Lectures Business Development
Lecture 1 – 03-09-2020
Nanne Migchels
Effectuation and causation
Frank Knight (1885-1972)
Risky situation: relatively measurable
uncertain situation/a certain level of
predictability.
Uncertain situation: situation with
Knightian uncertainty. Non measurable
uncertainty, future cannot be
predicted.
,Effectuation: five principles
1. Start with your means
2. Focus on the downside risk
3. Form partnerships
4. Leverage contingencies
5. Control instead of predict
These 5 principles will be discussed below:
o Start with your means:
Three categories of means:
o Who you are: your own traits and tastes
o What you know: your knowledge and capabilities
o Whom you know: your social network
E.g. because I know person A, I can achieve X, and therefore I will undertake Y.
Quote expert entrepreneur on what to do in situation X: ‘I think that what I would do is go to some
people that I know today, people that are in this business, and talk to them’’.
,o Focus on the downside risk (affordable loss)
Embrace failure: it is part of the process
o Pursue interesting opportunities without investing more resources than you can reasonably
afford to lose
o Set a limit on the downside potential
Focus on creating options that can create more options in the future over those that maximize returns
(large all-or-nothing opportunities)
Representative quote: ‘I’ll start cheap, make sure I will cover my costs and don’t have any to take huge
risks. One thing I am sure about based on my experience: never take any risk if you can help it. It is just
the opposite of what most people think about entrepreneurs.
1. Form partnerships (patchwork quilt principle)
Easiest way to gain knowledge,
resources, etc. Most
entrepreneurs are very hesitant
about reaching out to the market
or other ventures, but you have to
talk to people and learn from
them.
, 2. Leverage contingencies (lemonade principle)
Lecture 1 – 03-09-2020
Nanne Migchels
Effectuation and causation
Frank Knight (1885-1972)
Risky situation: relatively measurable
uncertain situation/a certain level of
predictability.
Uncertain situation: situation with
Knightian uncertainty. Non measurable
uncertainty, future cannot be
predicted.
,Effectuation: five principles
1. Start with your means
2. Focus on the downside risk
3. Form partnerships
4. Leverage contingencies
5. Control instead of predict
These 5 principles will be discussed below:
o Start with your means:
Three categories of means:
o Who you are: your own traits and tastes
o What you know: your knowledge and capabilities
o Whom you know: your social network
E.g. because I know person A, I can achieve X, and therefore I will undertake Y.
Quote expert entrepreneur on what to do in situation X: ‘I think that what I would do is go to some
people that I know today, people that are in this business, and talk to them’’.
,o Focus on the downside risk (affordable loss)
Embrace failure: it is part of the process
o Pursue interesting opportunities without investing more resources than you can reasonably
afford to lose
o Set a limit on the downside potential
Focus on creating options that can create more options in the future over those that maximize returns
(large all-or-nothing opportunities)
Representative quote: ‘I’ll start cheap, make sure I will cover my costs and don’t have any to take huge
risks. One thing I am sure about based on my experience: never take any risk if you can help it. It is just
the opposite of what most people think about entrepreneurs.
1. Form partnerships (patchwork quilt principle)
Easiest way to gain knowledge,
resources, etc. Most
entrepreneurs are very hesitant
about reaching out to the market
or other ventures, but you have to
talk to people and learn from
them.
, 2. Leverage contingencies (lemonade principle)
