Something Sweet from Something Bitter

When successful entrepreneurs look back at how they began, they can gloss over the difficulties of starting up.  Often, the stories they tell about how they grew their ventures neglect the early stage of what it really took to validate the initial idea in market. 

Dr. Sarasvathy of the University of Virginia’s Darden School of Business noticed this.  It’s what led her to conduct research with some of the most successful entrepreneurs in the United States.  And this resulted in her discovery of Effectuation.  Effectuation is the process used by successful entrepreneurs to start ventures. 

This week, I came across this story of a local entrepreneur in Charlottesville, VA.  Kip McCharen has launched a business making alcohol bitters (http://tinyurl.com/zfgohje).  And all of the principles of Effectuation are evident in his story. 

• Bird in Hand Principle:  Start with who you are, what you know, and whom you know. 

Making bitters is something Kip enjoys.  He was experimenting with some when he ran into a challenge.  He could only buy certain ingredients in bulk.  Rather than let them go to waste, he made a large batch, kept what he wanted for himself, and gave the rest to friends. 

His friends enjoyed the bitters – and asked for more.  From this, the idea of crafting bitters for sale was born. 

• Affordable Loss Principle:  Only risk what you can afford to lose.

While Kip saw an opportunity to make and sell his bitters, he wasn’t ready to give up his existing job yet.  So he decided to test the waters by selling at the local farmer’s market on Saturday mornings.  He called and asked them if they would let him have a presence there some weekend and was surprised that there was an immediate opportunity.  He took it. 

• Crazy Quilt Principle:  Grow through partnerships with committed stakeholders.

Wanting to expand awareness for his product and put it in front of more potential customers, Kip brokered arrangements with local restaurants to feature his bitters.  The restaurants were willing to do so as it gave them something new to offer their patrons.  This has helped Kip to grow beyond customers that he alone can reach. 

• Lemonade Principle:  Turn challenges into opportunities.

This is most evident in Kip’s initial approach to having to order large quantities of ingredients for his own batch.  He didn’t throw away the excess.  He made a large batch and gifted the product to friends and family. 

• Pilot in the Plane Principle:  The future is created, not predicted. 

The market for bitters is relatively untapped.  Even the regulators aren’t quite sure how to address it yet.  Rules around composition and distribution are evolving.  This isn’t stopping Kip from pursuing his venture.  He is working with things he can control and maintaining the ability to adapt and be flexible to meet the needs of this changing environment. 

Kip doesn't know where this venture will end up yet.  The regulations around it are still being formed.  There aren’t many competitors.  Craft bitters are a relatively new concept.  But that’s not stopping Kip.  Instead, he’s viewing this as an opportunity. 

No one can say what this venture might look like in a few years, but for now, Kip is applying Effectuation to grow it.  And we wish him sweet success for his bitter business. 

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC

Using ALL Your Resources to Your Advantage

“We have a great resource,” said Niall Stuart, chief executive of Scottish Renewables, an industry association. “It’s Scotland’s terrible weather.” 

This Washington Post article http://tinyurl.com/j5e27pj shows how Scotland is applying a little entrepreneurial thinking to create a future that today doesn’t exist – a future in which all of the country’s energy needs are met by renewable fuels. 

Scientists are predicting a rapid acceleration in climate change and a decrease in traditional fuel sources.  Visionaries, policy makers, and entrepreneurs are joining forces to co-create a new paradigm for national energy supply.  And they’re using Effectual actions to do so. 

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LL

Is Market Research a Waste of Time?

People have been attempting to predict the future for at least 2500 years. In the beginning, they would trek to an Oracle who would guide them on how to best position themselves to capitalize on future events. Today, the Oracle has been replaced by market researchers.  

Predicting the direction of a market has become more sophisticated and more expensive. But it remains a mainstay of innovation strategy. Companies and novice entrepreneurs alike insist on gathering data through surveys, feedback sessions, and focus groups. And our clients still don’t feel prepared for the future. These are the most common complaints we hear:

1. Market research takes too long. By the time we get the data and the analysis, our priorities or market conditions have shifted so it loses its relevance.   

2. The data is often not actionable. We get a lot of interesting insights, but not a lot that we can put into practice.   

3. The data we get is often conflicting. Different things are heard from different sources. This perpetuates our management indecision internally.

How are companies addressing these complaints? Often, their solution is to hire another market research group with new tools who promise faster, better data. And nothing changes.

If you really want to develop game changing innovations, stop trying to predict a future that cannot be predicted. Truly new and market changing advances are not inevitable or predestined. They are not found or predicted. They are formed, shaped, and created.  

Predictive tools only work when outcomes can be predicted. This seems obvious. Yet managers continue to rely on traditional predictive tools while acknowledging that they are facing unprecedented market uncertainty.

Traditional management theory has taught there are two future states. The known and the unknown. Thanks to the work of Nobel Prize laureate Herb Simon, we know now that there are three future states: the known, the unknown, and the unknowable.  

How do you know if your organization is facing an “unknowable” future?

1. The path forward is ambiguous or unclear. There are multiple possibilities that seem equally advantageous.

2. There is a lack of data available.

3. The data that is available is contradictory.

If one or more of these conditions are present, you are in the realm of the “unknowable”. In the face of this radical uncertainty, Effectuation is the toolset to use. It is how market makers create valuable new products and services when facing a future that is not just unknown, but unknowable.

What is it about Effectuation that enables innovators to create rather than predict the future? The key to getting control in unknowable situations is to co-create. Invite others to participate in building the future with you. Whether you refer to these parties as collaborators, stakeholders, partners, etc. doesn’t matter. What does matter is how you work with them. Base your co-creative relationships on commitments.

Commitments are when both parties put skin in the game to advance an overall idea. Commitments are deeper than feedback and more relevant than data. All who commit to the idea become vested in its success. As a result they will pull their resources into the venture. This expands the accessible means for the venture. It also widens the visibility and support as each party brings their networks and social capital to the venture. Whereas a feedback session is one to one and a finite transaction, a commitment-based relationship is multi-party to multi-party and presents infinite opportunities for growth based on the interests of all parties.

If market research is failing to give you the answers you need, consider giving up. Stop trying to forecast the unknowable. Instead, shift your resources towards crafting a future where you can succeed. Spend your time Effectuating rather than searching for a sign of things to come.

If you don’t create your own future, someone else will.

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC