Working Paper: CEPR ID: DP14909
Authors: Arnaldo Camuffo; Alfonso Gambardella; Chiara Spina
Abstract: 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.
Keywords: scientific approach; entrepreneurship; field experiment; RCT
JEL Codes: L21; L26; M13; M21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| scientific approach (C90) | increased precision in assessing business ideas (M13) |
| increased precision in assessing business ideas (M13) | increased likelihood of closing less promising startups (M13) |
| scientific approach (C90) | increased likelihood of closing less promising startups (M13) |
| scientific approach (C90) | increased likelihood of pivoting to new ideas with higher expected returns (D84) |
| increased likelihood of pivoting to new ideas with higher expected returns (D84) | better performance outcomes (D29) |
| scientific approach (C90) | better ability to interpret signals from customers (L15) |
| better ability to interpret signals from customers (L15) | enhanced ability to innovate (O36) |