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Are the principles of effectuation applicable for novice entrepreneurs during the creation of a new venture? A real-life action research experiment

Lamers, Wouter (2013) Are the principles of effectuation applicable for novice entrepreneurs during the creation of a new venture? A real-life action research experiment.

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Abstract:This study answers to calls for research that focuses on effectuation concerning novice entrepreneurs and for real-time process studies of effectuation. Since the theory of effectuation arose out of the study of expert entrepreneurs, who are by definition, not representative of the population of entrepreneurs as a whole, which also includes novice entrepreneurs (MBA students), I was triggered to study to what extent novice entrepreneurs can apply the theory of effectuation in practice. Besides, current empirical research in the field of the effectuation theory is of retrospective nature and therefore it is assumed that this is subject to recall bias. To that end, I have decided to focus on a longitudinal real-life study of effectuation in order to study the applicability of the principles of effectuation for novice entrepreneurs. Action research is used as method to study the new venture creation process of two novice entrepreneurs. During seven months, two researcher-entrepreneurs deliberately applied a variety of effectuation heuristics and reported their findings in personal diaries. The main results suggest interesting insights into effectuation theory. Looking at the bird-in-hand principle, entrepreneurs with a limited pool of resources at the start does not have to be problematic since it is easy to get access to the means of others in their network. The affordable loss principle is not always working, because in some situations courses of action require more than the entrepreneur has at hand or can afford to lose. Regarding to the crazy quilt principle, various degrees of effectual stakeholder commitments are found; (a) commitment of relatively inexpensive or inexhaustible resources, (b) short-term transactional commitment and (c) longer-term effectual partnership. Moreover, I suggest a need for two candidate effectuation principles: (1) a ‘transparency’ principle because being totally open and transparent about ideas and possible courses of action is necessary to convince stakeholders about the opportunities of the possible courses of action. Moreover, being and talking openly increases the chance to come across slack resources, self-selected stakeholders,contingencies and possible courses of action. (2) A ‘versatility’ principle since it is not always possible to experiment with courses of action, it may be necessary to choose for flexibility in the courses of action. This is also a response to the restricted (financial) resources novice entrepreneurs might face during their venture creation process. Overall, I conclude that novice entrepreneurs can use effectuation as method, but only with some modifications of the effectuation principles. For example, novice entrepreneurs might need some additional interactions with potential stakeholders in order to obtain expert knowledge, advice and experience for overcoming their lack of experience. Moreover, novice entrepreneurs need to be more open about their ideas and goals than expert entrepreneurs since stakeholders value a well-underpinned, supported, and enthusiastic story of novice entrepreneurs in order to be convinced about their venture ideas. Based on this study of novice entrepreneurs, I suggest that the effectual principles are applicable in practice, and in turn suitable as contribution to the entrepreneurship program at universities, since entrepreneurship education is often seen as a vital determinant of the enhancement and development of economical activities in a country. Future research should further investigate this assumption.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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