Leveraging Contingencies

Contingencies, regardless of whether these are positive or negative surprises, can be leveraged by the entrepreneur in order to create a novel outcome. This ability to transform the unexpected in order to create a valuable entrepreneurial outcome is referred to as the lemonade principle in effectuation.

Welcome to topic 10: Leveraging contingencies. In this topic you will learn about:

• The role of the unexpected in shaping who we are (and our available means)
• Contingencies and their ability to spark entrepreneurial action
• How contingencies can be leveraged, including exploration of several examples.

This topic relates to the following subject learning outcomes:

1. Identify and apply the core principles of effectuation and how they form the basis of the effectual cycle.
2. Explain the entrepreneurial bias toward action leads to experience, which in turn increases self-efficacy

Welcome to your pre-seminar learning tasks for this week. Please ensure you complete these prior to attending your scheduled seminar with your lecturer.

Click on each of the following headings to read more about what is required for each of your pre-seminar learning tasks.

Surprises or contingencies are unexpected events that we may classify as being pure chance. When they happen in our lives, we may merely think of these contingencies as lucky/serendipitous or unlucky/Murphy's law.

From unexpected events such as the 2009 financial crisis or the global COVID-19 pandemic to unexpected information such as failed products or an inability to get our hands on certain resources, and lastly unexpected people and chance meetings. While we cannot predict contingencies, as entrepreneurs we can try to leverage these.

Based on the idea that you need to make the most of what happens, even if the surprise that sparks that action is perceived as a negative, the lemonade principle follows the mindset of the following common saying:

The role of the unexpected in shaping who we are (and our available means)

We have looked at risk and uncertainty in earlier topics as well as in chapter 8 of the prescribed textbook. Before we look at the ways in which entrepreneurs leverage the unexpected and create something valuable, let's consider for a moment how we are shaped as individuals through uncertainty in our own lives.

Think back to our discussion of risk and uncertainty in earlier topics. We saw that Knightean uncertainty explains that we are faced with unknown unknowns for which we cannot estimate likely outcomes or use prediction to determine future scenarios. Instead, we can act like expert entrepreneurs and leverage our means in order to create the future (Townsend et al 2018). It is this transformative approach to using what you have in order to make the most of surprises that forms the basis of the lemonade principle. Expert entrepreneurs create opportunities from surprises, regardless of whether these are perceived as negative or positive.

Consider key moments in your life that have shaped who you are as a person today: uncertainty and challenges help us to become more resilient and add to our expertise. Surprises/contingencies are the very thing that shape us (Brown 2018; Detert 2021; Kosterlitz 2015).

Watch the following video to see how this applies to Dave Prakesh.

In the video Dave focuses on his personal life but, when we look at his career, we can see that he started off as a doctor and moved on to being an Air Force pilot. He went on to do further studies and now works on artificial intelligence and machine learning within health care as well as future aerospace systems. It is clear from looking at Dave’s story that uncertainty has helped “form his personality, knowledge and personal networks” (Read et al 2016, pg 187)– in other words, contingencies have added to Dave Prakesh’s available means.

When we're facing surprises, especially those we view as negative, there is a likelihood that will fall into blame. Brené Brown has researched extensively on vulnerability, shame and blame. The following short video illustrates how blame can be an instant response one we are faced with the unexpected. The comical example brown discuss is in the video illustrates how blame is one of the reasons we do not develop grit and resilience in response to contingencies (Brown 2016).

If we get caught up in blame or label surprises as problems, we immediately try to overcome these. Rigid plans (like those we see as part of a causal approach) are more likely to shift us into a mindset where surprises become problematic. When we try to overcome obstacles as entrepreneurs, we miss out on the opportunities they bring with them. We risk missing out on the entrepreneurial potential that these surprises bring with them (Read et al 2016).

In the next section we will look at how contingencies can be leveraged. In order to seize the opportunities offered through these contingencies we need to learn how to make surprises work for us. This is something expert entrepreneurs excel at (Read et al 2016; Sarasvathy 2012; Society for Effectual Action n.d).

Contingencies and their ability to spark entrepreneurial action

We already know that expert entrepreneur develop their available means all the time. We have also seen in the crazy quilt principle that potential stakeholders and co-creation are crucial to effectuation. Rather than looking at the unexpected as a problem expert entrepreneurs consider it a building block. This is effectuation in action, the unexpected simply reveals potential building blocks; these materials or potential partners are only exposed once the entrepreneur starts building a venture (Read et al 2016).

As discussed in detail in chapter 16 (Read et al 2016) contingencies come in the form of:

• Unexpected events
• Unexpected people
• Unexpected information.

So, from unexpected or random interactions with other people to the information we get from failed experiments, or new details about the market, right through to uncertain environmental events; these all provide potential opportunities.

Recession is an example of a contingency that can create opportunities. In the following video, Sarasvathy discussed this and uses the fact that Sony was started during a recession as an example. Watch the video to help you get started on thinking about contingencies.

Contingencies are sometimes considered positive and at other times they are considered negative. To recognise positive contingencies, we need to lookout for surprises we might initially label as lucky or serendipity. Negative contingencies are sometimes labelled as examples of Murphy's law or refer to as a form of karma. As a first step, we need to recognise these contingencies for their potential rather than managing them as obstacles, regressing into blame or simply dismissing them as a lucky accidental moment.

When contingencies are perceived as positive, and they are obviously something good the entrepreneur can get the most out of them. It can be more challenging to see the potential in a contingency that is perceived as negative, however, if you are creative enough, it is almost always possible for an entrepreneur to leverage contingencies in a positive manner (Read et al 2016). Expert entrepreneurs try to exploit surprises by using them in order to build their ventures.

How contingencies can be leveraged

It is important to note that contingencies do not automatically shape the entrepreneurial future. Contingencies must be leveraged by the entrepreneur to create something of value; action is required by the entrepreneur in response to the unexpected.

There are different ways that we can respond to an unexpected situation. The diagram below is an illustration of these responses.

The first response is adaptive. This involves thinking inside the box. We accept the situation and cope with it and adapt our plan to the scenario.

The second response is heroic here we think outside the box. We do not simply accept the situation we change things to the outcome we prefer.

Finally, there is the entrepreneurial response this is where we use contingencies as a resource to fuel entrepreneurial actions. Here we rethink the box, and we actively shape the future in response to the contingency.

Think back to the example of Stacy’s Pita Chips when the entrepreneurs were faced with the expected popularity of the sandwiches and the demand created huge waiting lines, they leveraged this contingency and demonstrate an entrepreneurial response, creating chips from their pita bread cut-offs. Stacy & Mark could not have predicted that their customers were as interested (some more so) in the pita chips as they were in the sandwiches! They realised that they were onto something and created a venture based on the popular new pita chip offering. This is an important effectual skill, being able to notice opportunities and take action as they arise.

The founders of Airbnb where in an unexpected situation that saw them unable to pay their rent. At the time all hotel rooms in New York were booked out. This combination of events sparked an entrepreneurial response that saw them rent out their apartment. Leveraging this contingency ultimately led to the establishment of the online platform we all know so well today. Airbnb matches people looking for accommodation with those renting out their real estate properties.

In the examples discussed here, as well as those presented in the prescribed textbook reading, the lemonade principle shows how contingencies can provide valuable opportunities. It is clear that entrepreneurs need to take action to leverage the new available means (brought about as a result of the contingency) to create novel outcomes.

Like the way in which overcoming challenges makes us more resilient as a person, facing contingencies as an entrepreneur makes us more confident in dealing with the unexpected (read et al 2016). Entrepreneurs who have more experience in leveraging contingencies are better able to recognise opportunities. In other words, your exposure to contingencies builds your entrepreneurial expertise and confidence. Increasing your exposure to contingencies enables you to develop your sense of agency as an entrepreneur.

Wrap-up

The lemonade principle is core to the effectual process, it brings to life many of the different examples and discussions we have had so far. The unexpected is a resource that can be leveraged into something incredibly valuable rather than a cost (Read et al 2016).

A contingency (in the form of unexpected information, unexpected people or unexpected events) can be perceived as either negative or positive. Regardless of the contingency, it will change your available means (what you know, who you know or who you are). This provides the entrepreneur with a new set of available means to leverage. Leveraging this may create novel outcomes (a new venture or a different direction for a current venture).

Welcome to your seminar for this topic. Your lecturer will start a video stream during your scheduled class time. You can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then clicking 'Join' to enter the class.

Click here to access your seminar.

The learning tasks are listed below. These will be completed during the seminar with your lecturer. Should you be unable to attend, you will be able to watch the recording, which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.

Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)

In-seminar learning tasks

The in-seminar learning tasks identified below will be completed during the scheduled seminar. Your lecturer will guide you through these tasks. Click on each of the following headings to read more about the requirements for each of your in-seminar learning tasks.

Welcome to your post-seminar learning tasks for this week. Please ensure you complete these after attending your scheduled seminar with your lecturer. Your lecturer will advise you if any of these are to be completed during your consultation session. Click on each of the following headings to read more about the requirements for each of your post-seminar learning tasks.

Each week you will have a consultation session, which will be facilitated by your lecturer. You can join in and work with your peers on activities relating to this subject. These session times and activities will be communicated to you by your lecturer each week. Your lecturer will start a video stream during your scheduled class time. You can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then clicking 'Join' to enter the class.

Click here to access your consultation session.

Should you be unable to attend, you will be able to watch the recording, which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.

Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)

These are optional resources to deepen your understanding of the topic material:

• DardenMBA, 2015, BizBasics: Entrepreneurship: (not) risky business with Saras Sarasvathy, streaming video, You Tube, https://www.youtube.com/watch?v=3IJlHfw43mQ
• Marie Forleo, 2017, How to be brave in the wilderness, streaming video, https://youtu.be/RZWf2_2L2v8

References

• Big Think, 2012, Saras Sarasvathy doesn’t mind a little recession, streaming video, You Tube, https://youtu.be/YnRnDsIWOUQ
• Boutang, Y.M., 2015, ‘The pollination of creativity,’ in Cocco, G & Szaniecki, B. (eds) Creative Capitalism, Multitudinous Creativity: Radicalities and Alterities, Lexington Books, pp.235-247.
• Brown, B 2016, ‘Brené Brown encourages educators to normalize the discomfort of learning and reframe failure as learning,’ About Campus, 20(6), pp.3-7.
• Brown, B., 2018. Dare to Lead: Brave Work. Tough Conversations. Whole Hearts. Random House.
• Detert, J 2021, Choosing courage: The everyday guide to being brave at work<, Harvard Business Press.
• Kosterlitz, A 2015, ‘The four traits of confidence: Growth mindset, courage, grit, and self-compassion,’ Woman Advocate, 21(1), pp.12-17.
• Read, S, Sarasvathy, S, Dew, N & Wiltbank, R 2016, Effectual Entrepreneurship, 2nd ed., Routledge.
• RSA, 2015, Brene Brown on blame, streaming video, You Tube, https://youtu.be/RZWf2_2L2v8
• Society for Effectual Action, n.d, https://www.effectuation.org/
• TEDx Talks, 2020, Uncertainty: the best gift you never wanted, streaming video, You Tube, https://youtu.be/NEnK4NqWUJM
• Townsend, D.M., Hunt, R.A., McMullen, J.S. & Sarasvathy, S.D 2018, ‘Uncertainty, knowledge problems, and entrepreneurial action,’ Academy of Management Annals, 12(2); 659-687.