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The Role of LinkedIn in Effectuation Processes

Written by Diana Pratiwi, Rawan Mohamed

Paper category

Master Thesis


Business Administration>Communication & Media




Master Thesis: Effect The effect was first proposed by Sarasvathy (2001a, p. 245), who pointed out that "the effect process uses a set of given means and focuses on choosing between the possible effects that can be created using the set of means". The effect is in contrast to the well-known causal process, which Sarasvathy (2001a, p. 245) describes as "the causal process treats a particular effect as a given effect and focuses on choosing between the means to create that effect." She believes that entrepreneurs use an implementation process in the process of creating a new company. Entrepreneurs often work under conditions of high uncertainty, limited information, unpredictable futures, and lack of companies, markets, or industries, which makes planning even more problematic. Therefore, entrepreneurs usually start with a universal desire, without considering pre-existing goals. Sarasvathy (2001a) also mentioned that execution is based on control logic. Those who use the execution process will not try to predict the future, but use what they have, assess emergencies, and use them to control the unpredictable future. Drawing inspiration from the thought experiment in Sarasvathy's (2001a) article, we use an example here to illustrate the implementation process. Let us imagine a woman who likes to make soap and hopes to earn income from it, and her financial resources are very limited. Using the execution process, she will first evaluate her available means. She can first provide soap to her closest friends, and then start promoting it through her social media, and then she will create an online business. Maybe after a while, people started asking her how to make her own homemade soap, and then she realized that she could start a blog or a YouTube channel to talk about this particular topic, which might lead to the creation of a corporate homemade making workshop Soap. Or maybe she realizes that most of her clients have allergies, they buy her product because of its natural ingredients, and she happens to have a doctor friend. This will enable her to shift the business model to that niche market. The execution process allows entrepreneurs to deal with the results of their entrepreneurial journey very flexibly, which is often very different from their initial imagination. We further explain the five principles of the effect process in the available effect literature (Dew, Sarasathy, Read, and Wiltbank, 2009; Perry, Chandler, and Markova, 2012; Sarasvathy 2001a, 2008). The bird-in-hand principle The bird-in-hand principle is a means-driven principle of action. It is defined as starting from the available means-who I am, what I know, who I know-and focusing on the effects that can be created with these given means, rather than defining a specific goal from the beginning (Sarasvathy , 2001a). The Affordable Loss Principle Dew and colleagues (2009) believe that the concept of affordable loss is based on behavioral economics theory that represents entrepreneurial psychology and cognitive orientation. The tolerable loss principle is defined as a commitment to the loss or level of risk that the entrepreneur is willing to accept in order to start a new company, rather than calculating the potential risks and expected returns that the entrepreneur can obtain from venture capital (Sarasvathy, 2001a). In order to calculate the tolerable loss, entrepreneurs only need to consider their current financial situation and the psychological effects they may experience when the worst happens (Sarasvathy, 2008). Effective entrepreneurs do not need to spend time and energy to calculate and raise funds; they only need to determine how much loss they can afford. Crazy-Quilt Principle Effective entrepreneurs usually start their business without assuming they already have a market. They focus on finding the closest potential customers, rather than beating competitors through detailed competitive analysis (Sarasvathy, 2001a). The crazy quilt principle emphasizes establishing strategic alliances early in the process and making practical commitments through negotiations with all potential partnerships to eliminate uncertainty, reduce risk, and increase barriers to entry (Sarasvathy, 2008). Since entrepreneurs do not decide on any particular market early, compared with stakeholders who join later in the journey, stakeholders who make a pre-commitment have the opportunity to actively participate in shaping the business (Sarasvathy, 2008). The Lemonade Principle Those who use the effect process do not have a predetermined goal. Instead of trying to avoid them (Sarasvathy, 2001a), they take advantage of uncertainties and unpredictable futures by taking advantage of them when emergencies occur. Based on the lemonade principle, entrepreneurs can turn emergencies into resources and treat them as new profit opportunities (Sarasvathy, 2001a). This principle contains the famous saying "When life gives you lemons, make lemonade" (Sarasvathy, 2008). Pilot in the Plane Principle Effectuation focuses on the controllable aspects of the unpredictable future, rather than trying to predict the uncertain future (Sarasvathy, 2001a). Sarasvathy (2001a, p. 252) described the effect logic as "within we can control the future, we don't need to predict it". The pilot principle recommends relying on the actions of entrepreneurs to focus on activities within their control. Effective entrepreneurs do not try to predict a risky future, but try to control an unpredictable future (Perry et al., 2012). Read Less