By Dr Thanuja Rathakrishnan
By Dr Thivashini B Jaya Kumar
Imagine launching a promising new business, only to face a global pandemic, political turmoil, or a disruptive technology shift. In today’s volatile world, the traditional roadmap for entrepreneurial success is being rewritten.
The assumptions that once allowed founders to systematically plan and forecast have been challenged by constant disruption. From geopolitical instability and supply chain breakdowns to technological disruption and climate change, the only constant is unpredictability.
In this landscape, those who adapt, remain fluid and innovate as they progress tend to flourish.
Entrepreneurship education has always focused on equipping founders with an arsenal of analytical tools and frameworks for modelling different scenarios and de-risking new ventures. Rigorous upfront planning, extensive customer validation, and meticulous competitive analyses were prescribed as prerequisites before taking action. However, this conventional wisdom was built on the premise of a much more stable, slower-paced, and predictable world that no longer exists. With industries evolving rapidly, analyses that are largely based on prediction often lead to missed opportunities.
What we need today are entrepreneurs who are comfortable ploughing their own paths through agile decision-making – they’re calculated risk-takers who can make decisions amid ambiguity and adapt quickly. Rather than trying to predict an inherently unpredictable future, they focus their efforts on what is within their control in the present moment. It’s a mindset captured by the concept of “effectuation” developed by scholar Saras Sarasvathy. Unlike the adage on planning and predicting future events, effectuation is based on four core principles which calls for focusing on what is controllable within our means to embrace the unpredictable future.
Many are unsure of how to initiate something may practise the bird-in-hand principle, especially when the idea of running a business or being entrepreneurial never crossed their minds. Those who practice effectuation generally start with the knowledge or skills they have and visualise themselves doing. In essence, start now, with what you have. Subsequently, they proceed with the business using the current means they have on hand. Unlike traditional entrepreneurs, who take months or years to decide on a business, persuade potential stakeholders, and convince creditors for loans, these entrepreneurs focus on what they can get their hands on now.
Affordable loss is the principle that involves carefully evaluating how much you are willing to risk financially and mentally in pursuit of your venture’s success. Although the idea for most entrepreneurs is to leverage profits, there are expert entrepreneurs who focus on managing their losses. In other words, to embrace the ‘affordable loss’ principle, start by defining your risk tolerance and setting a budget for your initial investment. Then, break your venture into smaller, achievable milestones, and assess your progress regularly to adjust your approach as needed.
In times of crisis, collaborative problem-solving becomes crucial, crazy quilt principle is similar to stitching patches of cloth together to create a quilt. Drawing on diverse experiences enables a group to approach risks and opportunities from various perspectives, fostering the generation of innovative solutions and the ability to adapt to evolving situations. Effectuation encourages openness to involving others in tackling challenges and shaping project goals, rather than attempting to solve everything alone. By sharing ideas with select individuals and garnering their commitment, entrepreneurs can leverage their collective expertise to navigate uncertainties more efficiently and effectively.
Our view on unexpected challenges determines the outcomes. Do you take the option to fight or fly (flight)? When facing unexpected challenges in the business, adopting the lemonade principle can inspire us to turn sour situations into sweet successes by creatively adapting and finding opportunities within adversity.
In the face of relentless uncertainty, traditional entrepreneurial wisdom falls short. It’s time to embrace a new mindset – one that transforms obstacles into opportunities, leverages diverse perspectives, and forges paths through the unpredictable terrain of modern business. While effectuation principles promote agility and adaptability, some entrepreneurs may debate that upfront planning and fixed prediction are still necessary for certain industries or business models, such as those with high capital requirements or regulatory hurdles. However, even in these cases, effectuation can be applied alongside traditional planning methods, allowing for course corrections and pivots as circumstances change.
About the author: Dr Thanuja Rathakrishnan and Dr Thivashini B Jaya Kumar are Senior Lecturers for the School of Management and Marketing at Taylor’s Business School, Faculty of Business and Law, Taylor’s University. This is an opinion column. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of this publication.
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