Sarasvathy effectuation (2001, 2008) — expert entrepreneurs decide on affordable loss + bird-in-hand, NOT on expected value
Claim: Saras Sarasvathy's effectuation program — built on think-aloud protocols with experienced founders — establishes that expert entrepreneurs do not maximize expected return. They decide using two principles directly load-bearing for Candid sales:
- Bird-in-hand. Experts start from what they have (identity, knowledge, networks) and let plausible ends emerge from existing means. They do not begin with imagined goals and reverse-engineer means.
- Affordable loss. Experts set a maximum they can absorb if the venture fails, then proceed only if downside is bounded at that level. Sarasvathy's framing: "How much can I afford to lose if this fails?" rather than "What is the expected NPV?"
Sources:
- Sarasvathy, S. D. (2001). "Causation and Effectuation." Academy of Management Review 26(2): 243–263.
- Sarasvathy, S. D. (2008). Effectuation: Elements of Entrepreneurial Expertise.
Confidence: Industry-consensus in the entrepreneurship-research community. Empirical support: [[read-song-smit-2009-effectuation-meta-analysis-9897-ventures]].
For Candid: This is the actual decision rule a Candid sales conversation needs to engage. A pitch that proposes the GC reinvent his market positioning starts from imagined ends and violates bird-in-hand. A pitch framing Candid's engagement as bounded exposure with explicit kill criteria respects affordable-loss. The persuasion architecture most directly aligned with the cognitive profile is the bounded-loss frame ([[bounded-vs-implicit-loss-frame-distinction]]).
Operationalized as: [[rule-price-in-affordable-loss-terms-not-expected-return]] and [[rule-bird-in-hand-pitch-architecture-default]].
Referenced by (7)
- reference Read, Song, Smit 2009 (JBV) — meta-analysis of effectuation; 9,897 new ventures; 3 of 5 principles positively associated with performance depends-on
- reference Bounded-loss vs implicit-loss frame — implicit ("you'll fall behind") fails; bounded ("max exposure $X, kill points at month 2 and 4") works depends-on
- reference Bird-in-hand sales architecture — start from GC's existing assets, propose bounded incremental improvements; NOT strategic reinvention depends-on
- reference Pitch categories pre-emptively defeated by the GC cognitive profile — seven types this audience rejects before evaluating on merits depends-on
- rule R1 — Price and scope in affordable-loss terms, not expected-return terms; headline = "maximum you can lose," not "projected upside" depends-on
- rule R7 — Bird-in-hand pitch architecture as default; begin from what the GC has, propose incremental improvements; reserve reinvention for growth-oriented founder-GCs depends-on
- rule R9 — Stop using implicit-loss framing; replace "you'll fall behind" with bounded loss ("specific cost of current configuration over 12 months, in lost leads / wasted spend") depends-on