Prof Saras D. Sarasvathy Talks About Effectuation in Entrepreneurship

In a conversation with Prathibha Sastry, Sarasvathy talks about what piqued her interest in entrepreneurship and how she has incorporated the lessons in academics
Prof Saras D. Sarasvathy Talks About Effectuation in Entrepreneurship
Image credit: Prathibha Sastry
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Entrepreneurship is the buzzword of 20th century. Everyone wants to try their hand at starting and building a business or just do something innovative to escape the rut of their daily jobs. But what does it take to become an entrepreneur? Can entrepreneurship be taught?

To understand this, Prathibha Sastry gets in a conversation with a well-known academician and expert in the field of entrepreneurship, Prof Saras D. Sarasvathy, Paul Hammaker Professor at The Darden School, University of Virginia and the Jamuna Raghavan Chair at the Indian Institute of Management, Bangalore. Prof. Sarasvathy talks about what piqued her interest in entrepreneurship and how she has incorporated the lessons in academics.

Prof Sarasvathy has authored the book Effectuation: Elements of Entrepreneurial Expertise, which was nominated for the 2009 Terry Book Award by the Academy of Management.

Effectuation is widely acclaimed as a rigorous framework for understanding the creation and growth of new organizations and markets. Peter Drucker said, “The best way to create the future is to predict it”. But as the future proves to be largely unpredictable, Effectuation serves entrepreneurs by providing a way to control it.  It is backed by scientific research with observations on situations of uncertainty.

Also Read: Kiran Mazumdar Shaw and Lessons In Entrepreneurship

Prof Sarasvathy explains that effectuation refers to the lessons that expert entrepreneurs learnt while building their ventures. Expert entrepreneurs here refer to not just successful entrepreneurs but those who are well experienced having been through every stage of building successful ventures. What essentially distinguishes them from the rest is the journey they have faced in entrepreneurship, ranging from failure to success and the lessons and insights that they have gained along the way.

The lessons learnt by expert entrepreneurs help them develop new modes of thinking as well as new techniques and approaches, which do not rely on predicting the future, but instead focus on creating a particular outcome in the future by working with the available details that are within our control.

Professor Saras D. Sarasvathy has conducted research on various ‘expert entrepreneurs’, which shows that the lessons learnt by these ‘experts’ are not just a result of their individual levels of success or success in their respective fields, but are a direct result of entrepreneurship itself.

For her experiment, Sarasvathy reached out to various ‘expert entrepreneurs’ from different fields and made them all tackle the same decision making problems that entrepreneurs face. She was able to gather the following data from her experiment’s findings. 

Affordable Loss and Visionary Entrepreneurs

Affordable loss deals are a great business idea, but the universal problem remains: how do you get people to invest their time and money? While one may have a novel idea as well as a means for venture creation, the operation is not complete without partners who are invested in the business. In this episode, Professor Saras D. Sarasvathy explores this key aspect of effectuation, which is effectively persuading other parties to get them to work with you. 

Limitation of Ideas and Effectuation

Does effectuation limit the kinds of ideas that you can pursue? Certain limitations, like financial, based on skill or other factors, can deter you from pursing ideas but professor Sarasvathy distinguishes between the two types of limitations that arise based on whether one pursues the idea causally or effectually.

In the former, when an idea leads to limitations, one must seek to overcome them and chase after the desired outcome in order to move ahead. The latter, however, propounds that only those things that can be controlled must be dealt with, instead of trying to overcome every limitation. Hence, the method of facing and dealing with limitations depends on the approach one takes to pursue an idea.

Nine Dragon Paper Company

The episode highlights a unique situation that the Nine Dragon Paper Company has created by means of an affordable loss deal, where the success of the business guarantees an eventual profit and a novel business idea, but a failure would not lead to a drastic disadvantage, as the costs of failure are low.

The creator and her partner have created a unique business idea that is both profitable and environmentally friendly, by recycling old cartons that people would pay to dispose of. The problem of transportation is solved by affordable loss deals. This is favourable to both the company as well as the owners of the shipping container as both parties have a lot to gain if successful and very little to lose if the business is ultimately a failure as the initial investment is affordable.

Syndicated from The PS Show (www.thepsshow.com)

Also Read: Chargebee's Krish Subramanian On SaaS and Value Metrics

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