Joint seminar UNIL-EPFL - Alfonso Gambardella, Bocconi University
Small changes with big impact: experimental evidence of a scientific approach to the decision-making of entrepreneurial firms
Wednesday 20 November 2019 (12h00 - 13h30) - Extranef - EXT 109
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. Our theory predicts that the scientific approach corrects the problem of overestimation and underestimation of the returns from business ideas. This has implications for important entrepreneurial choices, such as discontinuing a business idea and pivoting, as well as for performance. Using a field experiment with 251 nascent entrepreneurs attending a pre-acceleration program, we examine the effect of a scientific approach to decision-making. In the field experiment, 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 treated entrepreneurs are more likely to close their start-up. We also find that scientific entrepreneurs are more likely to pivot a small number of times, suggesting that the scientific approach makes them more precise in pivoting to more valuable ideas. Finally, we find that the scientific approach increases revenue, suggesting that a more accurate assessment of ideas helps entrepreneurs to make better decisions and eventually leads to better performance. This study shows that the scientific approach is a critical link between decision-making and performance of nascent entrepreneurs.