A Scientific Approach in Entrepreneurship and Strategy

Thinking like a scientist. This may not be new, especially for scientists. And not so much for entrepreneurs who subscribe to Eric Ries’ Lean Startup method1. But it was a hot topic at the recent Academy of Management (AOM) conference.2

I’m a scientist who has lived in the business world for decades. So, I’m excited to see the scientific method embraced at a business-centred conference. The AOM is an organization of business scholars, or people who study business. However, like every business school I’ve been part of, AOM aims to share knowledge with the practicing community.

First observation: Transparent Logic. The term immediately resonated – I knew exactly what it meant and why it was important in entrepreneurship. Transparent logic is part of a model for teaching social entrepreneurship3 and requires a clear link between the proposed activities and the social problem a venture is tackling. For example, providing water purification devices will decrease the incidence of dysentery, leading to fewer hours of lost labour and therefore people earning a better wage, however, it needs to be clear how people who need the device will get them and continue to use them. For many scientists, cause and effect is utopia. Transparent logic in a social venture seeks this holy grail of cause and effect.

At a session on entrepreneurial strategy4, we heard it was less about SWOT analysis and more about observation leading to hypothesis generation. An entrepreneur sees an unsolved problem and hypothesizes they can solve it with a certain product. The term causal logic came up, followed rapidly by notions of testing. Establishing value, after recognizing opportunities, can have its roots in the scientific method. The entrepreneurial process is scientific.

In the same session, a trial to evaluate the impact of the scientific method on startups was presented. Entrepreneurs were randomized into two groups. One was mentored traditionally – entrepreneurs were guided in business methods, product development and organizational development. The other group was tutored in a scientific method, using hypothesis generation, controlled testing and analytical methods to learn from test outcomes. Those using the scientific method pivoted more frequently, acquired and activated more customers and had more revenue generation. From this: the scientific method works for entrepreneurs.

On to a plenary session on strategy.5 There, too, causal identification was presented as a frontier in strategy research. My head started to spin with so many scientific references. I was brought back to objectivity, reminded that physics with its fundamental, timeless certainties such as gravity, was more reliable for test outcomes. The fundamental forces that shape business shift more often. However, like evolution of species, changes in strategic theme occur in leaps and bounds, rather than continuously. An example is the upheaval in retail, with the onset of online shopping. A discrete change in how we shop. It left survivors (Amazon) and the less fortunate (Sears Canada).

The hotness of the scientific method in business strategy looks to me like the mid-point stage on the S-curve6 of adoption of new things (technology, products, buzz-words, sports teams). Following this trajectory, soon it won’t be the new thing, but the common thing.

When I ventured out of the lab many years ago to join an investment bank, I was a foreigner. Welcomed, but in a world of people who thought in different ways. They had vision. Visions of logical explanations. Maybe it’s me that’s catching up, learning that shrewd entrepreneurs see value where other’s don’t.

The scientific method can make sense and compelling arguments out of ideas. It makes it easy to answer hard questions about why you think this new idea you have will make a great business. A great tool for any entrepreneurial business strategist.

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1http://theleanstartup.com

2This is a huge conference, attended by thousands of faculty members from business schools all over the world. With two days of symposia, plenary sessions and papers, each with 7 time slots, and an average of 15 sessions to choose from per time slot, this means there are (15) 14 = 2.9 x 1016 different individual selections of talks to attend. Or maybe it should be 15! which is only 1.3x 1012 I’m not exactly sure how to calculate the number of different permutations of the program but any way you do, the number is really big. So my experience may not be typical.

6Not surprisingly, the S curve is S shaped.

In the beginning, a handful people embrace a new thing. The adventurers, the risk-takers, perhaps those in the field who understand the new thing better than most. This is the first stage, the flattish bottom to the S curve.

Then word starts to get around. The new thing is good. It does exciting things. It’s better than the old thing. People jump on board, start adopting the new thing like it’s the best thing since the last new thing. This is the part of the curve that swings up so rapidly that if it was an airplane, everyone on board would pass out.

As time goes on, people remain excited about the new thing, but many people have the new thing, so the adoption curve starts to lessen its assent – the plateauing phase of the vertical rise.

Finally, just about everyone who will ever want the new thing, which isn’t so new any more, has it. The S curve flattens. No additional adoption because everyone loves and appreciates the new thing.

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