Comparison of presented theory

Here we will go into more detail on similarities and differences between the theories presented above and the effectual approach. We decide if the various concepts are suited for inclusion into a unified framework that will be compiled after this comparison. The theories will be discussed one at the time in the same order as in the literature review above.

Minority entrepreneurs

The first part of theory from the literature is about minority entrepreneurs and how the networks and ties between different minority entrepreneurs function. Net-works of minority entrepreneurs, networking among minority entrepreneurs and network with countrymen should be affected by two of the three effectuation-questions that Davidsson (2005) mentions in his article: Who am I? and Who do I know that can help me?. By asking oneself who am I? the entrepreneur can reflect on what cultural ties he has and whom he should approach to benefit from his minority entrepreneur network.

In other words, to figure out who do I know that can help me in the minority entrepreneur network. Another valuable point we can learn from the minority entrepreneur literature is how it affects the effectuation pillar approach to actors.

Minority entrepreneurs usually enjoy each others company and have a natural tendency to stick together and help each other out. They should therefore be willing to cooperate more easily than other actors in the market. This should make market entry easier. Since minority entrepreneurs are far from home, why should they not help each other?

Outside-in

The strategic view of outside-in is most commonly referred to as the opposite of inside-out and the resource-based view. The main theories from this chapter, Porter’s five forces, the generic competitive strategy and the value chain are all theories that take the classical causal reasoning-approach to business development.

Even though this is not a direct opposite of the effectual approach we do not feel that these theories are suited for our model as they are not similar to any of the core theories of effectuation.

4.8. FRAMEWORK FOR AN EFFECTUAL APPROACH 39

Inside-out

The strategic view of inside-out on the other hand, has many similarities with the effectual approach. The resource-based theory has a similar focus as the three core effectual questions presented by Davidsson (2005): Who am I?, What are my skills and knowledge? and Who do I know that can help me?. The answer to these questions are the resources the entrepreneur possesses and should be used to create dynamic capabilities in addition to a business model and a product that is valuable, rare, inimitable and non-substitutable as described by Barney (1991).

The network entrepreneur from Burt (1992) bears similarities to the effectual question who do I know that can help me in addition to the chapter approach to actors. The network entrepreneur uses his network to build strategic ties and should according to effectuation form cooperative ties to his competitors and substitutes in the market.

In combination with effectuation and minority entrepreneurs, a tactic for the net-work entrepreneur can be to approach people with the same cultural background since ties are easier formed with nodes that share cultural background. Getting acceptance into such networks usually goes fast and often brings with it several new nodes and increase the entrepreneurs’ social capital. Social capital is formed because minority entrepreneurs feel that other people from their culture are trust-worthy and hence trust each other sooner. This sense of commonalities and the common cognitive dimension motivate the minority entrepreneurs to help each other out.

Exploitation and exploration

Both exploitation and exploration are originally directed towards established com-panies. There are still similarities with effectuation and strategies for the entre-preneur to be found in this paradox. Exploitation tactics are to some extent comparable to Davidsson’s (2005) emerging opportunities. The goal both for ef-fectuation, exploitation and resource-based theory is to do fewer different activities but do those you do better.

Exploration on the other hand can be connected to Davidsson’s (2005) managing the uncertain future. Exploration is aimed to discover new information and know-ledge in your organization. Through this exploration you will be better prepared for the future, which is exactly the conclusion made in the effectual approach.

Lean start-up approach

Ries’ (2011) lean start-up approach is perhaps the framework most similar to the effectual approach of the presented literature. The build-measure-learn cycle is in

general comparable to the market experimentation process of effectuation. The leap of faith, to make assumptions before market entry are found both explicitly in lean and implicitly in effectuation.

Both frameworks recommend entering the marked solely based on what the entre-preneur already knows. The assumptions are built on the answer to the effectual question what are my skills and knowledge and not on external information that needs to be gathered. After the assumptions are made the lean start-up approach tells the entrepreneur to engage with experimentation and create a minimal viable product. This is equivalent to what Davidsson (2005) refers to as “managing the uncertain future” and what March (1991) refers to as exploration.

This process from lean is closely compatible with valuable, rare, inimitable and non-substitutable resources from inside-out. In this scenario the entrepreneur should build a minimal viable product that is valuable, rare, inimitable and non-substitutable based on the resources at hand.

The overall lesson is that in both lean and effectuation the entrepreneur should not use too much resources to plan before he knows how the market functions and how the initial response is. After market feedback lean recommends the step of “pivot or persevere”, a step where the entrepreneur decides if he should alter the product or service based on the market feedback or if the market prefer his proposition

“as-is”. This this is what Davidsson (2005) refers to as emerging opportunities and is in the start-up context comparable to March’ (1991) exploitation. This process is referred to as validated learning in lean.

Ries (2011) explicitly recommends that start-ups should not focus on revenue or profits but rather on perfecting the business model and deal with the revenue stream when a proper business model and a proper product is in place. Lean thereby implies bootstrapping and running a financial strategy of dealing with affordable losses and cutting costs at all corners where it is possible, just as effec-tuation does.

Business model innovation

Business model innovation covers all the aspects of a business model. The cus-tomer value proposition will in the effectual setting deal with creating a valuable, rare, inimitable and non-substitutable minimal viable product based on the re-sources available to the entrepreneur. The issue of funding and potential returns is treated by the effectuation theory in what Davidsson (2005) refers to as affordable losses by suggesting that one should cut the cost structure as much as possible and evaluate how much you can afford to lose. The revenue model and the mar-gin model on the other hand is more related to the classical causal approach of predicting the future and will therefore not be implemented in our model.

4.8. FRAMEWORK FOR AN EFFECTUAL APPROACH 41 Key resources is handled by all the core effectuation questions: Who am I?, What are my skills and knowledge? and Who do I know that can help me? Naturally, it is also related to social capital and the network entrepreneur from the inside-out perspective since the key resources shall describe how the entrepreneurs social capital can help with the different processes of the business model. Key resources are also applicable to the creation of a minimal viable product as this is based on what the entrepreneur has available. In a pure effectual approach key processes are not that relevant to map. Instead you rather create the processes needed on a trial-and-error basis, if anything, you start by building a minimal viable product and map key processes along the way.