I love science. So should you, if you are an aspiring entrepreneur.
Scientific thinking improves entrepreneurial decision-making and ideas.
As most entrepreneurs can attest, finding a profitable business model is hard. Really hard. But luckily, science, or rather, scientific thinking, can help.
Decisions about business ideas, such as which new products or services to launch or which market to enter, are made under uncertainty. Such decisions call for judgement.
But if you are like me, you would prefer basing your judgement on a systematic approach, rather than on a process of trial-and-error. I am not a big fan of unstructured searches for soft cues or weak signals either.
Rules of thumb and intuition work sometimes and for some entrepreneurs. It is unlikely that they work consistently for all entrepreneurs all the time.
Proposition
Unlike what you might think, I am not suggesting that aspiring entrepreneurs should start systematically browsing scientific journals for the latest research findings.
Nor am I referring to using state-of-art conceptual tools, such as business model canvases, minimum viable products, or customer interviews. These tools are widely used to develop and validate business ideas.
Rather, what I propose is that an aspiring entrepreneur benefits from following the scientific method when deciding which of the potential entrepreneurial opportunities to pursue.
If you are a nascent entrepreneur that does so, the likely effect is that you
- pivot to a new idea,
- reduce the odds of pursuing projects that initially appear to produce positive returns but that in the end do not, and
- increase the odds of pursuing projects that initially do not seem to produce positive returns but that in the end do.
In sum, the likely effect is that you earn greater returns than you would, had you acted like a non-scientist entrepreneur.
Evidence
In case you worry, I am not making this up. I rely on science.
The likely effects of following the scientific method in entrepreneurial decision making are based on a study by Arnaldo Camuffo (Professor of Business Organization, Bocconi University), Alessandro Cordova (Ph.D., now Senior Associate at Boston Consulting Group), Alfonso Gambardella (Professor of Corporate Management, Università Bocconi), and Chiara Spina (now Assistant Professor of Entrepreneurship, INSEAD Singapore), published in one of the leading management journals, Management Science, in 2020.
The title of their study, “A Scientific Approach to Entrepreneurial Decision Making: Evidence from a Randomized Control Trial”, summarizes most of what one needs to know about the study.
The results are based on a randomised controlled trial (RCT), to which 116 Italian start-ups participated. In such a study, correlation implies causation.
Therefore, the study’s findings provide information about the cause (i.e., training of the scientific method) and the effect (i.e., better entrepreneurial performance).
The results show that entrepreneurs who were randomly assigned to the treatment group performed better than the entrepreneurs who were assigned to the control group. The members of the treatment group were taught principles of scientific thinking. Those in the control group were not taught principles of scientific thinking.
Method
The scientific approach is, as the authors of the Management Science study put it,
“…a general method of thinking about and investigating problems.”
It consists of the following:
- Identify and frame the problem.
- Articulate a simplified but systematic view of the relevant framework (i.e., “a theory”) and decision-context.
- Define clear falsifiable hypotheses (claims, arguments).
- Conduct rigorous tests to prove or disprove the hypotheses, using systematically collected data and observations.
- Make decisions based on what is learnt.
This may sound abstract. Well, it is, because it is a general method for decision making. But it works.
Applied to a business model choice, the scientific approach would call for
- … framing the problem as the concrete goal of choosing of the most viable business model among a set of candidate business ideas.
- … articulating a theory of the firm (“how the firm would work”), perhaps with the help of a business model canvas, for each candidate business model.
- … defining clear falsifiable hypotheses about how each candidate firm would perform in the prevailing environment (e.g., why there would be demand for its product and no too-close competitors or substitute products).
- … conducting tests and thought experiments to prove or disprove the hypotheses, using clearly defined thresholds and criteria (e.g., not views of family and friends) and unbiased observations (e.g., not based on questions or observations that just confirm something that was initially believed).
- … making decisions based on what has been learnt, not based on what was the first or initial impression.
In case you want to learn more, I encourage that you take a look at the published article or at this summary, written by the study’s authors.
Lessons
Many new ventures and entrepreneurial ideas fail.
This fact suggests that many entrepreneurs tend to pursue ideas and projects that are, in the language of statistics, false positives: that is, projects that initially seemed to generate positive returns but that in the end, did not.
The scientific method is a tool to reduce the odds of pursuing such false-positive projects.
The reason is that it forces you to look at your project ideas more critically and more objectively. Doing so helps you to make more accurate predictions and exercise better judgement.
There is a side effect to applying the method. It may mean that you are more likely to abandon your current business idea. Luckily, it should result in you pivotting to a new, better idea.
This, in turn, means that you are more likely to be in business.
Ari Hyytinen, PhD, is professor of economics, living in Helsinki, Finland. I hike when I do not write, teach, or do research. I am on Twitter @artahy and on Linked-in here. You can follow me at: Ari T. Hyytinen, PhD.
