Identifying the most promising business ideas is key to the introduction of novel firms, but predicting their success can be difficult. It is argued 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 to make more precise predictions of the value of their idea and to spot new ideas with higher expected returns. Precision implies that the distribution of value perceived by the entrepreneurs is more concentrated around its mean. While this cuts the right tail, it does not have important implications for the left tail because entrepreneurs will close the firm before making profits smaller than their opportunity cost. Thus, other things being equal, precision reduces expected returns, making it more likely that scientific entrepreneurs close their firm. At the same time, the scientific approach helps to see new ideas with higher probabilities at the right tail. Thus, when they do not close the firm, they perform better. Using a field experiment with 250 nascent entrepreneurs attending a pre-acceleration program, we provide evidence consistent with these mechanisms. The treated group is taught how to formulate the problem scientifically and to develop and test theories about their actions, while the control group follows a standard training approach. 18 data points are collected on the decision-making and performance of all entrepreneurs for 14 months. Results show that the narrower spread of the prediction of business value of treated entrepreneurs raises the probability that they close their startups. Scientific entrepreneurs are also more likely to see new opportunities with higher odds at the right tail which prompts them to pivot to these new ideas and perform better.
Being taught how to implement a scientific approach to decision making increases the probability that nascent entrepreneurs cease all activities related to their business idea (exit) by about 10%. The decision to exit is taken earlier for those trained on the scientific approach, compared to entrepreneurs who do not receive the training. This effect seems to be driven by the training on the scientific approach helping entrepreneurs be more precise in their predictions about the profitability of their ideas, and therefore to realise more often and earlier that very positive scenarios are unlikely to occur. Being trained on the scientific approach to decision making makes entrepreneurs more likely to pivot to a new business idea once, while reducing the probability of them pivoting more than twice. There is suggestive evidence that this effects are due to “scientific entrepreneurs” being more able to see new versions of their idea they can pivot to as well as better at envisioning profitable options they can pivot and stick to. Within the first and a half year, firms receiving the scientific approach training do not have higher odds of starting to make positive revenue, but average revenue is higher for them. There is suggestive evidence that this effect is due to the scientific approach allowing entrepreneurs to identify new factors that increase the value of their business idea, on the basis of improved understanding of the problem.