Effectuation is a decision-making framework used by entrepreneurs that emphasizes starting with available means—who they are, what they know, and whom they know—and focusing on affordable loss rather than predicted returns. Instead of setting a specific goal and then finding the means to achieve it ([[Causal reasoning]]), effectuation involves leveraging existing resources and relationships ([[Effectual reasoning]]) to co-create opportunities, adapt to uncertainty, and shape the future collaboratively with stakeholders. This approach allows entrepreneurs to remain flexible, learn from feedback, and iteratively develop ventures in unpredictable environments. Effectuation was proposed by Saras Sarasvathy and applies [[Effectual reasoning]] in entrepreneurship through five key principles: 1. **Bird-in-Hand Principle**: Start with what you have. Innovators use their existing resources, skills, and networks to create new opportunities. 2. **Affordable Loss Principle**: Focus on what you can afford to lose rather than potential gains. This encourages taking calculated risks without fear of significant setbacks. 3. **Crazy-Quilt Principle**: Form partnerships and build networks. Collaborating with others allows for pooling resources and ideas. 4. **Lemonade Principle**: Embrace surprises as opportunities. Innovators remain flexible and adaptable. 5. **Pilot-in-the-Plane Principle**: Focus on activities within your control rather than trying to predict the future.