Despite the growing awareness of the different approaches and techniques used to improve decision making, there is little scientific understanding of the best approach. In this IGL funded trial, researchers from Bocconi University present their findings from a randomised controlled trial (RCT) into whether adopting a scientific approach improves entrepreneurial decision making and firm performance.
Many early-stage entrepreneurs make bad decisions because their estimates of the returns from their business ideas are inaccurate. They often overestimate how likely extreme outcomes are (i.e. how likely events at both ends of distribution are), or fail to consider all the potential variability or volatility of the outcomes.
Our field experiment with 250 nascent entrepreneurs attending a pre-acceleration programme shows that the adoption of a scientific approach in the process of new venture creation improves entrepreneurial decision-making. In our randomised controlled trial, entrepreneurs were randomly assigned to either a treatment (being taught how to use a scientific approach when developing a business idea) or a control group (being taught how to develop a business idea). Before, during and after the 3-month training programme, we collected detailed data about their performance and decision making for a total of 14 months. We found that treated entrepreneurs were more likely to close their business than entrepreneurs in the control group. The treated entrepreneurs also exhibited patterns of pivoting, consistent with the idea that they are more precise in the changes that they make to their business. We also find that they make higher revenue than entrepreneurs in the control group. We offer a comprehensive theory about why and how the adoption of the scientific approach improves entrepreneurial predictions and judgement, highlighting how it works under different conditions. More specifically, we distinguish between two general types of entrepreneurs – those who cannot make precise predictions (“confused entrepreneurs”), and those who do not see opportunities (“unimaginative entrepreneurs”). Given the high fraction of “confused” entrepreneurs in our sample, the adoption of the scientific approach leads to more venture ideas being abandoned, more focused pivoting and, on average, higher revenues. We conceptualise the scientific approach as a “rational heuristic” – a set of behavioural routines or a discipline - that can mitigate decision biases and improve the combination of thinking and doing which characterises any entrepreneurial venture.
Our trial has shown that entrepreneurs can benefit from the adoption of the scientific approach because it reduces the risk of incurring in false positives (“confused entrepreneurs”) and false negatives (“unimaginative entrepreneurs”). You can find our more about the trial and read our earlier blog.