For a long time, researches in entrepreneurship have studied the characteristics that differentiate entrepreneurs from managers (Fisher, 2012) and Sarasvathy’s effectuation theory (2001) has drawn a lot of attention recently. This concept is consistent with the idea of emergent strategies (Chandler, DeTienne, McKelvie and Mumford, 2009). It is to be contrasted with causation that considers that calculations and statistical inference can predict the distribution of outcomes (Sarasvathy, 2001) and is therefore in line with the idea of deliberate strategy formation.

Managers tend to follow a causal reasoning approach: they make plans to reach a
pre-determined goal. To do so, they select the appropriate means in their control or build new means that will enable them to reach their objective (Sarasvathy, 2008).

Entrepeneurs, on the other hand, usually think more effectually, focusing on their actual means and gradually converging towards an opportunity through execution. Instead of considering the unexpected events that differ from what was planned as the exception, entrepreneurs rather see them as the norm (Sarasvathy, 2001).

Effectuation revolves around five key principles.

1. Bird-in-Hand: effectual entrepreneurs start with their means (who they are, what they know and who they know) and then they envision a myriad of opportunities that could derive from them(Dew, Read, Sarasvathy and Wiltbank, 2009). This diverges from the pre-set goals suggested by causal reasoning.
2. Affordable Loss:whereas causal reasoning tries to maximize return given a certain level of acceptable risk, effectual entrepeneurs mitigate their risk by focusing on the maximum downside they can afford. Based on this, they draw actions for which they believe there is an upside potential (Sarasvathy, 2001).
3. Lemonade: instead of seeing surprises as worst-case scenarios (causal approach), effectual entrepreneurs embrace them and consider them as contingencies they can leverage. Any new information that is made available to them directs them in their quest(Sarasvathy, 2001).
4. Patchwork Quilt: effectual entrepreneurs tend to form partnerships as they go in order to reduce the uncertainty around their venture and co-create rather than compete (competitive analysis in causal approach) with the players in their market(Sarasvathy, 2001).
5. Pilot-in-the-plane: causal thinkers believe that inevitable market trends shape the future.Effectual entrepreneurs though, consider it is their actions that influence the future and they can therefore control the outlook of their venture (Sarasvathy and Venkataraman, 2011).

References:

Fisher, G. (2012). Effectuation, Causation, and Bricolage: A Behavioral Comparison of Emerging Theories in Entrepreneurship Research. Entrepreneurship: Theory & Practice, 1, 1019-1051.

Sarasvathy, S. D. (2001). Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency. The Academy of Management Review, 26(No. 2 (Apr., 2001)), 243-263.

Chandler, G. N., DeTienne, D. R., McKelvie, A., & Mumford, T. V. (2011). Causation And Effectuation Processes: A Validation Study. Journal of Business Venturing, 26(3), 375-390.

Sarasvathy, S. D. (2008). Effectuation: Elements of entrepreneurial expertise. Cheltenham, UK: Edward Elgar.

Dew, N., Read, S., Sarasvathy, S. D., & Wiltbank, R. (2009). Effectual Versus Predictive Logics In Entrepreneurial Decision-making: Differences Between Experts And Novices. Journal of Business Venturing, 24(4), 287-309.

Sarasvathy, S. D., & Venkataraman, S. (2011). Entrepreneurship as Method: Open Questions for an Entrepreneurial Future. Entrepreneurship: Theory & Practice, 35(1), 113-135.

Although they are important contributors to the learning school, promoting the usefulness of emergent strategies, Mintzberg, Ahlstrand and Lampel (2005) highlight three fundamental risks associated: no strategy, lost strategy and wrong strategy.

1. No strategy: Incremental adjustments can lead a company into a tactical trap. The organization doesn’t look at the big picture anymore and evolves without central direction. This might result in quick wins, but is not sustainable in the long run due to the absence of coherence.
2. Lost strategy: Learning can drive an organization away from its original strategy, even though it was working perfectly, just because some new opportunities are spotted outside the core of the organization and management decides to go for them.
3. Wrong strategy: Incremental changes made by an organization throughout its learning process can little by little put it in a situation that no one ever wanted.

Organizations must therefore find the right balance between design and emergence without falling into the extremes, considering the uncertainty of the environment. Typically, the least stable the environment, the more emergent should be the strategy (Grant, 2007).

References:

Grant, R. M. (2007). Contemporary strategy analysis (6th ed.). Oxford: Blackwell.

Mintzberg, H., Ahlstrand, B. W., & Lampel, J. (2005). Strategy safari: a guided tour through the wilds of strategic management. New York: Free Press.

In this article, the eight kinds of strategies (Mintzberg and Waters, 1985) are presented, from the most deliberate, the planned strategy, to the most emergent, the imposed strategy.

1. The planned strategy aims at realising the intentions of the authority without much distortion. The goal of the enterprise is immutable and procedures are put in place to prevent actors to derive from their intended role. For a planned strategy to be possible, the organization must be able to predict very accurately the changes in the environment or it has to be extraordinary stable.

Figure: Planned Strategy (Mintzberg and Waters, 1985)

2. Sometimes, the members of an organization share a common vision.  This leads to ideological strategy formation: clear and collective intentions are embedded in the behaviour of everyone in the company, and actions are therefore highly deliberate. It differs from the planned strategy in that an authority does not impose it, and there is therefore some tolerance for emergent strategy. However, the ideological strategy being shared by all makes it resistant to change.

Figure: Ideological Strategy (Mintzberg and Waters, 1985)

3. Young companies and entrepreneurial ventures usually have what is called an entrepreneurial strategy. The owner has a strong control over the organization and is able to impose his vision. The key difference with the ideological strategy is that the employees don’t share the vision. In fact, they don’t necessarily know the specific intentions of the entrepreneur. As a consequence, this type of strategy formation allows some level of adaptability: if the leader changes his mind, the strategic orientation is redefined as well.

Figure: Entrepreneurial Strategy (Mintzberg and Waters, 1985)

4. The fourth type of strategy can be described as deliberately emergent. It is the umbrella strategy, in which the leader doesn’t have tight control over the members of the organization and the environment. The management therefore provides general guidelines that rule the behaviour of the actors: emergent strategies are accepted within these boundaries.

Figure: Umbrella Strategy (Mintzberg and Waters, 1985)

5. When confronted to an even more uncertain environment, leaders can’t impose boundaries. Instead, they define the process of strategy formation, based on which patterns of actions emerge. This is the process strategy, in which the management doesn’t have direct control on the content of the strategy.

Figure: Process Strategy (Mintzberg and Waters, 1985)

6. The unconnected strategy takes place when a subgroup within the organization manages to operate without falling under the same control hood as the rest of the organization. The unconnected strategy occurs concurrently with the main strategy of the organization, usually by remaining under the radar. This is a clearly emergent form of strategy at company level, but from the point of view of the subunit, this strategy can be highly deliberate.

Figure: Unconnected Strategy (Mintzberg and Waters, 1985)

7. If the two main conditions of deliberate strategy are relaxed (no clear intentions from the management nor severe control process), strategy formation comes out of the convergence of opinions of the actors. This is a consensus strategy: depending on what they are experiencing and how the environment is evolving, they decide on a common relevant pattern that the organization must follow.

Figure: Consensus Strategy (Mintzberg and Waters, 1985)

8. As soon as the organization loses control over its own strategy formation, it has an imposed strategy. It is the environment (e.g. an external group of influence) that dictates the strategy of the organization and the company has no other option than consenting.

Figure: Imposed Strategy (Mintzberg and Waters, 1985)

References:

Mintzberg, H., & Waters, J. A. (1985). Of Strategies, Deliberate And Emergent. Strategic Management Journal, 6(3), 257-272.

The realized strategy of an organization is formed out of the interaction between deliberate and emergent strategies (Mintzberg and Waters, 1985). The relative contribution of each type of strategy varies depending on the company, its environment and its stage of evolution. Deliberate strategies are realized as originally intended, whereas emergent strategies are realized despite the absence of intention.

Figure: Strategy Formation (Mintzberg and Waters, 1985)

Pure Deliberate and Pure Emergent Strategies

There are three necessary conditions for a strategy to be considered purely deliberate. First, the specific intentions of the organization must have been translated into a detailed plan in order to avoid any ambiguity. Second, all the stakeholders involved in the initiatives must know exactly their role. Third, the entire intended strategy is realized without any unexpected influence from the environment.

A pure emergent strategy is formed when a pattern comes out in the total absence of any deliberate intention. This is the exact opposite of pure deliberate strategies, but it isn’t to be confounded with chaos. “No consistency means no strategy” (Mintzberg and Waters, 1985), whereas a purely emergent strategy demonstrates an unintended order.

It is hard to believe that such strategies can be observed in reality, but in some organizations, it is very close from being true. Mintzberg and Waters (1985) identified a continuum of strategies, which differ by the relative importance of the emergent and of the deliberate in their formation.

Reference:

Mintzberg, H., & Waters, J. A. (1985). Of Strategies, Deliberate And Emergent. Strategic Management Journal, 6(3), 257-272.

According to the organizational life cycle theories, new ventures usually follow a progressive process made up of three successive phases (Mukherjee, 1992): the seed (1), the start-up (2) and the expansion stage (3). The terminology used varies throughout the literature, but the concepts hold.

Figure : Early Company Life Cycle (Mukherjee, 1992)

1.   Seed Stage

The venture is initially referred to as a seed. This is the birth of the business, the transformation of the entrepreneur’s original idea into a real product. The team is usually limited to the founders. The main challenges are to identify the niche the company wants to compete in and to get known by the market.

2.   Start-Up Stage

The business enters the second step of its evolution, the start-up phase, when it starts attracting customers and generating cash flows. The initial assumptions behind the entrepeneur’s vision must be challenged to ensure that the company answers the clients’ profitable needs.

3.   Expansion Stage

Once the start-up has acquired an intimate knowledge of its customers and decides to scale up its activities, it reaches the expansion stage. At this point, the entrepreneurs formalize the company’s structure and identify growth opportunities.

Financial Resources

During its evolution through the organizational life cycle, the company will be able to raise funding from an increasing number of sources. Initially, founders usually have to finance with their own savings, with the help of their family and friends (including crowd funding) but later on, as the market has validated the company’s value proposition, it might draw interest from business angels and venture capitalists.

Importance of Learning

Cash required to operate the business creates a certain sense of urgency, which is referred to as the Death Valley Curve. If the young firm doesn’t generate positive cash flows soon enough and is unable to raise additional capital, it will die off due to insufficient funding. On the other hand, evolving from seed to start-up, and then expanding requires overcoming each stage’s problems and refining the strategy to account for the emergent (Tsai and Lan, 2005). Managers must therefore find the right trade-off between the time they spend making wise decisions and the cash it costs them doing so.

References:

Mukherjee, T. K. (1992). Financing the three stages of the small business life cycle: A survey. Journal of Business and Entrepreneurship , 4, 33-43.

Tsai, S. D., & Lan, T. (2005). Development of a Start-up Business‚ A Complexity Theory Perspective. N.A., 1

One start-up out of four collapses within two years and just over a third gets past its sixth year (Timmons, 1999). This statement holds in the context of venture-backed start-ups that fail 75% of the time (Ghosh, 2012).  On the web, the failure rate is even more astounding: 90% of newly established Internet start-ups fail during their first four months, according to various sources (Silver, 2010).

The main reason behind this exceptionally high likelihood of failure is premature scaling up (Marmer, Herrmann, Dogrultan and Berman, 2012). Three Internet start-ups out of four fail because they expand too early, before making the necessary adjustments to the entrepreneur’s original vision. Validating the opportunity tends to last two to three times longer than what founders initially expected. As a result, any misjudgment pushes them to scale prematurely as they fear being short on funding.

Start-ups that manage to balance vision with learning, typically by pivoting once or twice during the early days, are 52% less likely to scale prematurely. In addition, learning start-ups that track metrics effectively are also the ones able to raise, on average, seven times more funding and see their user base growing 250% faster.

References:

Timmons, J. A. (1999). New venture creation: entrepreneurship for the 21st century. Boston (Mass.): Irwin.

Gage, D., & Ghosh, S. (2012, September 19). The Venture Capital Secret: 3 Out of 4 Start-Ups Fail. The Wall Street Journal

Silver, D. (2010, October 31). Why Are So Many Internet Start-Up’s Failing Today?. Chris Ducker – Start-up and Small ‘New Business’ Strategies for Entrepreneurs

Marmer, M., Harrmann, B. L., Dogrultan, E., & Berman, R. (2012). Report: A new framework for understanding why start-ups succeed. Start-up Genome, 1.1

Marmer, M., Herrmann, B. L., Dogrultan, E., & Berman, R. (2012). Extra report on premature scaling: A deep dive into why most high growth start-ups fail. Start-up Genome, 1.2

When defining what good marketing is, most people will mention advertising: eye-catching or controversial ads, for example. In reality, marketing includes far more than that, starting before the product is even created and advertising being just a tactic.

A good marketing is a marketing successful at spreading its ideas, a marketing that has an impact on people.

People usually don’t buy what they need but what they want. And there are two ways to make them choose your product rather than another: either you drive their desires or you give them what they already wanted, but better than competition. Whatever your strategy, market-driven or driving market, marketing starts with the customer. You have to make your product remarkable so that it gets talked about.

Catching the attention involves segmenting the market, targeting your customers and then positioning your brand in their minds.

First: segmenting. This requires a deep knowledge of the customer. The issue is not about finding the information anymore — the volume and kind of available data are exponentially increasing thanks to information systems — but rather about using it efficiently.

Second: targeting. A standard product suitable for everyone rarely reaches much of anyone. Designing a product that fits the wants of the majority is doomed to failure because people want tailored care.

Third: positioning. Marketing is about creating intangible value: people buy products they love because of the emotional bond they experience doing so. Marketing is therefore not only about the one-alone product anymore but it includes the whole customer experience.

With the development of technologies, new ways of spreading ideas arise — blogs, social networks, video channels, etc. — at the expense of mass media, which are losing their cost-effectiveness. Personal and relevant messages are always more efficient than unsolicited advertising. The big challenge for companies lies in that, although they don’t have a grip on those new media, they remain accountable for what is said through them. By word-of-mouth spreading, customers become marketers themselves. Targeting the right people at first — the early adopters and innovators who are interested in what you have to offer to them — makes it easier to create a superior customer experience. Making promises and keeping them is a great way to build a brand. On the one hand, building customer loyalty and achieving high customer retention enables to increase share of wallet —, which is easier to get directly and more profitable than market share —. On the other hand, if a customer is happy, he will keep on talking about it and get others to join him and then buy again himself. Nowadays, as the buying process is more collaborative, good marketing doesn’t prevent people from talking but does encourage the “right” conversations. Fooling people wouldn’t last since a disappointed customer has a much bigger impact than ten delighted ones.

Turning customer’s experience into a success is a long-run mission for the company. Once the product is set up and selling, the support becomes critical. God is in the detail. The way your customer service handles the calls as well as the layout of your bills do contribute to the intangible value the customer will be willing to pay for. This forces companies to structure their organization to reflect this need for cross-functional teams accordingly. Customers should feel they are part of a community. For example, when the communication team in charge of the Facebook page of a company gets questions about customer service, should it answer? Yes. The information might not be available as such but the department has to collaborate with whoever is best placed to tackle the issue.

Thanks to the progress of technologies, companies have access to billions of customers’ activities data per day. All those records contain regularities that can be used to sharpen the company’s offering. This is particularly valid on the web where one can dynamically generate countless outputs at very low cost. Similar processes emerge in the retail industry where brands such as Zara already use data to continuously rearrange their products’ position on the shelves. While market research was a prerequisite in the past, it is now becoming a real-time tool to adjust the strategy.

Even if there is no perfect recipe for good marketing, it must definitely encompass the whole organization through integration of its different units. The customer experience cannot be narrowed to the product anymore; it involves a set of related interactions. Marketing is now a culture, a mind-set, with roots from each part of the company. At least good marketing is.

Inspirations:

• Ted.com, especially talks from Seth Godin, Malcolm Gladwell and Rory Sutherland
• McKinsey Quarterly:  “How we see it: Three senior executives on the future of marketing”, interviews of Steve Ridgway (CEO Virgin Atlantic Airways), John Hayes (CMO American Express) and Duncan Watts (Yahoo! Research scientist), July 2011