Does scientific decision-making help startups succeed?

By Elena Novelli, Professor of Strategy, Bayes Business School.

Bayes’ theorem can be used to calculate the conditional probability of events. It suggests that we can update our beliefs based on new information.

Likewise, data is also used by entrepreneurs to produce sales forecasts and discover gaps in the market that could convince investors to support their creative ideas. My research indicates that effective data-driven decision-making relies heavily on the clear articulation of a theory of value – essentially a transparent reflection on the logic that guides decisions. In multiple randomised controlled studies involving hundreds of companies across countries and industries, my coauthors and I have found companies who make theory-guided (or 'scientific') decisions are more likely to terminate unpromising projects, pursue more focused strategic actions, and perform better overall.

As part of our research, we created a business support programme for entrepreneurs, which trained them on how to make decisions regarding their business. Half of these entrepreneurs were explicitly encouraged to articulate a theory of value and collect data to test it. We kept regular contact with all participants for a minimum of 10 months, conducting interviews to understand how learning in the classroom affected their decisions and how it translated into performance.

In one of these studies with 261 UK microbusinesses, my co-author and I found that a company’s stage of development is a critical factor in determining the way in which a scientific approach to decision making can help them. The stage of development of the company – whether the entrepreneur has just a general idea still subject to change or a more established idea – is important. Entrepreneurs with more established ideas utilised methods to make small adjustments to existing strategies, including product descriptions or advertising to achieve greater sales. Early-stage companies focused on challenging their assumptions when entering into a market. This fundamental mindset shift tends to hamper short-term revenue because it leads entrepreneurs to reassess their business propositions in a more fundamental way.

Both groups of companies therefore benefited from thinking more carefully about the logic underlying the decision before making it, albeit in very different ways, leading to maximisation of different performance outcomes. This suggests performance expectations should vary for companies between earlier and later stage of idea development. It has implications for founders themselves, but also for investors who must show the patience and understanding to adjust expectations of young companies, and the realities of short-term pain for long-term gain.

This point is underlined by another study I have undertaken, which looked at how scientific approaches can help ‘user’ entrepreneurs – those who provide products and services based on their own needs or market segment – improve their value propositions through strategic pivots. Research shows that these entrepreneurs often struggle in idea commercialisation. While designing and marketing services for like-minded target groups can benefit from specialist knowledge, overlooking alternative product uses or broader user segments may limit commercial potential.

We looked specifically at female entrepreneurs with female-targeted ventures, such as coaching for women or online travel platforms targeted at women clients. In similar fashion to the previous study, 172 participating women entrepreneurs were provided with business training - with half of the group explicitly encouraged to articulate business logic and collect evidence on it before making a decision.

The results showed that user entrepreneurs were more likely to make radical changes to their business offerings when applying these approaches compared to non-user entrepreneurs. We found entrepreneurs that did pivot their ideas following training interventions performed better in launching and sustaining their ventures. Interestingly, our study also revealed those with limited experience benefited more from guidance towards scientific modelling than more experienced entrepreneurs.

Striking the right balance between entrepreneurial instinct and structured scientific reasoning is more important than ever for both short-term and long-term success. This again underlines the importance of providing structured decision-making frameworks to early-stage and less experienced entrepreneurs, whose openness to change can be a powerful asset when guided by a scientific approach.