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A business incubator connotes a group which is informally or formally organized with the aim of providing entrepreneurial ventures with the resources regarded as critical in their journey. The facilities target to inspire sharing of different ideas and knowledge among the incubated firms and offer network services (Høvig, Pettersen and Aarstad, 2017). Following the increasing interest in entrepreneurship, novel hypothetical perspectives are emerging to help elucidate the changing entrepreneurial behavior. Entrepreneurs rely on various logics of decision-making through the internationalization of their projects, including effectual and causal reasoning (Laine and Galkina, 2017). This paper highlights the differences between the traditional causal and effectual understanding of entrepreneurship and discusses the principles of effectuation. The study involves a review of relevant secondary literature to underscore the aforementioned themes.
Differences between Causation and Effectuation
In contrast to the causal logic, which is goal-oriented, the effectual logic is means-oriented. Even when inhibited by inadequate means, goals are said to define sub-goals, actions, as well as the person who should be brought on-board in traditional thinking. In the effectual logic, aims are brought about by visualizing the course of action grounded on the available means. According to Bourry, Motta and Teixeira (2019), effectuation has aided in assessing peoples understanding in the way industrialists think about and address economic opportunities. The causal logic starts with just a single but clear goal, and the entrepreneur gathers and deploys the necessary resources with the focus of achieving the objective. Conversely, effectual logic begins with the currently controlled resources rather than a goal in mind (Hauser, Eggers and Güldenberg, 2020). The entrepreneurs depend on what they have at hand and try to generate a number of future successful outcomes.
The causal logic is predictive in that it frames the future to be a continuance of the past; hence, the correct prediction is useful and necessary. The future is framed as shaped by effectual logic, and forecasting is not needed (Shirokova et al., 2020). In comparison with traditional thinking, effectuation does not involve finding new contacts, ideas, or markets only. Instead, different members who are picked from a certain network help entrepreneurs to succeed through this process (Reymen et al., 2017). Novel solutions and means are brought by stakeholders into the firm; thus, while the aim of bricoleurs is not to influence the future, effectuators main focus is on the elements of controllable future facets. Essentially, the emphasis on causal logic is basically on the visible topographies of an uncertain future.
Principles of Effectuation
Bird in Hand Principle
The principle holds that when expert entrepreneurs set out to form a new venture, they should start with the means. To be able to assess all the means, one needs to understand who they are, what they have, as well as who and what they know (Zhang and Burg, 2019). Possibilities originating from the means are then imagined and linked to the present mission and strategy to increase the odds of the ability to move to the next phase (Guili and Ferhane, 2018). The principle is important because, with a high degree of uncertainty, one can start utilizing the available resources rather than spending a lot of time strategizing.
Affordable Loss Principle
The principle argues that people cannot predict the future since the world they live in changes sooner than they learn. It addresses the cost, break-even point, the return on investment, revenue expectation, and the EBIT (Zhang and Burg, 2019). Admitting that no one can predict what will happen in the future enables entrepreneurs to shift from linear philosophies to validated learning. The importance is that effectuation teaches entrepreneurs how to deal with perceived risks since small investments give individuals a chance of gaining insight by progressing in a way that they can afford.
Crazy Quilt Principle
The principle symbolizes a relationship between partners, and each party is epitomized by an exceptional piece of cloth. The pieces are said to be sewed into a quilt using a special thread, which represents the pre-commitment they offer to one another (Zhang and Burg, 2019). An entrepreneur who decides to look for a quilting partner in their network is likely to get launching customers and partners who will subsidize means of limiting investments. The experience will also be offered by such a partner with facets that will enable the next step to become less uncertain and unpredictable. The importance is that it presents an approach for further improvement and building of value propositions while also preventing the downside of the involved risk.
Lemonade Principle
This is the principle of leverage contingencies, meaning that in a changing and unfamiliar market, one should learn faster than their competitors. Progressing under uncertainty, both positive and negative surprises are bound to be encountered. The undesirable shocks are likely to push one to end their project, but the idea here is that any lemon which moves one to the end should be sliced and juiced (Palmié et al., 2019). Rather than abandoning the ship, one should learn how to change the course. Failure becomes true when one stops moving forward and relaxes instead of finding ways to improve. The importance is that failure should be viewed as an experiment which offers learning opportunities.
Pilot in the Plane Principle
The principle holds that entrepreneurs should not predict but rather co-create, meaning that one must avoid doing the same actions over and over to achieve desirable outcomes. No one will succeed by applying the traditional thinking of entrepreneurship in circumstances where the future cannot be predicted. Since the world is changing, effectuators can only keep pace with the alterations if they adjust their mind-sets and approach to situations (Yrjönkoski and Suominen, 2018). The effectuators are the pilots in a plane, and they have to change the customers in a corporate plane by co-creating the future and being in charge. The importance is that entrepreneurs are encouraged to take responsibility and be the change that they want to see in others.
Conclusion
Effectual logic has been developed to show the way entrepreneurs make decisions theatrically distinct from typical managers of enterprises. Effectuation decision-making is used dominantly to help in generating a feasible value proposition for an explicit customer segment. When there is a shortage of resources, causal logic is substituted by an upsurge in effectual decision-making. Thus, before investing important resources, it is critical for firms to decrease market and technological uncertainty via effective strategies to evade re-configuration costs in the future. The major reflection is that the future is always unpredictable, and change is inevitable. Therefore, entrepreneurs should understand that to succeed, they must take actions and focus on activities which are within their control.
References
Bourry, D.S., Motta, E.C. and Teixeira, A.C.C. (2019) Effectuation logic: a systemized literature review on entrepreneurs decision making from 2001-2016, Journal of Entrepreneurship and Innovation, 4(1), pp. 64-80.
Guili, H.E. and Ferhane, D. (2018) Internationalization of SMEs and effectuation: the way back and forward, Multidisciplinary Digital Publishing Institute Proceedings, 2(24), pp. 1-4.
Hauser, A., Eggers, F. and Güldenberg, S. (2020) Strategic decision-making in SMEs: effectuation, causation, and the absence of strategy, Small Business Economics, 54(3), pp. 775-790.
Høvig, Ø., Pettersen, I.B. and Aarstad, J. (2017) Entrepreneurial causation vs. effectuation in a business incubation context: implications for recruiting policy and management, Entrepreneurship Research Journal, 8(1), pp. 1-11. Web.
Laine, I. and Galkina, T. (2017) The interplay of effectuation and causation in decision making: Russian SMEs under institutional uncertainty, International Entrepreneurship and Management Journal, 13(3), pp. 905-941.
Palmié, M. et al. (2019) Some principles are more equal than others: promotionversus preventionfocused effectuation principles and their disparate relationships with entrepreneurial orientation, Strategic Entrepreneurship Journal, 13(1), pp. 93-117.
Reymen, I. et al. (2017) Decision making for business model development: a process study of effectuation and causation in new technologybased ventures, R&D Management, 47(4), pp. 595-606.
Shirokova, G. et al. (2020) Navigating the emerging market context: performance implications of effectuation and causation for small and medium enterprises during adverse economic conditions in Russia, Strategic Entrepreneurship Journal, 14(3), pp. 470-500.
Yrjönkoski, K. and Suominen, A. (2018) Effectuation as a frame for networking decisions: the case of a Finnish information technology start-up, Proceedings of International Workshop on Software-Intensive Business: Start-ups, Ecosystems and Platforms, 2035, pp. 230-244.
Zhang, S.X. and Burg, V.E. (2019) Advancing entrepreneurship as a design science: developing additional design principles for effectuation, Small Business Economics, 55, pp. 607-626.
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