Less than half of new businesses survive beyond three years, and many entrepreneurs, after launching their business project, end up exhausted, in debt, and with a feeling of failure.
Why? Among other reasons, because entrepreneurs have traditionally been taught to think managerially, based on a causal logic. Thus, they are encouraged to define objectives and to determine and seek the necessary resources to achieve them, assuming that with these resources, they will succeed. This approach is very rigid and is based on the false hypothesis that the future can be predicted.
Saras Sarasvathy, a professor at the Darden School of Business, studied the behavior of successful entrepreneurs and discovered a common behavioral pattern: all of them defined their objectives based on the resources they had available, reacting to the future as it unfolded, in an agile and flexible way, to keep moving forward.
Sarasvathy formalized this behavior through
the theory of effectuation, which she developed into the five principles presented below.
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Bird-in-Hand Principle: a bird in the hand is worth two in the bush
A good entrepreneur establishes the objectives and strategy of their business based on the means they possess: who they are (personality, skills, passions), what they know (knowledge, experience), and who they know (social and professional networks). It is from the combination of these means that the entrepreneur imagines possibilities and undertakes small actions, starting little by little and without overly structured planning, quickly evaluating the results and starting anew.
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Affordable Loss Principle: imprudence precedes calamity
A good entrepreneur thinks about what they are willing to lose instead of what they expect to gain. They define the affordable loss in advance, in terms of money, time, or effort, recognizing that the outcome of entrepreneurship is uncertain and difficult to assess beforehand, while the investment to be made is quantifiable and controllable. Thus, they select opportunities based on the required investment and the capacity to generate new opportunities.
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Crazy Quilt Principle: if you don’t have enough fabric, use scraps
A good entrepreneur focuses their efforts on building alliances instead of fighting competitors. They present their proposal to their immediate environment, interacting with different actors (potential clients, suppliers, competitors, etc.), receiving their feedback, enabling initial sales, and involving them in the initiative, establishing different mechanisms of co-creation and cooperation (investment, production, distribution, etc.).
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Lemonade Principle: if life gives you lemons, make lemonade
A good entrepreneur has the ability to turn the unexpected into something profitable. Faced with a surprise, a setback, or a threat, they learn, identify an opportunity, and seize it, instead of developing costly contingency plans to deal with risks that are entirely uncertain.
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Pilot-in-the-Plane Principle: in case of breakdown, the pilot makes the decisions
A good entrepreneur knows that the future cannot be predicted, but they also know that many factors determining it are controllable or influenceable, and they focus their efforts on these. They are aware of their responsibility, build their own path, make their own decisions, and exercise control, instead of being conditioned by what others might do.
The joint and systematic application of these five principles substantially improves the survival rate of new businesses and multiplies their growth possibilities.
In a sense, effectuation is what we call
entrepreneurship with common sense in Catalan.
