Toward a Theory of Experimentation in Early-Stage Ventures
Posted: 9 Jan 2021
Date Written: November 20, 2020
While the literature on organizational learning has mostly emphasized its “behavioral costs”, the strategic management literature suggests that learning processes may also have “strategic costs”. A form of learning that is particularly relevant for nascent firms is experimental learning. This paper proposes a novel theory of experimentation in early-stage ventures. Combining multiple perspectives in strategic management, I synthetize the extant literature to develop a conceptual framework that illustrates how the choice of experimentation affects the performance of early-stage ventures. Guided by the value-based strategy perspective, I argue that four causal mechanisms drive the impact of experimentation on performance: information, adaptation, reputation, and imitation. The analysis generates a series of propositions describing the effect of each mechanism and the moderating role of the key organizational capabilities and environmental features. Contrary to the popular view in the literature and among practitioners, the analysis concludes that experimentation is not always the optimal strategy for early-stage ventures, and suggests the conditions entrepreneurs should evaluate prior to taking the experimental route.
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