On Disciplined Entrepreneurship

The core task for non-random entrepreneurship is effectively managing the uncertainty inherent in trying something new. Uncertainty is the flip side of the fat rewards sought both by entrepreneurs and established enterprises. The uncertainty facing entrepreneurs comes in a variety of forms—risk, complexity, ignorance, and indeterminism. While financial investors can make use of methods including syndication, insurance, and diversification to reduce uncertainty and risk, these are not available to entrepreneurs and managers. What, then, are the alternatives? Sull dismisses three common approaches: jumping onto an opportunity with no guidance; avoiding all risk; and operating in perpetual fire-fighting mode. Based on five years of study, Sull outlines an iterative experimentation model consisting of three steps.

Moved by Karl Popper’s mode of the scientific method as a process of conjectures and refutations, Sull sets out his view of disciplined entrepreneurships in three steps: Formulate a working hypothesis, assemble resources, and design and run experiments. The first step involves forming a model of the opportunity, the resources it requires, the value that success would create, and a plan to pursue it. To help entrepreneurs formulate a working hypothesis despite multiple kinds and levels of uncertainty, Sull urges them to “keep it fluid”; “be sure you have the right to an opinion”; and “identify deal killers and big bets.”

For step two—assemble resources—Sull says that the iterative experimentation approach can ease the difficult, time-consuming, easily-botched process of pulling resources away from their current uses. He suggests raising enough money to fund the next round of experiments, stabilizing the business model before making key hires; and outsourcing functions that distract you from critical experiments. On the second point, he notes research indicating that hiring too early can mean that firms “get the perfect CEO for the wrong business model.”

The final step—design and run experiments—involves understanding and applying a distinction between “partial experiments” and “holistic experiments”, then staging those experiments while avoiding “experiment creep”. Sull defines an experiment as “a test designed to reduce sources of uncertainty critical to the success of a new venture before deciding to commit additional resources.” Partial experiments enable the entrepreneur to uncover information about a single variable, whereas holistic experiments test multiple variables and interactions on a small scale. Sull believes that this process of iterative experimentation can bring discipline to entrepreneurship without snuffing out its essential spirit.

Via-Manyworlds