1 Introduction
2 Literature review
2.1 Descriptive and prescriptive theories of action
2.2 Methods as prescriptive theories of action
2.3 Entrepreneurial methods
2.4 A three-tier framework for prescriptions of entrepreneurial methods
3 Developing a conceptual framework in three steps
Logic | Model | Tactics | |
---|---|---|---|
Effectuation | As future outcomes driven by human beings are largely unpredictable, instead of prediction, control should be at the core of all the activities. | Five heuristics of effectuation, Effectual cycle | Means inventory, affordable loss assessment template, effectual ask |
Discovery-driven planning | Uncertainty can be reduced by systematically converting assumptions to knowledge and redirecting activities in the face of emerging understanding. | Six areas of discovery-driven planning realized through ten steps | Reverse income statement, targeted experiments, assumptions checklists |
Prescriptive entrepreneurship | Instead of searching the entire world as search space, entrepreneurs should focus their search only on sources of possible matches with what they already know and their consideration sets. | A process model consisting of a number of steps | N/A |
Business planning | Future outcomes are largely unknown but predictable through careful examination of the trends and available historical data. | Six steps of business planning | Market research, focus groups, PEST model, SWOT analysis, 7S model, financial prognosis, nominal ranking |
The lean startup methodology | Uncertainty is reducible through employing a systematic and scientific approach to formulating working guesses about the idea and testing the validity of them. | Build-measure-learn loop, the lean startup flowchart | Targeted experiments, customer interviews, physical prototypes, concierge, A/B tests, fake door tests |
Design thinking | Adoption of a systematic approach to problem formulation and validation increases the likelihood of innovative solutions in line with the needs and wants of users. | The five steps of design thinking | Physical prototypes, user interviews, innovation flowchart, question ladder, design thinking mixtape |
3.1 Step 1: analyzing six entrepreneurial methods across three levels
3.2 Step 2: comparing six entrepreneurial methods across the levels of logic, model, and tactics
3.3 Step 3: developing a framework of nine conceptual dimensions of entrepreneurial methods
Conceptual dimension | Effectuation | Discovery-driven planning | Prescriptive entrepreneurship | Business planning | The lean startup methodology | Design thinking |
---|---|---|---|---|---|---|
Uncertainty management: Cope with and reduce uncertainty | Uncertainty (Knightian true uncertainty) is understood as unknowability of future outcomes due to the creative character of the emergent process of creating new venturesa | “Uncertainty in the structure-conduct-performance paradigm has to do primarily with ascertaining which features of the competitive landscape one should pay attention to”b | “A search can never completely eliminate all uncertainty, which leaves an entrepreneur to manage the trade-off between continuing to invest in information to reduce what is unknown and the cost of doing so”c | N/A | When entrepreneurs believe they are dealing with a highly uncertain but relatively predictable future, a process of systematic information gathering and efforts in analysis of that information, within certain bounds, is a reasonable course of actiond | N/A |
Resource management: Manage your existing resources and acquire the necessary ones | “Stakeholders commit resources in exchange for a chance to reshape the goals of the project” to influence future resultsz | “Major commitments of resources should be postponed until the evidence from the previous milestone event signals that the risk of taking the next step is justified”aa | “The impediment for entrepreneurs is that the information needed to make informed allocations of resources does not exist”ab | The existence of the available resources at the time of planning process is a nonissue. They can be acquired through external fundingg | It is important to receive feedback on assumptions before committing resources a to the productd | N/A |
Knowledge expansion: Let knowledge be the starting point and/or aim to expand available knowledge | Knowledge is formulated as what the focal entrepreneur knows. This knowledge is later complemented by other stakeholders’ knowledge. The available knowledge is an expansion of the knowledge of all the individuals who join the processe | Due to the high degree of uncertainty, entrepreneurs are forced to operate in the face of higher assumption-to-knowledge ratio. Therefore, they are in need of strategies for systematically collecting relevant knowledge. Historical and current knowledge is influential in what knowledge is perceived to be lackingb | There is a need to leverage specific knowledge and combine it with the existing general knowledge in attempts to expand the knowledge base, which increases the likelihood of arriving at a fit between ;entrepreneurs and their venture ideasf | It is possible to forecast future outcomes by crunching the existing, historical knowledge and producing comprehensive plansg | Existing knowledge, while valuable, has little actionable merits but can be improved through careful deliberation that rests in carefully collected knowledged | A crucial part of design thinking is to gain user knowledge by collecting information about users and their needsh |
Redirection power: High autonomy and ownership of process, reacting to failures and surprises | Humans are notoriously bad in predicting and forecasting. Focusing on synthesis and action allows for being more adaptive to new conditions. Therefore, as contingencies arise and new stakeholders come on board, the set of imagined, possible directions expands. This begs for certain degrees of flexibilitya | N/A* | N/A* | N/A | A viable and scalable business model can be achieved if insights gathered through experiments are used to rapidly test and revise important elements of the venture idea. Therefore, these insights are bound to give way to iterations and pivotsd | Implementing hypothesis testing and iteration loops as early as possible in the process provide a higher degree of redirection power. Continued learning and the iterations reduce risks and improve success rates in the innovation processi |
Continuous learning: Learn from feedback on own activities and processes | “The effectuator seeks to design intelligent failures that can be locally contained and contribute to his/her learning, and continually pushes forward a series of small successes that can be accumulated over time”j | Learning is achieved through a process of “systematically converting assumptions to knowledge and redirecting activities in the face of emerging understanding”k | Based on specific knowledge from prior experience combined with learning from ongoing feedback signals from previously selected channels, information channels can be effectively revisedf | N/A | The validity of each assumption is grounded in feedback received through various channels. Learning from feedback received is core to the iterative process of updating critical assumptions that define the venture ideal | “Continued learning and the iteration of hypotheses will reduce risk and improve success rates in the innovation process”m |
Iterative process: Circular and repetitive sequence of activities and procedures | Expert entrepreneurs often start with who they are, what they know, and whom they know and engage in imagining all the available paths forward. They labor to attract commitment from external stakeholders and the inclusion of them requires the revised network of stakeholders to reflect on the newly constructed “who they are, what they know, and whom they know”e | With the emergence of new information and the consequent reduced assumption-to-knowledge ratio, there is a need to reformulate the remaining assumptions, devise new ways for testing them, and gather relevant information. The process deems necessary until the assumption-to-knowledge ratio is sufficiently reducedn | The feedback loops between searching a consideration set and selecting information channels is moderated by socio-cognitive factors such as motivation, expectations, creativity, decision-making style, absorptive capacity, sense makingo | N/A | Three punctuated iterative phases of build, measure, and learn would allow entrepreneurs to embrace a fluid process where critical assumptions are being updated when new knowledge comes into lightp | “The reason for the iterative, nonlinear nature of the journey is not that design thinkers are disorganized or undisciplined but that design thinking is fundamentally an exploratory process”q |
Stakeholder interaction: Reliance on interactions with other people, inseparability of externals to the process | All the external individuals (involved in the effectual process) who commit resources can be considered entrepreneurs. Decisions, therefore, are made in a collective manner by the intertwined web of self-selected stakeholdersa | N/A | N/A | N/A | Users and customers are considered passive stakeholders whose feedback and opinions have implications for the final product offeredd | “Individuals, rather than allowing themselves to be stereotyped as ‘consumers,’ ‘customers,’ or ‘users,’ can think of themselves as active participants in the process of creation”r |
Team collaboration: Complementary individuals working in team format | The team can be understood as consisting of the focal entrepreneur and the network of stakeholders. While the focal entrepreneur can be said to be the integral member of any effectual process, his or her role is conditioned by the interactions within the network of committed stakeholderss | N/A | “By combining the individual consideration sets of diverse team members, a team could access a larger joint consideration set than could a single entrepreneur working alone … in pursuit of access to previously unknown information”t | N/A | Although “the team can support the founders, firsthand experience by definition cannot be delegated” and therefore is needed to be conducted by founders personallyu | Embracing design thinking is contingent on shifting focus from individual knowledge work to team-based collaborationv |
Value creation: Emphasis on creating value for you and/or others external | Both acquiring and expending a variety of resources in the pursuit of value creation are essential features of the effectuation process. The value is to be provided to all the active stakeholders as well as users and customersw | The methodology creates value for a company by allowing to take actions that enlarge and exploit upside gains while minimizing downside exposuren | “Entrepreneurs interpret signals as they assess their usefulness in future markets, timeliness, and potential for value creation”x | N/A | Product-market fit requires that “the venture delivers adequate value to all relevant parties: employees that will join, customers that will buy the product, partners who will provide technology, and distribution, and investors who will be able to earn adequate returns”y | Value is created through processes of empathy, integrative thinking, and experimentation for the end user and as a direct outcome of that process for the team of entrepreneursi |
4 Findings
4.1 Uncertainty management
4.2 Resource management
4.3 Knowledge expansion
4.4 Redirection power
4.5 Continuous learning
4.6 Iterative process
4.7 Stakeholder interaction
4.8 Team collaboration
4.9 Value creation
5 Discussion
Conceptual dimension | Effectuation | Discovery-driven planning | Prescriptive entrepreneurship | Business planning | The lean startup methodology | Design thinking |
---|---|---|---|---|---|---|
Uncertainty management: Cope with and reduce uncertainty | Create the future by managing the presenta | Continuously collect information to make better decisionsb | Proactively search for a consideration set that matches your prior knowledgec | N/A | Shape the future by testing the present visione | N/A |
Resource management: Manage your existing resources and acquire the necessary ones | Expand the pool of resources and creatively leverage slack through stakeholder commitmentsl | Mix existing and slack resources and define the needed resources to acquireb | Reorganize resources by drawing on signals gathered from the environmentp | Anticipate all the required resources for the execution of the plan* | Reduce wasted resources through iterative incremental processest | N/A |
Knowledge expansion: Let knowledge be the starting point and/or aim to expand available knowledge | Start the process with what you know, who you are and whom you knowf | Reduce assumption-to-knowledge ratio before making commitmentsg | Use own prior knowledge to select information channelsh | Compile own and historical knowledge into a plani | Expand your customer knowledge by formulating and testing hypothesesj | Observe what people do, how they think, what they need and want, and document insights gainedk |
Redirection power: High autonomy and ownership of process, reacting to failures and surprises | Leverage contingencies and let those who join to help shape the directionl | Systematically redirect your project as you convert assumptions into knowledgeb | Revise consideration set if signals from your environment are not foundc | N/A | Pivot if new information points to the necessity for changing the course of actione | Rely on empathy with users to identify new directions that new prototypes can offerm |
Continuous learning: Learn from feedback on own activities and processes | N/A** | Maximize learning by reducing assumptions-to-knowledge ratiog | Update your consideration set in response to learning while searchingn | N/A | Analyze the results of customer interactions and learn from theme | Learn from insights gathered through frugal prototypeso |
Iterative process: Circular and repetitive sequence of activities and procedures | Follow the iterative effectuation cyclef | Loop back the entire process by assessing and revising your reverse incomeg | Revise preferred information channels based on feedback received from themp | N/A | Follow the build-measure-learn loope | Loop back and forth as ideas are refined and new directions surfaceo |
Stakeholder interaction: Reliance on interactions with other people, inseparability of externals to the process | Search for stakeholder commitment by “asking” people to contributeq | N/A | N/A | N/A | Interact with as many people as possible who can provide feedbackj | Observe people, use insights gained to build prototypes, and test them on real usersk |
Team collaboration: Complementary individuals working in team format | Let stakeholders who make commitments join the teamr | N/A | Use a team-based consideration set to maximize access to informationc | N/A | N/A** | Involve people with interdisciplinary knowledge from the starts |
Value creation: Emphasis on creating value for you and/or others external | Transform means into something valuable to stakeholdersu | Make sure the reverse income statement points to your profit objectives* | Appropriate the value of a venture idea to create wealth for yourself* | N/A | Before committing resources, make sure your idea solves customer problemst | Make sure that your prototypes create value for userss |