Business Case Studies & Business Publications

The Affordable Loss Principle

Sarasvathy, Saras ...

Technical Note

The Affordable Loss Principle

Sarasvathy, Saras D.

ENT-0075 | Published March 25, 2006 | 7 pages Technical Note

Collection: Darden School of Business

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Ideal for a study of entrepreneurship as a phenomenon, this note explores the difference between causal models and effectuation. Whereas causal models focus on maximizing returns by selecting optimal strategies, effectuation begins with a determination of how much one is willing to lose and leveraging limited means in creative ways to generate new ends as well as new means. The effectuator then uses the very process of building the venture to bring other stakeholders on board and creatively leverages slack resources available in the world. At each stage of the process he or she chooses options that create more options in the future.