1ZEUB0 Lecture 2 (2023) - Team Flow & Effectuation Handout PDF

Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation NOVEMBER 13, 2023 Dr. Jef van den Hout PDEng Department of Industrial Engineering & Innovation Sciences (IE&IS) Innovation, Technology Entrepreneurship & Marketing (ITEM) group Topics for today • Recap...

Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation NOVEMBER 13, 2023 Dr. Jef van den Hout PDEng Department of Industrial Engineering & Innovation Sciences (IE&IS) Innovation, Technology Entrepreneurship & Marketing (ITEM) group Topics for today • Recap lecture 1 • Flow • Team flow • Venture teams • Effectuation theory • Briefing workshop effectuation (Thursday) 2 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation RECAP 3 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation The role of enterprising individuals Entrepreneurs are the set of individuals who discover, evaluate, and exploit opportunities. Shane, S., & Venkataraman, S. 2000. The promise of entrepreneurship as a field of research. Academy of Management Review, 25(1): 217-226. Opportunities 4 Inspiration Entrepreneurship Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Activation Enterprising individuals Role of founding team in opportunity discovery Founding teams with a more diverse background* identify more and more varied (distant) market opportunities. * In terms of more diverse industry experience and more diverse external knowledge sourcing relationships. Gruber, M., MacMillan, I. C., & Thompson, J. D. 2013. Escaping the prior knowledge corridor: What shapes the number and variety of market opportunities identified before market entry of technology start-ups? Organization Science, 24(1): 280-300. In other words: Diversity in your team will really help you to identify more opportunities, and giving you more diverse options. A profit opportunity is not “all in the head” of an enterprising individual but involves joint action possibilities and team entrepreneurship. Harper, D. A. 2008. Towards a theory of entrepreneurial teams. Journal of Business Venturing, 23(6): 613-626. 5 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Where do opportunities come from? Search and discovery – “out there” Create and transform – “in here” 6 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Search and discovery – “out there” Where are new opportunities found? • • Variations in type, amount, and availability of information External changes in our environment • • • • • • • • • 7 Technological change e.g. inventions like telephone, elevator, microchip, ... Enable people to do things in new and more productive ways Political and regulatory change e.g. deregulation in airline industry, regulation of CO2 emissions More productive use of resources or redistribute wealth Social and demographic change e.g. trends and fashions, aging populations, migration, economic development Alter demand and generate new consumer groups Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Create and transform – “in here” How are new opportunities created? • • From who you are, what you know, and whom you know From new means and goals that stakeholders bring on board • • • • • • • • • 8 Start with your knowledge and networks e.g. background, education, experience, hobbies, friends, colleagues, etc Focus on the resources available to you Commit stakeholders e.g. get money for prototype or small batch production, make contracts with future customers, negotiate product specifications Enter stakeholder negotiations and reach commitments about new resources and new goals Iterative process of creation and transformation e.g. investor/customer feedback, experimentation, prototype evaluation Create new products, ventures, or even markets through action, interaction, and transformation Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Search and select – ”out there” Opportunity = Idea + Action Create and transform – ”in here” 9 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Identifying today’s (and tomorrow’s) problems • • • • Exploring the problem space. Finding the “right” problem. What is the problem you are trying to solve? How does it fit with you/your team, and the potential solution? https://commons.wikimedia.org/wiki/File:1._TIMES_17_UN_SDG1.png 10 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Moving from problem space to solution space https://medium.com/from-the-exosphere/design-thinking-silver-bullet-or-white-whale-89b679db377d 11 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Human-centered process INSPIRATION • observe and understand people’ lives • understand their needs and desires • identify your problem IDEATION • make sense • generate ideas • test and refine ideas IMPLEMENTATION • idea to market • scale up IDEO (2015) The Field Guide to Human-Centered Design 12 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Trust the Process Even if It Feels Uncomfortable IDEO (2015) The Field Guide to Human-Centered Design 13 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Create Real Impact Creative Confidence Make It Learn from Failure Empathy Embrace Ambiguity Optimism Iterate, Iterate, Iterate IDEO (2015) The Field Guide to Human-Centered Design 14 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation TEAM FLOW 15 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation FLOW The concept of flow was first published widely in 1975 by psychologist Mihaly Csíkszentmihályi, who initially defined the construct as “a holistic sensation that people feel when they act in total involvement” (Csíkszentmihályi, 1975, p. 36). The flow experience can be viewed as an optimal experience of intense involvement, focus, and satisfaction in the present moment, and one that, according to research, is involved with higher levels of performance (Csíkszentmihályi, 1990). Flow is being completely involved in an activity for its own sake. The ego falls away. Time flies. Every action, movement, and thought follows inevitably from the previous one, like playing darts. ☺ 16 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation ELEMENTS OF THE FLOW EXPERIENCE 1) Intrinsic motivation (autotelic) 2) Clear proximal goal(s) 3) Challenge-skill match 4) Clear and immediate feedback 5) Complete concentration (no distractions) 6) Sense of control over the situation (no fear of failure) 7) Merging of action and awareness (almost automatic) 8) Loss of reflective self-consciousness (being one with the task) 9) Distorted experience of time (inner time) 17 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Csíkszentmihályi, M. (1990). Flow: The psychology of optimal experience. New York: Harper and Row. Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3319-98390-5 FLOW CONDITIONS Autotelicity Loss of reflective selfconciousness The sense of control Clear proximal goals Complete concentration Challenge skill balance = + Merging of action and awareness Individual flow experience Distortion of time Constructive feedback Prerequisites for individual flow Experiential characteristics of individual flow Elements of flow that can be more readily influenced and need to be created, or at least present Elements of flow that are hard to create or promote, but indicative Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3-319-98390-5 18 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Csíkszentmihályi, M. (1990). Flow: The psychology of optimal experience. New York: Harper and Row. Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3319-98390-5 CHALLENGE SKILL BALANCE Csíkszentmihályi, M. (1990). Flow: The psychology of optimal experience. New York: Harper and Row. 19 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation CHALLENGE SKILL BALANCE 20 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation TEAM FLOW Team flow is the shared experience in which all team members are completely involved in a collaboration towards a gratifying and challenging common task. During this moment of optimal collaboration, they perceive adequate abilities to cope with the challenging situation and they have the feeling that their collaboration runs smoothly, effortlessly, and consistently makes progress (van den Hout & Davis, 2021) Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3-319-98390-5 OurIntroduction conception of anEntrepreneurship “optimized” team dynamic is one that is typified by seven to Technology (1ZEUB0) 21 Lecture 2: Venture Teams & Effectuation HOW TO GET INTO THE ZONE AS A TEAM Team flow is a shared experience derived from an optimized team dynamic during the execution of interdependent personal tasks. In this definition, ‘shared’ means that individual team members are experiencing flow simultaneously and collectively while executing their tasks for the team's purpose(s). Seven prerequisites and four experiential characteristics typify our conception of an “optimized” team dynamic. Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3-319-98390-5 22 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation 23 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 1: Introduction ELEMENTS OF TEAM FLOW During experiences of team flow: a) Team members are part of a team dynamic that is characterized by the following seven prerequisites: 1) a collective ambition, 2) a clear proximal challenging team goal (derived from the collective ambition), 3) aligned proximal personal goals, all contributing to the team goal, 4) high-skill integration 5) open communication 6) safety (psychological, social, and physical) 7) mutual commitment b) These seven prerequisites enable individual team members to experience flow while executing their tasks for the team’s purpose. c) If everyone involved 1) 2) 3) 4) is experiencing task flow, they share the following four experiential characteristics: a sense of unity a sense of making progress together mutual trust a shared holistic focus. Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3-319-98390-5 24 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation ELEMENTS OF TEAM FLOW Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3-319-98390-5 25 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation TEAM FLOW MODEL Mutual Commitment Clear Challenging Common Goal Aligned Personal Goals Sense of Unity Holistic Focus Collective Ambition Sense of Joint Progress Mutual Trust Safe Climate Open Communication High Skill Integration Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3-319-98390-5 26 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation TEAM FLOW MODEL DIRECTION Audacious Common Goal Aligned Personal Goals Sense of Unity Holistic Focus Collective Ambition Sense of Joint Progress Mutual Trust Safe Climate Open Communication POSITIVE & SUPPORTIVE WORK ENVIRONMENT 27 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation High Skill Integration CLEAR AND CHALLENGING TASK DIVISION Mutual Commitment 28 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation “For one thing, as I will try to show, an idea or product that deserves the label ‘creative’ arises from the synergy of many sources and not only from the mind of a single person. It is easier to enhance creativity by changing conditions in the environment than by trying to make people think more creatively. And a genuine creative accomplishment is almost never the result of a sudden insight, a lightbulb flashing on in the dark, but comes after years of hard work.” (Csíkszentmihályi, 1996, p.1) 29 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Csíkszentmihályi, M. (1996). Creativity. New York: HarperCollins Publishers. VENTURE TEAMS 30 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation VENTURE TEAMS (Co-)Founder = people involved in the initial launch of a venture (but not actually defined by law) New venture team = A group of individuals with a common goal that can only be achieved by appropriate combinations of individual entrepreneurial actions. Founders typically have equity stakes in the firm. Hellerstedt, K. (2009). The composition of new venture teams: Its dynamics and consequences. Jönköping, Sweden: Jönköping International Business School, PhD Thesis. 31 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation VENTURE TEAMS Solo-founder of Tumblr David Karp Later joiner in Tesla Elon Musk (originally founded in 2003 by Martin Eberhard and Marc Tarpenning) https://www.bbc.com/news/technology-55246148 32 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation VENTURE TEAMS For a group to be considered a team, • its members must see themselves as a social unit. • Teams are a special kind of group in which members are more closely connected and stand up for one another, • And are characterized by engagement and commitment. An entrepreneurial team has – relative to an individual – • more human and social capital at its disposal in dealing with the uncertainties and challenges associated with new venture creation. Schjoedt, L., & Kraus, S. (2009). Entrepreneurial teams: Definition and performance factors. Management Research Review, 32 (6), 513524. 33 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation HUMAN CAPITAL PERSPECTIVE A human capital perspective on entrepreneurial teams implies a focus on the existence of particular skills, traits and experiences of the group members: • 3H Model: Hacker – Hipster – Hustler • General human capital is transferable across context, whereas • Specific human capital is particular to specific situation/firm Schjoedt, L., & Kraus, S. (2009). Entrepreneurial teams: Definition and performance factors. Management Research Review, 32 (6), 513-524. 34 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation THE 8 MOST IMPORTANT CHARACTERISTICS OF THE PERFECT STARTUP TEAM 1. Prior start-up experience 2. Industry specific experience 3. Number of founders 4. Customer metrics 5. Helpful mentors 6. Working hours 7. Managerial experience 8. Level of education Golden Egg Check, together with the University of Twente https://goldeneggcheck.wordpress.com/2016/05/12/the-8-characteristics-of-the-perfect-startup-team/ 35 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation FUNDERS PRIORITIZE FOUNDERS 95% of surveyed Dutch venture capitalists consider the team as one of the most important success factors in a venture Golden Egg Check, together with the University of Twente https://goldeneggcheck.wordpress.com/2016/05/12/the-8-characteristics-of-the-perfect-startup-team/ 36 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation FUNDERS PRIORITIZE FOUNDERS 95% of surveyed Dutch venture capitalists consider the team as one of the most important success factors in a venture Too small: • Slower in action • Not enough xp/social capital Too large: • More coordination cost • Slower decision-making • Possible freeriders Golden Egg Check, together with the University of Twente https://goldeneggcheck.wordpress.com/2016/05/12/the-8-characteristics-of-the-perfect-startup-team/ 37 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation FUNDERS PRIORITIZE FOUNDERS 95% of surveyed Dutch venture capitalists consider the team as one of the most important success factors in a venture Golden Egg Check, together with the University of Twente https://goldeneggcheck.wordpress.com/2016/05/12/the-8-characteristics-of-the-perfect-startup-team/ 38 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation INDUSTRY-SPECIFIC Nature of the business matters: • If you’ll enter competition with your own products (e.g., consumer goods, digital products), a more diverse team is preferred • If you aim to partner in commercializing your innovation (= you don’t push to TRL9 yourself) (e.g., chemicals, biotech, medical equipment), technical focus gives advantage and diversity matters less Chuck Eesley (2012). https://www.youtube.com/watch?v=c52Y2ObjFms 39 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation TECHNOLOGY READINESS LEVEL A scale to measure the maturity level of a technology • Developed originally at NASA • Now widely adopted across the world (thus you can replace in the graph cues on ‘space’ and ‘flight’ with any relevant environment) PICTURE: https://www.nasa.gov/directorates/heo/scan/engineering/technology/txt_accordion1.html 40 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation ORGANIZATION CULTURE Organization culture = a set of shared assumptions that guide behaviors (Ravasi and Schultz, 2006): • Embody the vision of founders • But evolve over time Competing Values Framework (Cameron and Quinn, 2011): • Four rival management models • Integrates different kinds of leadership, culture, and competencies Ravasi, D.; Schultz, M. (2006). "Responding to organizational identity threats: Exploring the role of organizational culture". Academy of Management Journal. 49 (3): 433–458. Cameron, K.S., & Quinn, R.E. (2011). Diagnosing and changing organizational culture: Based on the Competing Values Framework. San Francisco, CA: Jossey-Bass, Third Edition. 41 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation COMPETING VALUES FRAMEWORK A. Clan culture is family-like; focus on mentoring, nurturing, and “doing things together“ B. Adhocracy culture is dynamic and entrepreneurial; focus on risk-taking, innovation, and “doing things first” C. Market oriented cultures are results oriented; focus on competition, achievement, and “getting the job done” D. Hierarchy culture is structured and controlled; focus on efficiency, stability and “doing things right.” New venture teams in tech startups most often employ adhocracy culture Cameron, K.S., & Quinn, R.E. (2011). Diagnosing and changing organizational culture: Based on the Competing Values Framework. San Francisco, CA: Jossey-Bass, Third Edition. Cameron, K.S., & Quinn, R.E. (2011). Diagnosing and changing organizational culture: Based on the Competing Values Framework. San Francisco, CA: Jossey-Bass, Third Edition. 42 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation 43 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 1: Introduction EFFECTUATION 44 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation What makes entrepreneurs entrepreneurial? How do (expert) entrepreneurs make decisions? • Especially in the start-up phase of a new company • “Uncertain” and unpredictable Sarah Sarasvathy • Study of entrepreneurial expertise • Based on cognitive science using think-aloud protocols 65% of the respondents used effectual logic 75% of the time, when they were solving the problems https://www.effectuation.org/?page_id=9 45 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation https://ideas.darden.virginia.edu/ saras-d-sarasvathy Risk Uncertainty • • • Known distribution → classical analytical techniques E.g., insurances, many types of games, forecasting demand for well-known products • • Unknown distribution → estimation techniques E.g., dealing with environmental pollution, global warming, commercialization of radical innovations From unknown to known distribution as underlying distribution is discovered through estimation procedures Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of Management Review, 26(2), 243-263. 46 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation From causal to effectual reasoning The word “effectual” is the inverse of “causal”!!! Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. 47 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Effectual reasoning: The process All entrepreneurs begin with three categories of means: 1) Who they are – their traits, tastes and abilities; 2) What they know – their education, training, expertise, and experience; and, 3) Whom they know – their social and professional networks. Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. 48 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation What is your basic approach in cooking dinner for yourself? What is your basic approach in cooking dinner for your best friends when invited for your birthday party? PHOTO: JAY DAVID BUCHSBAUM/THE MUPPETS STUDIO/ABC 49 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. A chef who is not given a menu in A chef who is given a specific menu advance and is escorted to a and has only to pick out his or her strange kitchen where he or she favorite recipes for the items on the has to explore the cupboards for menu, shop for ingredients and cook unspecified ingredients and cook a the meal in their own well-equipped meal with them is an example of kitchens is an example of causal effectual reasoning. reasoning. PHOTO: JAY DAVID BUCHSBAUM/THE MUPPETS STUDIO/ABC 50 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. The causal and effectual marketing process It is easy to see that the inverted causal triangle at the top can be moved to the bottom below the upright effectual triangle and that would capture the marketing life cycle of most entrepreneurial firms. Once the market had been clearly identified and defined, one can now apply the traditional causal marketing process to capture market share and grow the company (Sarasvathy, 2001). 51 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. Predicting versus controlling the future Causation: • Focus on predictable aspects of an uncertain future. • Logic: To the extent that we can predict the future, we can control it. Effectuation: • Focus on controllable aspects of an unpredictable future. • Logic: To the extent that we can control the future, we do not need to predict it. 52 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of Management Review, 26(2), 243-263. Theory of Effectuation “Effectuation processes take a set of means as given and focus on selecting between possible effects that can be created with that set of means.” (Sarasvathy, 2001) https://www.effectuation.org/?page_id=207 53 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. Principles of effectuation Expert entrepreneurs have learned the hard way that the most exciting ventures are built in a space in which the future is unknown and unknowable. (Think about the Covid-19 crisis.) Still, yet, entrepreneurs do shape this unpredictable future. They use techniques (principles) that minimize the use of prediction and allow them to shape the future. https://www.effectuation.org/sites/default/files/documents/effectuation-3-pager.pdf 54 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation See www.effectuation.org for a more elaborate description of the principles. Some video lectures also available on Canvas. Principles of effectuation https://www.effectuation.org/sites/default/files/documents/effectuation-3-pager.pdf 55 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation See www.effectuation.org for a more elaborate description of the principles. Some video lectures also available on Canvas. https://www.effectuation.org/sites/default/files/documents/effectuation-3-pager.pdf 56 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation See www.effectuation.org for a more elaborate description of the principles. Some video lectures also available on Canvas. Effectuation in action https://www.effectuation.org/sites/default/files/documents/effectuation-3-pager.pdf 57 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation The effectual cycle https://www.effectuation.org/sites/default/files/documents/effectuation-3-pager.pdf 58 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Causal versus effectual logic Causal frame Effectual frame View of the future Predictive Creative Basis for taking action Goal-oriented Means-oriented Predisposition toward risk and resources Expected return Affordable loss Attitude toward outsiders Competitive analysis Partnerships Attitudes toward unexpected contingencies Avoiding Leveraging 59 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Dew, N., Read, S., Sarasvathy, S. D., & Wiltbank, R. (2009). Effectual versus predictive logics in entrepreneurial decision-making: Differences between experts and novices. Journal of Business Venturing, 24(4), 287-309. (A more elaborate table, based on this research, is available in the next slide on Canvas.) What logic is most useful in the suicide quadrant? 60 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. 61 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of Management Review, 26(2), 243-263. Opportunity discovery versus creation? Complementary perspectives Dynamic perspective: Shift from effectual to causal reasoning in venture life cycle (Read & Sarasvathy, 2005) Combining opportunity discovery and creation in a continuous perspective (Becker et al., 2015) Causal logic Effectual logic Established company Start-up 63 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Effectuation & Venture Teams Read, S., & Sarasvathy, S. (2005). Knowing what to do and doing what you know: Effectuation as a form of entrepreneurial expertise. Journal of Private Equity, 9(1), 45-62. Becker, A., Knyphausen–Aufseß, D. Z., & Brem, A. (2015). Beyond traditional developmental models: A fresh perspective on entrepreneurial new venture creation. International Journal of Entrepreneurial Venturing, 7(2), 152-172. EFFECTUATOR 64 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Entrepreneur as effectuator The use of an effectual logic by an entrepreneur as an “effectuator” implies a certain stance toward the world: • Effectuators see the world as open, still in the making. • • • • • • • They focus on human action (also firms and markets are human-made artifacts). Effectuators rarely see opportunities as given or outside of their control. They work to fabricate (create) and recognize (discover) opportunities. Effectuators often have an instrumental view of firms and markets. Firms are a way to create valuable novelty for themselves and/or for the world, and markets are more likely made than found. Effectuators do not seek to avoid failure; they seek to make success happen. They recognize that failing is an integral part of venturing as well. Which frame entrepreneurs use influences how they formulate problems, and how they develop possible solutions. 65 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006) The entrepreneurial method: How expert entrepreneurs create new markets. University of Virginia. IDEATION 66 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation When is a new venture idea a good opportunity? Not all ideas are great opportunities Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. 67 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Developing entrepreneurial ideas https://www.wipo.int/patents/en/2019_patent_picks.html When is a new venture idea a good opportunity? Not all ideas are great opportunities When to take action? Assessing feasibility and value Four key concepts/questions: 1. Is it doable? → Technical & market feasibility 2. Is it worth doing? → Financial feasibility 3. Can I do it? → Organizational feasibility 4. Do I want to do it? → Motivational & exit feasibility 68 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. FEASIBILITY Is it doable? MARKET YOU 69 Technological feasibility Market feasibility VALUE Is it worth doing? Financial feasibility Can I do it? Do I want to do it? What will it take to do it? Who else do I need? What turns me on about it? Why do I want to do it? Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. (A more elaborate set of questions, based on this framework, is available in the next slides.) Is it doable? Technological feasibility • Is the technology for your product already available, or is it still in development? • If the latter, what stage of development is it in and what can go wrong? • If the former, is anyone else using it to develop the same product/service as you? • If not, why has no one done so yet? • If so, who are they and how does that affect your prospects? • What kind of entry barriers for the future does your technology provide? • How long would those entry barriers last should your idea prove to be a high potential opportunity? • What are your technological risks? List reasons why the end user might not want to use your technology even though your product/service might be technologically superior. • What other nascent technologies might become competition in the future—one year from now, five years from now, a few decades from now? 70 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. (A more elaborate set of questions, based on this framework, is available in the next slides.) Is it doable? Market feasibility Product • What exactly are you selling? • Is it a technology looking for a market or vice versa? • How do you define your niche? • How is the need being filled now? • Who/what is the competition? • Advantages/disadvantages of the product/service • Why your product? (differentiation/uniqueness/proprietary) Customer • Who is your customer? (a typical profile) • Will the customer pay enough? Can you charge enough? • What critical factors will lead you most quickly to your customer base? Market • How large is the market? • What is its structure? • How fast is it growing? • Where could future competition come from? 71 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. (A more elaborate set of questions, based on this framework, is available in the next slides.) Is it doable? Economic feasibility • Are there any obvious roadblocks from the government—both local and national? • Is the international situation likely to change? • What is your exit strategy? Timing • Are you in the path of a paradigm shift? • Are you too far ahead of the times? • What is the shape and duration of the “window” for this opportunity? 72 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. (A more elaborate set of questions, based on this framework, is available in the next slides.) Is it worth doing? Financial feasibility • What are the initial outlays of funds required? • What would convince an investor to contribute those funds? • If you personally owned those funds, would you invest them in this idea? • How is the financing connected to the timing issue? (breakeven, burn rate) • Develop a set of financial forecasts. • State the primary financial assumptions for your projections. • How sensitive are your projections to changes in price, technology, competition, and your own growth? • Develop best-case and worst-case financial scenarios. 73 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. (A more elaborate set of questions, based on this framework, is available in the next slides.) Can I do it? What is it going to take? Every idea is different in terms of exactly what it would take to build it into a business. But some general negative expectations might include: • Long and often unpredictable work hours • Setbacks and disappointments along the way including the possibility of major failures • An arduous and sometimes awkward learning process with regard to dealing with people— including hiring and firing • Negotiating tough contracts • Dealing with rejections of various types • Sustaining the best stakeholders through bad times such as cash crunches A realistic understanding of some of the negative experiences, combined with a strong positive motivation is considered the essential recipe for long-term success in entrepreneurship. Why you? • What special strengths do you bring to this enterprise? • What are your relevant weaknesses and how will you overcome or compensate for them? 74 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. (A more elaborate set of questions, based on this framework, is available in the next slides.) Do I want to do it? • Does it turn you on? • Why do you want to do this—really? • What are your exit strategies? The established myth about the motivation of entrepreneurs is that they want to make money. And in many cases, entrepreneurs do start out with the idea of making money. Indeed, entrepreneurs are very good at keeping their eye on the bottom line at all times. Yet, most entrepreneurs quickly face the fact that making money is but one necessary condition—not even the most necessary condition—for successful entrepreneurship. Rather, making money is a positive side effect of bringing together and managing resources and people to accomplish something realistically doable and worth doing. Therefore, in building a robust business organization, an entrepreneur has to want more than merely to make money. He or she has to find more immediate reasons for getting up in the morning and facing the daily tasks of entrepreneurship. Some common motivations mentioned by successful entrepreneurs include: • A desire for independence: “I did it my way” or “I do not want to work for someone else” • Fulfilling needs in the world: making a positive contribution to society • Lifestyle: For example, a successful couple from Wall Street who give up high-paying jobs to start a bed and breakfast in Vermont • A sense of accomplishment: “I did it because I could” or “I wanted to prove to myself I could do it.” 75 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. (A more elaborate set of questions, based on this framework, is available in the next slides.) https://www.effectuation.org/?page_id=207 76 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation BRIEFING WORKSHOP EFFECTUATION 77 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation https://www.effectuation.org/?page_id=207 78 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation 79 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Venture Teams & Effectuation References Ahmad, N. & R. Seymour (2008), "Defining Entrepreneurial Activity: Definitions Supporting Frameworks for Data Collection", OECD Statistics Working Papers, No. 2008/01, OECD Publishing, Paris. https://doi.org/10.1787/243164686763 Csíkszentmihályi, M. (1975). Beyond boredom and anxiety. San Francisco, CA: Jossey-Bass Publishers. Csíkszentmihályi, M. (1990). Flow: The psychology of optimal experience. New York: Harper and Row. Becker, A., Knyphausen–Aufseß, D. Z., & Brem, A. (2015). Beyond traditional developmental models: A fresh perspective on entrepreneurial new venture creation. International Journal of Entrepreneurial Venturing, 7(2), 152-172. Dew, N., Read, S., Sarasvathy, S. D., & Wiltbank, R. (2009). Effectual versus predictive logics in entrepreneurial decision-making: Differences between experts and novices. Journal of Business Venturing, 24(4), 287-309. Gruber, M., MacMillan, I. C., & Thompson, J. D. (2013). Escaping the prior knowledge corridor: What shapes the number and variety of market opportunities identified before market entry of technology start-ups? Organization Science, 24(1), 280-300. Read, S., & Sarasvathy, S. (2005). Knowing what to do and doing what you know: Effectuation as a form of entrepreneurial expertise. Journal of Private Equity, 9(1), 45-62. Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of Management Review, 26(2), 243-263. Sarasvathy, S. D. (2001). What makes entrepreneurs entrepreneurial? The Darden Graduate School of Business Administration, University of Virginia. Sarasvathy, S. D. (2006). The bird-in-hand principle: Who I am, what I know, and whom I know. University of Virginia. Sarasvathy, S. D. (2006) The entrepreneurial method: How expert entrepreneurs create new markets. University of Virginia. Sarasvathy, S. D., & Dew, N. (2005). New market creation through transformation. Journal of Evolutionary Economics, 15(5), 533-565. Sarasvathy, S. D., & Read, S. (2009). Cold opportunity. University of Virginia. Shane, S. (2000). Prior knowledge and the discovery of entrepreneurial opportunities. Organization science, 11(4), 448-469. Van den Hout, J.J.J., Davis, O.C. (2021). Flow. In Glăveanu, V.P. The Palgrave encyclopedia of the possible. (pp 196-210). Cham: Palgrave Macmillan. www.effectuation.org www.goteamflow.com 80 Introduction to Technology Entrepreneurship (1ZEUB0) Lecture 2: Effectuation & Venture Teams