Literature/202201061619 treating a business model as a scientific model

<ul> <li>Source: [<a class="litnote tooltip" href="/literature/@camuffo2019">@camuffo2019<span class="tooltiptext">A Scientific Approach to Entrepreneurial Decision Making: Evidence from a Randomized Control Trial</span></a>]</li> <li>Tags: <a href="/tags/entrepreneurship-principles">#entrepreneurship-principles</a> <a href="/tags/scipreneurs">#scipreneurs</a> <a href="/tags/business-models">#business-models</a> </li> </ul> <p>A business model is, in essence, an approximation to reality in pretty much the same way a scientific model is. Models are built with partial knowledge and try to predict the future, they are based on hypotheses, and have a certain degree of uncertainty. </p> <p>Apparently, entrepreneurs that treat their business models with a more scientific approach show a slightly better performance at pivoting to new ideas. This means, they identify the problems with their original plan earlier. Surprisingly, there's no clear evidence that they stop their process earlier. </p> <p>Having a scientific approach to validating ideas means that one should establish thresholds to define success/failure earlier (avoiding the <a class="wikilink" href="/post_hoc_ergo_propter_hoc/">post hoc ergo propter hoc</a> fallacy). It also helps identify biases in sample selection (for instance, asking only friends), and help plan the proper experiments (<a class="wikilink" href="/experiments_for_idea_validation/">experiments for idea validation</a>)</p> <p>An interesting idea is that <a class="wikilink" href="/since_most_startups_fail,_there's_a_large_number_of_false_positive_observations/">since most startups fail, there's a large number of false positive observations</a> in the processes. </p> <div class="admonition note"> <p class="admonition-title">Note</p> <p>On the other hand, false-negatives would be ruled out since those companies would automatically not exist. But the authors do not comment on that</p> </div> <p>It must also be reminded that the scientific method pushes its own biases and limitations (for example: <a class="wikilink" href="/citations_make_science_conservative/">citations make science conservative</a>) which may permeate into the business validation process as well. </p> <p>An interesting derivation from the model is the opportunity for <em>learning</em> that the scientific method enables. A properly conducted experiment that returns negative results, is still valuable from the perspective of pivoting into a new direction. This idea correlates with the observation that <em>scientific</em> entrepreneurs pivot more quickly.</p>