AN ARTICLE BY SOPHIA BRAUN
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The unknowable
Uncertainty – to me it seems like the topic of my dissertation is currently discussed everywhere: in the media, in video calls with friends and family and in little corona notes that are now decorating hallways, restaurant doors and supermarket shelves.
Let us firstly quickly unpack what uncertainty means. It is for example described as “the lack of confidence about one’s knowledge”[i], “a lack of knowledge, and, therefore, an inability to predict”[ii] or simply as “the unknowable”[iii]. It is different from situations of risk, in which we can approximate how likely it is that something happens. In situations of uncertainty we can’t, because we neither know what might happen nor how probable it is. Or to speak in more nerdy terms: uncertainty is a state under which “each action that may be chosen is identified with a distribution of potential outcomes, not with a unique outcome [while the] distributions of potential outcome are overlapping”[iv].
How entrepreneurs make decisions under uncertainty
Most of us have a built-in dislike or at least skepticism in the light of uncertain situations. Entrepreneurs, however, seem to make different use of uncertainty or even actively look for it in order to create something. Since most ventures fail, entrepreneurship research is very interested in expert entrepreneurs.[v] They employ a special decision-making logic that that Saras D. Sarasvathy coined effectuation.[vi] It is flexible, collaborative, adaptive over time and responsive to change and instability. Unlike classical management, it is not focused on planning and predicting future events. Rather, it looks at what is controllable right now in order to shape an unpredictable future. Effectuation is based on 4 core principles:
Bird-in-hand
How do you decide if or how to do something? Effectuators start with what they have and what they are good at. Then, they work on creating potential outcomes with these means. They do not plan a fancy meal and then try to acquire all the skills and ingredients necessary to make it. First, they open the fridge and make a dish with what is there. These entrepreneurs focus on what they can get their hands on now, and go from there. In a world of ongoing unpredictable news due to the new coronavirus and COVID-19, the disease resulting from it, try not to hold on to a specific goal in the future that is outside of your control. Remind yourself of what you have right now and use it as your starting point.
Leveraging contingencies
How do you react when something unexpected happens? Do you see it as an interruption to your strategy and avoid it, or do you see it as a surprise that you incorporate in your journey? Effectuation is feedback-seeking and feedback-incorporating. It thus holds the potential to leverage unexpected events. Expert entrepreneurs are ready to deal with what comes their way and are open to learning how to transform positive and negative surprises into useful ideas. If you feel isolated at home these days, can you reach out to and support your local community in a way that you were not able to before?
Crazy quilt
What is your attitude towards other people right now? All things physical distancing considered – do you see them as competitors at the pasta or toilet paper shelf or as potential allies? Effectuation inspires us to be open to involving other people in our challenges and ideas, allow them to contribute what they have and can do and have them shape the goals of the project. Like patchwork makers, effectuators collect commitments of whoever wants to join an undertaking without a clear plan in mind where it might lead. In this way, they create a “crazy quilt” of partnerships. At the end of the day, we are all in this COVID-19 world together and many of us will experience the same problems. Why not figure them out together online?
Affordable loss
What can you afford to lose? Maybe surprisingly to some, expert entrepreneurs choose what they do based on what each individual can cope with if things do not turn out well, and do not initially try to maximize potential future returns. They usually manage to mobilize resources in the local environment (e.g. friends and family) or repurpose money that they had saved for something else, but since their endeavor and/or the times are uncertain, they keep their investments flexible and prefer small steps. The corona crisis might not be the right time to start a business that requires large upfront investments or buy a campervan that you cannot pay for yet. If you feel called to reimagine the world we live in now, have visionary ideas but bootstrap your investments.
Let’s effectuate together
Summing up, entrepreneurs actively engage in uncertainty by being open and receptive to information and feedback. They use what they have as well as whom they know and accept that everything may change over time. They focus on what they can control in the light of an unpredictable future. Moreover, in uncertain times, entrepreneurs widen the strategic scope of their activities, are more open to experimentation and use effectuation more often.[vii]
For us, who are handling this collective uncertainty due to corona, effectuation is an invitation. We are asked to widen our stance and try new things without overspending, team up, engage whatever comes our way and indeed to focus on our core. Together we will become skillful sailors who surely make it to the other side of this.
Did these thoughts resonate with you? How can we help you? Let me know your concerns and me and my team will see what we can do. I would love to hear from you!
References
[i] Lawrence R. Jauch and Kenneth L. Kraft, “Strategic Management of Uncertainty,” The Academy of Management Review 11, no. 4 (October 1986): 777, https://doi.org/10.2307/258396.
[ii] Isabelle M.M.J. Reymen et al., “Understanding Dynamics of Strategic Decision Making in Venture Creation: A Process Study of Effectuation and Causation: Understanding Dynamics of Strategic Decision Making,” Strategic Entrepreneurship Journal 9, no. 4 (December 2015): 351–79, https://doi.org/10.1002/sej.1201.
[iii] Robert Wiltbank et al., “What to Do next? The Case for Non-Predictive Strategy,” Strategic Management Journal 27, no. 10 (October 2006): 981–98, https://doi.org/10.1002/smj.555.
[iv] Armen A. Alchian, “Uncertainty, Evolution, and Economic Theory,” Journal of Political Economy 58, no. 3 (1950): 211–21.
[v] Nicholas Dew et al., “Effectual versus Predictive Logics in Entrepreneurial Decision-Making: Differences between Experts and Novices,” Journal of Business Venturing 24, no. 4 (July 2009): 287–309, https://doi.org/10.1016/j.jbusvent.2008.02.002.
[vi] Saras D. Sarasvathy, “Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency,” Academy of Management Review 26, no. 2 (April 2001): 243–63, https://doi.org/10.5465/amr.2001.4378020.
[vii] Reymen et al., “Understanding Dynamics of Strategic Decision Making in Venture Creation.”