The episode highlights a unique situation that the Nine Dragon Paper Company. It was created by means of an affordable loss deal. This is where the success of the business guarantees an eventual profit and a novel business idea. Therefore a failure would not lead to a drastic disadvantage, as the costs of failure are low.
The creator and her partner have created a unique business idea, Nine Dragon Paper Company that is both profitable and environmentally friendly. Here by recycling old cartons that people would pay to dispose of. The problem of transportation is solved by these “affordable loss deals”. This is favourable to both the company as well as the owners of the shipping container. Here both parties have a lot to gain in the event of a success and very little to lose if the business is ultimately a failure, as the initial investment costs are affordable.
Saras Sarasvathy continues to discuss effectuation; concentrating on one of the principles; affordable loss. Entrepreneurship requires a lot of resources such as time, money, skills etc. In her research, she meets people who want to know ways to get the right support. This is in terms of finding people to cooperate and work with for you startup. She mentions that with effectuation there is no excuse to start doing something as it rids people of excuses. She further mentions that out of the five principles of effectuation, some requires more dedication than others.
Two principles namely crazy quilts and pilot-in-the plane are key, however, others are important as well. Crazy quilts require getting the support or people to work with. This can be mentors, investors and partners. To get the right people to work with, effective communication is vital. Pilot-in-the-plane requires to plan for the future but to mainly concentrate on the present. As an entrepreneur, you don’t have to concentrate on thing within your control.
Saras Sarasvathy is a professor at the University of Virginia Darden School of business. Entrepreneurship, cognitive science and behavioural economics. Her work in entrepreneurship has won numerous awards and accolades.