A classical approach to collecting and elaborating information to make entrepreneurial decisions combines search heuristics such as trial and error, effectuation, and confirmatory search. This paper develops a framework for exploring the implications of a more scientific approach to entrepreneurial decision making. The panel sample of our randomized control trial includes 116 Italian startups and 16 data points over a period of about one year. Both the treatment and control groups receive 10 sessions of general training on how to obtain feedback from the market and gauge the feasibility of their idea. We teach the treated startups to develop frameworks for predicting the performance of their idea and to conduct rigorous tests of their hypotheses very much like scientists do in their research. We let the firms in the control group, instead, follow their intuitions about how to assess their idea, which has typically produced fairly standard search heuristics. We find that entrepreneurs who behave like scientists perform better, pivot to a greater extent to a different idea, and do not drop out less than the control group in the early stages of the startup. These results are consistent with the main prediction of our theory: a scientific approach improves precision; it reduces the odds of pursuing projects with false positive returns, and raises the odds of pursuing projects with false negative returns.
Enterprise revenue, dropout rate of firms / entrepreneurs and the number of pivots to business models.
Entrepreneurs that are trained to follow a scientific approach to evaluate and develop their business idea are slightly more likely to stop all activities related to their business idea (40% for those trained versus 35% for those untrained) within the nine month following the beginning of the training.
Participants that are taught the scientific approach to decision making are more likely to pivot to a different idea from the one they originally had. While 49% of those trained pivot at least once, only 21% of untrained entrepreneurs do.
Entrepreneurs that pivoted to new ideas as a result of the scientific approach training are more likely to acquire or activate customers afterwards.
Within the first nine months, firms receiving the scientific approach component do not have higher odds of having positive revenue. However, positive revenues appear earlier for these firms and average revenue is higher.
There is suggestive evidence that these effects are driven by an improvement in entrepreneurs' precision when predicting the viability of their idea.