Founding a technology-based venture in Ghana - An application of Effectuation Logic

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Founding a technology-based venture in Ghana - An application of Effectuation Logic

Launching a technology-based venture in our uncertain Ghanaian business environment is an uphill task. In the face of these challenges, entrepreneurs have no choice but to adopt mechanisms that will help them survive the roller coaster business environment if they want to start a business.

It is quite encouraging to observe the developments taking place in the technology sector in Ghana. Entrepreneurs are obtaining some forms of supports from government projects/programs and other non-governmental organizations, which is reassuring. These supports are however accessible to a handful of entrepreneurs, and on a short-term basis. There is, therefore, a need to introduce technology-based venture entrepreneurs to ingenious approaches to starting their new venture founding process.

I will share with technology-based startup entrepreneurs decision-making approach that Saras Sarasvathy, a professor at Darden School of Business, University of Virginia, USA, found out that expert entrepreneurs use in time of uncertainty – the Effectuation Decision-Making Logic. Effectuation teaches entrepreneurs how to co-create the future with their available means – the limited resource at their disposal at a point in time. When starting a new venture using the effectual decision approach, entrepreneurs will have to consider the following principles:

Source: infographic,

Bird in Hand Principle

Entrepreneurs are encouraged to consider these means – Who I am, What I know and Who I know, during the foundation stage of their businesses. According to Sarasvathy (2001), “who I am” takes into consideration the characteristics of the individual; “what I know” is the assessment of the expertise that the individual has, and the “who I know” helps one identify the network one has, which will offer the new venture the much-needed support. When these means are carefully assessed, the entrepreneur can prudently choose which idea to start with and/or the area to start from. They can start small with the resources that they have and gradually search for other possibilities to expand.

Affordable Loss Principle

This principle encourages entrepreneurs to consider or reflect on what they can afford to lose if they are unsuccessful with the new venture creation.  Due to the high levels of uncertainty in our Ghanaian business environment, there is a high possibility of failure. When embarking on new venture creation, an entrepreneur should limit him/herself to losses he/she can recover from (Sarasvathy, 2001); instead of going in for expensive office space, one could use the bedroom, co-working space, dormitory or an internet café to launch his business. Free hosting platforms could also be used to test the minimum viable products instead of acquiring expensive ones. In the event that the business is unsuccessful, entrepreneurs will be able to pivot quickly.

The Leveraging Contingencies Principle

Entrepreneurs should be ready to pivot when market conditions change, or the expectation of the customer changes. Turn the lemons into lemonade – reconsidering an idea or business model to survive the condition of time to increase the survival rate. The future is unpredictable, so measures ought to be put in place to control the unexpected – “The ability to turn the unexpected into the profitable (Sarasvathy, 2001).” If the entrepreneur is working on a software for schoolchildren and meets an investor who is interested in an App and is asking for some changes to be made to the App before investing in the business, the entrepreneur can tweak the software idea to meet the expectation of the investor. When consumer taste changes, one has to learn how to adapt to these changes or the entrepreneur will end up developing a product that no one needs or cannot run on new technology. Flexibility is key.

Crazy Quilt or Strategic Partnership Principle

Since entrepreneurs cannot predict the future, they are encouraged to focus on building strategic partnerships to facilitate operations of their businesses. Entrepreneurs will have to focus on identifying and engaging potential customers for their products. Some of these engagements can lead to the commitment of money, time or other resources to support the venture creation. Entrepreneurs can concentrate on effectively and efficiently bring an idea to the market with such support. It could be a commitment from a customer to acquire or use the entrepreneur’s product when he or she finishes developing it. Such supports and commitments mitigate the uncertainty in new ventures creation.

Pilot in the Plane Principle – control

Entrepreneurs need to know what they can control, given the resources they have at any given moment. This knowledge will inform the choices they make. “Who you are.” The entrepreneur’s ability to control the resources around him or her will determine the part of the new venture.

A look at these principles of effectuation reminds us of how some Ghanaian entrepreneurs usually start businesses. However, in most cases, all these principles are not thoroughly considered in new venture creation, leading to the avoidable challenges that new venture creators encounter. Some technology-based start-up entrepreneurs start with their “bird in hand”, but when there is a need to leverage contingencies, they become resistant. Going into a strategic partnership is mostly looked at from a monetary perspective, but individuals should learn to exploit other forms of partnerships to reduce the risk and uncertainty in new venture creation process.

An example is the USA based company, Airbnb, valued around $10 billion today. The founders started by providing lodging on an air mattress and breakfast in their apartment to people for a fee; this was to help them pay their rent. The success of this idea gave birth to a simple website where people could book to stay in their apartment. After a few bookings on the site, they saw the potential in the idea, and decided to look for a co-founder to further work on the website and launched the business. They used the means available to them to start their venture. Their initial plan was to pay their rent, but it later turned out to be a big company.

Careful consideration and use of the effectual principles will enhance the success of new technology-based ventures in our uncertain Ghanaian business environment.  

Author: Kwabena Obiri Yeboah,

Member: Institute of ICT Professionals, Ghana

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