Pivoting and Experimentation in Lean Startups

Daniel Schliesmann, PhD Candidate in Management, The Wharton School, and Daniel Levinthal, Management, The Wharton School

Abstract: While recent scholarly and practitioner research has stressed the importance of learning in entrepreneurial settings, little scholarly work has formally examined the mechanisms through which learning drives behavior in those settings. Specifically, we investigate how an active learning process based on evaluating performance relative to an aspiration drives the pivoting and experimentation behavior of startups in environments with high degrees of uncertainty and potentially intense selection pressures. Our results speak to the relationship between funding levels and organizational outcomes, the challenges of learning about uncertain futures, how selection and learning can lead to overconfidence which biases organizations against pivoting and change (even when such change is necessary), and behavioral strategies that startups can pursue to improve expected performance outcomes.