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Altizon – Impact of Effectuation

Effectuation (effectuation.org) is a decision-making framework used by expert entrepreneurs. The early morning workshop of PN Camp Introduces this concept and help participants arrive at stakeholder commitments for their product market fit.

vinay_nathanVinay Nathan of Altizon talks about application of effectuation in his company and how it made him do more with less.  Altizon is a Pune based Industrial IoT company. Altizon was founded in April 2013 by Vinay Nathan, Yogesh Kulkarni and Ranjit Nair and is a venture-backed startup. They recently launched state of the art Industry experience center for their product

What was the change in your head with effectual Stakeholder Dev?

Put in a lot more structure and rigor and discipline to something we should have been doing anyway. After 2-3 yrs of doing this startup we got insular. This workshop made us go out and resume our conversations with stakeholders. Really made us think about their affordable loss, make our asks into Affordable Asks for them. We were surprised by how much we got.

We’re an Industrial IoT company, and IoT is ecosystem play, so it was a snap-fit for us. We have to go to SI, App devs, chip guys, OS guys, manufacturers, etc.

What stakeholder development did was when we went across stakeholders with an ask here, and an ask there, and you get surprised by what happens. We did many mini pivots based on our asks and what we got from our stakeholders.

Mainly, while this was something at the back of our mind, we weren’t doing it in a structured way before, and we hadn’t heard about effectuation before. It put in a framework to what we were doing before in a patchy way.

How was affordable loss useful as a concept to you?

We now ask every SI to build a demoware component on our platform, this is affordable loss for them, and an affordable ask we make. Once we found out the affordable loss of our partners, we were able to put together an entire Industry 4.0 experience center with loaned equipment and demoware. So from manufacturers we asked for demo equipment, from Sis we asked for demo software that integrates, and works on our platform. This was nowhere in the picture without asking bunch of affordable things from our already existing stakeholders. In fact the Centre now acts as an interop lab for our SI partners to test their solutions.

For example, we have the entire integration equipment and a mini assembly line for smart manufacturing in our lab that Wipro or Microsoft doesn’t have in their center of excellence. We have the only center where an Industry 4.0 lab things actually has live hardware, integration across these equipment, demos from multiple SIs, and our platform in the background. To get this lab In place we would have had to spend $75k at least, instead we got it all with Affordable Asks for on engineering effort and loaned equipment. The use cases knowhow would not be available even on hire. We have now begun investing in this infrastructure to further enhance it.

Another example, we realized for scale, if we go down the solution route, we will use 50% of our dev bandwidth for that but won’t be setting up for scale. For us scale comes if Sis take our platform and sell/implement on it. So even if it’s more painful invest in the ecosystem, as much as we do ourselves. Category leadership meant we need to grow faster, so made building the SI ecosystem critical. The Affordable Ask/Effectuation framework helped us reach out to Sis and get demoware in return. This was not our approach before Stakeholder Development.

What were 2-3 things that you got?

We weren’t reaching out to competitors. Stakeholder development was breaking barriers of who to reach out to. Logical ones anyway you will meet anyway. But stakeholder development made us go all out to meet competitors. This was a huge mind set shift.

Industry 4.0 experience center was not even a dream before this

While getting customers to our experience center, we became aware of another group in the company, got them as customers

When you go with Asks, you might get new Means, but you also get New Goals. How do you take on ‘new goals’ without getting side-tracked?

We started working with an industry major on courseware for Industrial IoT. We were investing in the courseware since it was a marketing effort for us, and affordable loss for us. While we did that, we got to learn about a parallel product group sitting in Germany, who were looking for a platform/OEM play. We took this opportunity and are now in a sales discussion with them, where they will OEM our product.  We then got in touch with their consulting arm, and they wanted to know how to use us in their consulting practice, and we’re working with them on this. This happened in 8-10 weeks after we learnt about effectuation.

Right now, even more than the leadership, the entire team kind of works on this, and keeps doing it.

How much would it have cost to setup the experience center you vis-à-vis doing the Affordable Asks? Equipment cost, plus demoware cost (in time/money)

Easily we have availed of engineering efforts worth $75k in the first version of the center. Now this is ongoing activity and we will continue to benefit from the partner driven approach to building the center.

How are the Sis working with you in this model? Is it different from how you’ve worked with Sis in the past?

We would sell evaluation kits and hope they built good demos. We would rarely have access to what they built. Now by utilizing our own demo center they are keen to have it running in our center.

The other option we did with some partners was a joint webinar. But the number of stakeholders were too many and it was time consuming. Now we have more of a hackathon approach.

Can you give us some more examples of where you accepted different goals from stakeholders, in exchange for new means you got?

By interacting with our stakeholders across SI and equipment players we believe there is a space to create a Consortium focused on Industrial IOT for India. We now plan to play a leadership role in creating  it.

What were some surprises along the way that made you do mini-pivots? Did you get any Lemons that you made Lemonade from? ☺

We discovered while talking to the SI that there many application ISVs that have built assets on older Historian product lines that would love to move to an IOT stack. This acted as a spur for us to do campaign in that sector. We landed one applications ISV partner through this campaign who is now building an app for the Power sector using our platform. Now this is a customer segment we are actively targeting as it aligns very well with our marketplace model.

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A perspective on Entrepreneurial Independence

‪To me, entrepreneurship‬ is a dynamic manifestation of creating connected values with compassion; so I focus on creating connected values without worrying for my funding orientation.

When I started, after coming out of Sun Microsystems, I was not thinking about money as I was able to get some money by helping people who were using the product that I built at Sun. I did not know what it takes to build a company and more so, what it takes to build it in a constrained environment. In the meantime, I developed a passion for the bootstrapping model for building company. I created a community around it called “Bootstrap Bangalore”, it’s been 3 years we have been meeting every other Sunday at breakfast.

Later on, I was introduced to another powerful tool called “effectuation”. I attended a workshop conducted by Professor Saras Saraswathi. The effectuation principles are simple and empowers bootstrapped companies more meaningfully. This has become a language for me to express my business model. The effectual principles help an aspiring entrepreneur to bootstrap quickly. It also makes it easy to navigate the future, which is unknown.

Fear is a constraint, and at times, courage can become a constraint as well. Starting with what was available to me when I begun (and acting on it), has given me amazing new possibilities. Understanding my affordable loss allows me to be courageous or passive, as the situations demand. As a result, I don’t have the fear of  failing; and if I do fail, I will be able to reassemble myself since the cost of failure is affordable.   

Predicting the future is unnecessary. The future can be created or co-created without predicting it, if we have the ability to embrace surprises and adjust to a  new situation. Sometimes, external funding could become a constraint for the entrepreneurs, and force them to predict and gamble in an unnatural manner, without an affordable framework in place.

Unnecessary courage and prediction without commitment does not enable freedom. When taking external funds, one should look deep to see whether the investor has the appetite or commitment to co-create the future, and therefore expanding affordable loss bracket. I don’t believe in a wave on my back, that’s just a feel good factor. I hate to go after an artificially created market without the commitment from the consumers. When customers don’t know what they want, they go slow and iterate to identify what they may need.

Taking external money eventually turns out to be expensive for any entrepreneur. If you can build and scale a company on revenue, there is nothing more satisfying than that; but in the same time if you must need to increase your affordable loss bracket, you can take external funds to scale up. Don’t take money simply because your competitor is raising money. On the contrary, external money does not necessary mean you are loosing freedom, but if you take the money when you don’t need it, you will eventually compromise on your freedom.

As we talk, about models and funding orientations, I would also like to quickly touch another important subject. Sales is one of the most critical challenges for any entrepreneur, and especially the bootstrapped ones. I was very fortunate to interact with sales gurus like Deepak Prakash (Former VP Tally), who helped me to understand yet another simple thing – don’t sell; demonstrate what you have or what you can do; if you are solving someone’s problem they will buy. And that has worked for us.

Finally, the best way to build a business without depending on external money is to seek commitment from the customers –  sell it before you build it. Be open, and allow others to help you in co-creating a company/product. Collaborate to create connected values. Again follow the first principle of effectuation, do what you can do now, without depending on others, look for participation from there on. Freedom is in your hand and it’s up to you make that choice.

Enjoy the freedom of creating value, that can bring impact and meaningful change.

Hope you had a wonderful Independence Day!! Let’s celebrate the freedom throughout the year and reimagine a “Start-Up India”, “Stand-Up India”. Jai Hind !!

By Ahimanikya Satapathy, assisted by my daughter, Adya Satapathy 🙂

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“The Way” of Successful Entrepreneurs

“The Why” : 

This blog is a very hard one to write and is almost equivalent to capturing what Po felt at the end of KungFu Panda (for uninitiated don’t worry next few paragraphs will make it clear). Therefore I am not going to attempt to explain the methodology in its entirety. There is lot of information online on Wikipedia and Effectuation. However I am going to provide crux of the learning (memorable one liners wherever possible) that I took away and urge readers to explore more. The questions from current entrepreneurs at the end also should help one to think of it in an applied context.

The concept is extremely powerful and yet very simple; but to truly get the gist one needs to have attempted at least one startup. In spite of this I recommend or even mandate reading this before anyone attempts Entrepreneurship. If you don’t believe me, see Mr Vinod Khosla’s handwritten notes and remarks of this paper written by Prof Saras (first good paper I have seen titled – What makes entrepreneurs entrepreneurial?

Prof Saras arrived at this insight after interviewing 45 successful entrepreneurial CEOs from varied backgrounds and industries. Success in this context is defined as Entrepreneurs who have been doing companies for over 15 years with multiple startups and at least one IPO. The interviews and the analyses focused on the decision making process and the personal convictions of the entrepreneurs apart from the business models and the numbers.

The “What”:

One of the strongest common traits that emerged out of this is the lack of belief in market predictions and trends. Instead these focused on what is tangibly available to them at that point in time. Basically work with whatever already is in your control and not predict the future. This obviously generated a lot of heated discussion amongst the early stage entrepreneurs present, as the first step of any business plan is market projection. It’s a very difficult concept to wrap the head around as most of us come from managerial background and have been conditioned to project a goal.

The second strongest common trait is “Co-Creation of future”. This is a phenomenal concept much different than prevalent thinking of co-founder, investor, and customer equations.

The method is called “Effectuation” (as opposed to causal) is ruled by few first principles explained below. (For folks clued into this whole thing there are some overlap/comparison with Lean movement as well as Theory of constraints. )

(pic source : Effectuation.org)
(pic source : Effectuation.org)

Bird in Hand:

Do not start with the result. An actual sale is the only form of market prediction that one should rely on.

Affordable Loss principles:

Invest only as much as one can afford to loose. In extreme ideal case it is zero. The affordability is not just about material aspects.

Crazy Quilt principle

Build a network of self-selected stakeholders. No competitive analyses.

Lemonade principle

Embrace and Leverage surprises (Not avoid them)

Pilot in the Plane

So if you can’t predict how do you operate? This viewpoint is, future is neither known nor predicted, it is made.

The two by two matrix below gives a categorization various perspectives on thinking about the future. Corporates and VC tend to go for first quadrant. While the most successful entrepreneurs operate in quadrant 3.

The “How”

In action the effectuation process looks like this. The great emphasis is on really knowing who one is and defining the affordable loss (Box 2) from left. From then on it is really finding the co-creators and moving ahead.

(pic source : Effectuation.org)

 

The session concluded with many real life situations of the entrepreneurs present who shared their problems and an effectual way of solving them. Some of them with crux of the advise by Prof Saras are described in brief here.

effetuation31) If one is not focusing on market research, how do you know which market segments to go after? (Adarsh of Aindra)

  • The first principles stress on doing what is in your control and getting a committed co-creator. So selection of the target segments should be dictated by these factors. (Bird in Hand) Affordable loss principle dictates how much are you willing to lose in search of markets and that will also play into decision on markets.

2) How do you decide when to expand on another geography? (Mukesh of MediaAnt)

  • Base it again on the co-creation and bird in hand principles. Expand when it makes sense from the control perspective and when you have a committed co-creator.

3) What happens when effectuation ‘s first step (what we know, who we are) leads you to too small a niche? (Natwar, Around.io)

  • Sometimes it is great way to cut the loss and attempt something else. However many successful entrepreneurs have found a general aspect that can be scaled into larger markets (Ex IceHotel niche realized that it can export iceglasses to major high end hotels, also curtain blinds company realizing it is in the business of light control and expanding into lamp shades.)

The crazy quilt and lemonade (Embrace the surprise) may lead the extended team and sometime co-founders to feel that founders are disoriented. How do you deal with such situations? (Avi, Levitum)

  • People management no matter what way you go is a tough challenge. It is good to take the next level into the mindset and make sure their affordable losse’s are aligned with the change in direction.

Effectiveness of such methods in Indian eco system where trust factor is low and getting committed co-creator is not easy. (Manjula of IronSense, Vikram of BookBuzzer)

  • While there may be some truth in this as traditionally Indian businesses are family/community owned, the situation is not very different in developed countries. Commitments are hard and going back on the word does happen sometimes.

What does it mean when a stakeholder is following up but not giving money? Also specific question by Zimply about how make publisher commit to the discussed pricing ? (Roxna of Zimply, Anjan of Inquirly).

  • Both of these require ability to peel the layers and get to the root cause of stakeholders (co-creators) commitment phobia. Finally it is better to move on and find a new co-creator to make sure you are within your affordable loss.

To conclude, I feel at the center of it all is a very crucial “people and communication skills” that would help people to find co-creators. Hopefully we can collectively build the techniques tools and use cases needed for these amongst our eco system.