Effectuation

Effectuation is a theory of entrepreneurial decision making developed by Saras D. Sarasvathy that explains how expert entrepreneurs approach uncertainty. It contrasts effectual reasoning with causal reasoning, which assumes uncertainty can be reduced through prediction and planning. Effectuation emphasizes starting from the entrepreneur’s means—who they are, what they know, and whom they know—and co-creating opportunities with stakeholders rather than following a pre-determined goal.

The core idea is that the future is not discovered but made through action. Instead of predicting markets, effectual entrepreneurs create choices by leveraging affordable losses, forming partnerships, and exploiting contingencies.

The five principles commonly associated with effectuation are: Bird in Hand, which urges action based on available means rather than market opportunities; Affordable Loss, which limits risk to what the entrepreneur can bear; Crazy-Quilt, which emphasizes forming partnerships with nontraditional allies to co-create ventures; Leverage Contingencies, which reframes surprises as opportunities; and Pilot-in-the-Plane, which centers on controllable aspects and the belief that people can influence outcomes.

In research, effectuation has been applied to new venture creation, startup accelerators, and entrepreneurship education. It generates testable hypotheses about how seasoned entrepreneurs navigate uncertainty and how novices can learn from experienced practice. Limitations include debates about generalizability, measurement challenges, and whether effectuation explains all entrepreneurial activity or mainly high-uncertainty contexts.

Overall, effectuation remains a prominent framework for understanding entrepreneurial judgment under ambiguity, complementing traditional causal models and contributing to debates on how people innovate and grow ventures with limited resources.