whereas an idea may not yet be viable
• Entrepreneurs often refine an idea to turn it into a viable and valuable opportunity

Learning Outcome 6

• Understand how to identify gaps in the market

How to Identify Gaps in the Market

• Generating Ideas: Gain insights through interactions with family, friends, and other relevant networks as ideas are frequently generated through interactions with those that surround the entrepreneur

• Review Existing Products and Services: Conducting thorough research to uncover gaps and opportunities within existing products and services.

• Active vs. Passive Process:

• Active: structured approach with a determined plan

• Passive: indirect search for opportunities through social interactions.

• Customers: Feedback and experiences to improve product or service

• Employees: Insights and ideas from direct contact with customers.

• Intermediaries: Information from people with industry knowledge about materials can further identify any business opportunity.

• Competitors: Comparative analysis to identify neglected market opportunities or develop a superior product/service.

• Consultants: Information & insights from professional services or other experts

• Research, development, innovation: planned approach to uncovering opportunity.

• Informal Settings: Networking events, public places.

Learning Outcome 7

• Transform an idea into an opportunity (Drivers of opportunities)

Drivers of Opportunities

• Push Factors: External pressures that motivate entrepreneurs to seek new opportunities.
  • Declining profits/dissatisfaction with the current situation.
  • Need for growth
  • Declining products.
• Pull Factors: Internal desires that motivate entrepreneurs to create or explore new opportunities.
  • Self-Actualization (desire to fulfill potential)
  • Ability to make own decisions (desire for control and independence)
  • Independence (desire for fewer external restrictions)

Learning Outcome 7

• How to conduct a feasibility study

How to Conduct a Feasibility Study

• Definition: Assessment of an opportunity, finding strengths and weaknesses, and profitability decision.
• Importance: Evaluation of each opportunity based on value or novelty.
• Key Benefits: improve focus, identify new possibilities, narrowing options, evaluating reasons to pursue or drop the opportunity.
• Customer Analysis: Assessing customer willingness to pay, determining growth potential.
• Industry Analysis: Assessing the role of stakeholders and their potential impact.
• Competitor Analysis: Evaluating competitor actions and adaptation
• Regulatory Structure: Ensuring compliance with regulations.
• Conducting SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis - assess the entrepreneurial opportunity

Learning Outcome 8

• Use evaluation criteria to choose the best opportunity

Use the Evaluation Criteria to Choose the Best Opportunity

• Decision-making: Identifying and choosing the best opportunity from among limited information
• Viability Assessment: Evaluating an opportunity based on innovativeness
• Evaluation Criteria: -Market/industry attractiveness -Environmental factors -Economic and financial factors -Product & service issues -Desirability -Human Capital -Feasibility

Case Study

• Questions: Analyse what caused Ntsoaki to start her safety and security company, and what qualities enabled her to achieve her goals. (pages 38–39)

References

• Sarasvathy SD. 2001. What makes entrepreneurs entrepreneurial? Darden Case No. UVA-ENT-0065, Darden School of Business. Available at SSRN 909038.

This quiz covers the key concepts of effectual entrepreneurship and identifies how to spot entrepreneurial opportunities as discussed in Study Unit 2, Chapter 2. It focuses on the differences between managerial and entrepreneurial mindsets, the significance of effectual principles, and the process of conducting feasibility studies.