Entrepreneurship and small business

management
Project
pitches

2
Entrepreneurship and small business management

Effectuation & Value

proposition
Session #4
Jan 31 – Feb 1

Lecturer: Jack Castronovo

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Opportunity
identification

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Opportunity identification

An opportunity can be a new:

 Product
 Service
 Market
 Channel of distribution
 Means of production or
supply
 Ways of organizing

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Opportunity identification

Favorable opportunities are:

 Valuable  There is a market of customers

 Rare  Novelty that doesn’t currently exist for customers

Costly to imitate  Barriers to entry to other entrepreneurs

 Fit the capabilities of the entrepreneur  Aligns with the skills
and knowledge of the entrepreneur or founding team

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Opportunity pathways

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Find pathway

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Find pathway

Find pathway: a pathway that assumes that opportunities

exist independent of entrepreneurs and are waiting to be
found.
E.g. People don’t have time to wait at Create a video mail service
the video store

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Search
pathway

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Search
pathway

Search pathway: a pathway used when entrepreneurs are not quite

sure what type of venture they want to start, so they engage in an
active search to discover new opportunities.
Talk to friends and relatives about their
careers and business! Visit their offices!

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Effectuate pathway

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Effectuate pathway

Effectuate pathway: a pathway that involves using what you have

(skills, knowledge, abilities) to uncover an opportunity that uniquely
fits you. It is CREATING opportunities rather than uncovering /
finding them.
After about 20 years of cooking at
his own restaurant and becoming
locally known for his talents….

Harlan
Sanders
founds KFC.

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Design
pathway

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Design
pathway
Design pathway: a pathway that can uncover high-value
opportunities because the entrepreneur is focusing on unmet needs
of customers, specifically latent needs (i.e. potential customers
don’t even know they need the product or service). Most difficult
pathway because it take practice and imagination.

Sara Blakely creates Spanx

after thinking there must be
other women seeking a new
type of hosiery.

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The 4 pathways classification

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Alertness, prior knowledge and pattern recognition

 Alertness: the ability some people have to identify opportunities.

 Prior knowledge: the information gained from a combination of life

and work experience.

 Pattern recognition: the process of identifying links or

connections between apparently unrelated things or events.

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Effectuation

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Effectuation

Most companies take a modest approach:

 They start small

 They start with one idea, transform that idea, and take off with
another
 They often take a long time to get off the ground
 They lack institutional funding

Business creation is an “emerging” process

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Effectuation

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Effectuation

Principles of Effectuation

Decision-making process in which entrepreneurs and investors assume

that the project cannot be planned exactly from the outset.

Opportunities are created and problems are solved by using resources

and skills available to the entrepreneur rather than trying to predict and
plan the future.

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Effectuation

Principles of
Effectuation

 Bird-in-hand
 Affordable Loss
 Crazy Quilt
 Lemonade
 Pilot-in-the-Plane

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• Effectuation

• Bird in hand

• Start with the resources you already have at your disposal rather
than seeking external resources.

1. Who am I/ What is my passion? What are my skills?

2. What do I know? What’s my knowledge? Experience?
3. WHO do I know? Who might be interested in my vision? Who can
help me succeed?

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Effectuation

Bird in Hand Example

• 19th century German soldier and
surgeon stationed in Venezuela.
• Experimented with local
ingredients to cure soldiers with
stomach ailments.
• Learned about traditional
remedies from the AmerIndians
• Once its effectiveness is proven
in the military, he founds his own
distillery

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Effectuation

Affordable loss

 Traditionally, new businesses focused on a projected ROI

 The new model is “Calculated Risk": focus on what you are willing to
lose rather than what you hope to gain.
 Evaluate acceptable risks and potential losses before making
decisions.
 Allows the entrepreneur to focus on low failure cost startups that may
generate more options later.
 Forces the entrepreneur to acknowledge that it is difficult to place a
value on new ventures
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Effectuation

Affordable loss -
Examples

Jim Dyson’s wife worked

while he designed over
5,000 prototypes for his
first cyclone vacuum. That
he wasn’t earning an
income, and the money he
spent on the prototypes,
was an “affordable loss”
for the couple.
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Effectuation

Crazy quilt
 Partnerships and collaboration with others
rather than competition: use of existing
networks and relationships to create new
opportunities.
 Relationships are based on trust.
 Limits risk
 “Quilt" because the project is built
by bringing together several
stakeholders.
 “Crazy" because the entrepreneur doesn't
know who will take part in the project.

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Effectuation

Crazy quilt - Example

 Formed in 2016 for the space jump.

 Seemingly natural partnership as the
mission of both companies is “to inspire the
world to live a bigger life”
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Effectuation

Lemonade

 « When life gives you lemons, make lemonade »: be

opportunistic, adapt to circumstances.
 Adapt and seize opportunities that arise along the
entrepreneurial journey.
 Ability to bounce back from the unpredictable, and turn an
unexpected event into an opportunity.

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Effectuation

Lemonade -
Examples
The wrong dimensions were sent to the
printers for the first production of Angostura
Business, so the label was too large for the
bottle.

The company decided to keep printing it

that way, and almost 200 years later, it has
become part of the brand image

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Effectuation

Pilot in the plane

 Assumption: the future cannot be predicted, so there's no point

in trying to adapt to it.
 Instead, the entrepreneur creates proactively: it's his or her
creative action that forms the basis of the project.
 Your business should reflect your own vision and passion. Your
identity, skills, and personal aspirations are key factors in the
decision-making process.

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Effectuation

Pilot in the plane Example

“People don't know Ipad introduced 2010
Apple Newton 1993 - 1998
what they want until
you show it to them.
That's why I never
rely on market
research. Our task is
to read things that
are not yet on the
page.”

- Steve Jobs

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Effectuation

Effectuation underlying idea

Action rather than thinking:

 You’ll never have enough data to be certain.
 Working on a problem reduces the fear of it: action relieves
anxiety.

“Doubt can only be removed by action.” - Johann Wolfgang von

Goethe

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Effectuation
map

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Effectuation
map

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Effectuation map – Step 1: assess your existing
means

Source: J. van
Saders

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Effectuation map – Step 2: prioritize business needs and
goals

• These are YOUR

needs and goals.
• Do you need to feel
self-actualized?
• What do you hope
to accomplish?

Source: J. van
Saders

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Effectuation map – Step 3: brainstorm addressable market
segments

• Demographic? Who
do you want to
help?
• What job is your
demographic trying
to do?
• What is its
obstacle?

Source: J. van
Saders

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Effectuation map – Step 4: complete the
map
• What’s your
GENERAL
strategy?

Source: J. van
Saders

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Effectuation map – Step 4: complete the
map

How much time and money are you able to lose?

Different from Network, these are people who can

actually help you with money, labor, or connections.

Source: J. van
Saders

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Case study – Stacy’s Pita
Chips

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Case study – Stacy’s Pita Chips

 2 founders: Stacy Madison and Mark Andrus

“One of the things that Mark and I were really good at was not being
so locked in to a straight path that we were able to see when other
opportunities came along.”

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Case study – Stacy’s Pita Chips

 Origin of the story: Stacy and Mark

• Degrees in Social Work and Psychology, but passion was cooking.

• Stacy goes to Honolulu for a restaurant launch.
• Successful, but fired.
• Returns home to start small meal preparation business in their
condo.
• Closed by Board of Health
• However, these experiences convinced her she wanted to be her
own boss in the food industry.

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Case study – Stacy’s Pita
Chips

First Cart in Boston

Prepares food at Licensed Caterer

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Case study – Stacy’s Pita Chips

 Origin of the story

• Mark and Stacy think about how to start their own food business.
• Limited funds and carrying student debt
• Opt for a low-cost entry: a used food cart selling hot dogs, sausages,
and chili.
• Menu doesn’t align with personal values for healthy food, but it allowed
them to build some working capital.

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Case study – Stacy’s Pita Chips

• Aware of food trends that typically migrated from the West Coast to
the East Coast
• Started moving toward healthier pita sandwiches
• Refurbish cart and rebranded Stacy’s D’Lites,
• Differentiation included wrapping the sandwiches in white paper.
Open at the top, customers could walk and eat- prompting passing
people to remark the sandwich looked good and ask where it came
from.

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Case study – Stacy’s Pita Chips

• Long lines of impatient people.

• Needed to retain them.
• Didn’t want to use coupons.
• However, they always ordered extra pita so they knew they would
have enough
• Turned the unsold pita into chips
• Gave the chips away for free to people waiting in line
• Customers liked them so much, they wanted to buy them.

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Case study – Stacy’s Pita Chips

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Case study – Stacy’s Pita Chips

 Getting out of the cold

Running a food cart in the Northeast is difficult in winter. This and the
need to grow the business lead Mark and Stacy to consider new goals
based on what they had accomplished so far.

They decided to pivot to selling only pita chips through retail

channels. Their venture was renamed Stacy’s Pita Chips.

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Case study – Stacy’s Pita
Chips

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Case study – Stacy’s Pita Chips

 Fast forward

Mark and Stacy had found their business model with the pivot to retail
sales of pita chips. Their journey now focused on executing and
growing this business model. In terms of the Customer Development
process, they had moved from the “Search” phase to “Execution”.

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Case study – Stacy’s Pita
Chips
SEARCH EXECUTE
Effectual Causal
thinking thinking

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Recap of key
points
Causatio Effectuation
n
Classic More recent
approach approach
1. Idea 1. Entrepreneurial desire
2.Viability and and resources at disposal
profitability check: market 2. Bet on risk
research & business 3. Join forces with
model strategic partners
3. Fundraising 4. Refine projects as
4. Launch events unfold
5. Step by step plan
follow-up 53
Recap of key
points

Causal approach
Vision Resource Pla
s n

Effectual
approach
Resource Vision Pla
s n

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Recap of key points
Causal logic
Start with Desired effects (goals)
Decision Find the means necessary
making to achieve defined goals
Nature Focus on predictable aspects
of of an uncertain future
unknown
Posture Given that we can predict
the future, we can control it
Effectual logic
Available causes (means)
Imagine possible goals based
on available resources
Focus on controllable aspects
of an unpredictable future
Given that we control the
future, we don't need to predict
it
Source: Philippe
Silberzahn
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Recap of key points

Causal logic Effectual logic

Logic Optimization (as few means Creativity (imagining
as possible to achieve the unpredictable
goal) goals)
Result A share of an existing market A new market co-created
obtained through a with committed stakeholders
competitive strategy
Relevance Stable and known environments Uncertain environments

Source: Philippe
Silberzahn
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Value
proposition

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Value proposition Canvas

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Value proposition Canvas

 Customer jobs: list the functional,

emotional, social jobs your
customers need to have done.

 Pains: identify blockages and

problems your customers may
face trying to get the jobs done.

 Gains: Describe the positive

outcomes the customer expects
when the job is getting done.

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Value proposition Canvas

 Customer jobs:
 Functional: customers looking to solve a
specific problem. (e.g., seamlessly switch
audio on my desktop computer)
 Social Jobs: customers want to increase
their prestige / presence. (e.g., be known
as an Apple person)
 Personal / Emotional Jobs: customers
looking for a feeling. (e.g., security)
 Supporting Jobs: customers need help to
accomplish a task (e.g., a site devoted to
sunglasses reviews)

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Value proposition Canvas

 Customer Pains: customer

obstacles before, during, and after
 the job outcome: Solution doesn’t
Undesired
work or not fun /hassle.
 Obstacles: prevent customer from
completing the job. (e.g.,
unaffordable, so customer can’t
buy / use it.)
 Obstacles: prevent customer from
completing the job. (e.g.,
unaffordable, so customer can’t
buy / use it.)

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Value proposition Canvas

 Customer Gains:
 Required: your solution must solve the problem.

 Expected: the least amount of benefits / features the customer expects. (e.g.,
a gps that plots the shortest route and routes without tolls
 Desired Gains: benefits customers want and can think of themselves. (e.g., a
gps that plans routes to avoid high-crime areas)

 Unexpected Gains: benefits the customer would not imagine. (a gps that
automatically detects shopping / sites you would like that are nearby and
vocally tells you how far they are away and if they’re open)

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Value proposition Canvas
 Avoiding Errors

 Different demographics require different VPCs. Do not mix them.

 Do not mix jobs and outcomes. These are separate points!

 Do not focus only on the functional jobs. Social, Emotional, and Supporting are
just as important!

 Do not focus on the solution you want to offer. Go in with an open mind.

 Do not ignore the gains and pains!

 BE AS DETAILED AS POSSIBLE
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Value proposition Canvas

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Value proposition Canvas

 Product and services: name

products and services your value
proposition offers to get the jobs
done.
 Pain relievers: describe how your
products and services can minimize
or reduce the mentioned pains
 Gain creators: outline in which way
your products and services create
the gains.

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Value proposition Canvas

Updat
e
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 Example – Uber
Customer segment:
passengers

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Value proposition Canvas – Uber – Passengers segment

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Value proposition Canvas – Uber – Passengers segment

Gain
Gain
creators
Navigate your trip on the s
Track your
map
Automatic credit card cab
One-click
payment
Ability to manage all trip order/cancelation
Zero-time on
details
payment
on a single platform Trusted
Rating Customer
driver
Products and system jobs
services Contact a good taxi
Passenger mobile service
app Control cost for the
Black ride
Wait for the cab for
cab Pain
Uber unknown amount of
s time
X Low cab
Uber Pain Pay for the
availability trip
Pop relievers Need to book a cab in
Arrival/travel time
advance
prediction Bad drivers
Flawless automatic
happen
payment Issues with payment for the taxi
Driver
service (cash or card)
ratings
24/7/365 availability of
cabs

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Assignment – Value proposition

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Assignment – Value proposition

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