Build your dream team

Execute with Passion — Effectuation and Design Thinking

This article will look at two methodologies (top-down consultative and bottom-up exercise) used by entrepreneurs and innovation managers to jump-start their businesses.
6
Min Read
April 5, 2021

When I first returned to Germany after having lived in Australia for over 10 years, I noticed some striking differences in terms of the approach to innovation between the two countries. 

  • Germany: even smaller companies often seemed to apply a top-down (consultative) approach to generating new business and product ideas.  
  • Australia and America: what I have observed a lot was treating this as a bottom-up exercise

This article will look at two methodologies used by entrepreneurs and innovation managers to jump-start their businesses.

The benefits of a bottom-up approach:

  1. Your innovation system will constantly be injected with energy. Instead of endlessly analyzing the markets and stay on an abstract level, your team will speak to potential users/ customers, build prototypes and measure your progress. This will help your Startup team to feel like you are making real progress and drive energy into your business.
  2. If applied correctly, it is free from dogmatic world views and cognitive bias because your approach fosters a rigorously data-driven and scientific mindset. In other words, you only confirm your hypothesis once you find evidence in your data and do not try to focus on just securing your existing world view (confirmation bias)
  3. It aligns with how the brain works: we learn by accumulating experiences, and our brain is constantly adjusting to these new experiences. So, our neurons may fire when something does not align with our world view anymore, thus updating our approach to fit the new data/ experiences.
  4. You avoid the fallacy of going full speed ahead with an unproven idea and instead spend as little resources as possible just on different testing product features one by one.
  5. If you are part of an innovation team in a large company, you might be tempted to get one of the top consultancy firms to create a PowerPoint pack and design a top-down approach. After all, this is what they are paid to do. I cannot tell you how many clients I spoke to who all confirmed that often these decks end up in the bin, never to be looked at again. So, instead, you run a Google Design-Sprint, which may cost a lot less and provide you with a much more intuitive understanding of what moves your customers.

To avoid misunderstanding, I am not saying that it is not a good idea to analyze your market and customers top-down. However, this is an input into some of the bottom-up strategies (i.e. you could use this research in a design thinking challenge when trying to understand the pain points) rather than being the approach itself.

Experience-lead innovation approaches (Bottom-up)

Instead of listing a myriad of bottom-up approaches, let me instead focus on two which I found to be the most pragmatic and effective ones when working with clients or within our own business: Effectuation and Design Thinking. Unlike top-down methodologies such as market research, their implicit paradigm is a bias for action. Both are rapid methods to get results quickly. So, let's dissect them.

Design Thinking: Design Thinking is a non-linear process used to understand users, challenge beliefs, redefine problems and create innovative solutions to prototype and test. There are five phases: Empathize, Define, Ideate, Prototype and Test. It is most beneficial to tackle problems that are not clear or unknown. This is a five-day sequence in the Google Sprint variation wherein the last team tests their prototype with potential users.

Effectuation: is an approach to making decisions in an entrepreneurial environment, where you look at the participant's available resources (people, skills, technology, network, etc.) and identify the next logical step. Effectuation differs from Design Thinking in that it is resource-oriented as opposed to needs-oriented.

In my own experience, the two methodologies complement each other. Sometimes, especially at an early stage of your innovation process/ venture, you want to look at your existing strengths and resources to derive a quick-to-market next step. At other times, however, you are entirely in the dark and would like to use Design Thinking to conduct a deep dive into your users' pain points to derive new products and processes. Figure 1 categorizes different innovation methodologies.


The art of the start

Below are my top 4 tips for using innovative techniques and executing with passion:

Credit to Danielle MacInnes

1. Start with effectuation: If you are in an early phase, this is where you start. Sit down with your peers and use Post-it notes, and let everyone find answers to the following questions (in that order):

Who am I: What are my values, my pains, and why do I exist? What do I know: What are my skills? What resources do I have? Who do I know: Who is in my network? Once you have collected this data, now look at it and try to derive the logical next step. Is there anything you could be doing to take advantage of these combined resources?

2. You have an idea: great, pretend it already exists! A couple of years ago, I was on the phone with a client, and as we were talking, an idea for a new workshop popped into my head. I decided to pitch it to the client on the spot (pretending this workshop already existed) to get some initial feedback. You can do this with any idea. Just be bold enough to make something up! And if you have ethical concerns: you are just testing an argument with a potential client. Rather than investing a lot of money and time to develop a new product, you conduct authentic research upfront.

3. Selling B2B in a lean manner: Especially in business-to-business settings, it is crucially essential to collect some upfront feedback from prospective customers if you are in the process of developing a new product. Your meeting will also be a perfect sales meeting in disguise. Even though you contacted the client to ask questions about a potential outcome, you can use it to pitch the product and your company to them. With a stack of helpful, practical tips on creating a flourishing B2B business, there is an excellent book applying lean Startup principles: Lean B2B: Build Products Businesses Want.

4. The covid-19 tip: if you are like many other people and feel like your business model is going down the toilet because of covid-19, then it may be time to do a 5-day Design Sprint à la Google and develop an updated and intuitive understanding of your market and customers. Now may be a good time to use your resources and develop user-centric ideas. If you don't know where to start, this book can provide you with efficient tips on doing it.

In summary, there are several innovation methodologies that you can apply to execute with passion and power. We have focused on two, namely Effectuation and Design Thinking, and gave you some insights into where you might be able to use them within your innovation cycle.

Share this:
Written by
Markus von der Luehe

Discover more about

Build your dream team