DP14909 Small Changes with Big Impact: Experimental Evidence of a Scientific Approach to the Decision-Making of Entrepreneurial Firms
Identifying the most promising business ideas is key to the introduction of novel firms, but predicting their success can be difficult. We argue that if entrepreneurs adopt a scientific approach by formulating problems clearly, developing theories about the implications of their actions, and testing these theories, they make better decisions. In particular, this approach helps entrepreneurs make more precise predictions of the value of their idea and to spot new ideas with higher expected returns. We also examine the mechanisms with which the scientific approach works. Specifically, we posit that scientific entrepreneurs are more precise initially, and less precise later on because they envision new version of their business idea that are worth assessing. Using a field experiment with 250 nascent entrepreneurs attending a pre-acceleration program, we provide evidence consistent with these mechanisms. We teach the treated group to formulate the problem scientifically and to develop and test theories about their actions, while the control group follows a standard training approach. We collect 18 data points on the decision-making and performance of all entrepreneurs for 14 months. Results show that increased precision in the assessment of the value of the business idea of treated entrepreneurs raises the probability that they close their start-ups. Scientific entrepreneurs are also more likely to see new opportunities with higher positive outcomes which prompt them to pivot to these new ideas and perform better.