Early-stage business model experimentation and pivoting

Abstract

Recent literature suggests entrepreneurs struggle to pivot—or fundamentally change aspects of their venture—due to identity-based resistance to change. Yet, when entrepreneurs receive negative feedback, overcoming this resistance may be important to pivoting their business model. We adopt a convergent, mixed methods research design to explore when and why some entrepreneurs overcome resistance to change in response to negative feedback during early-stage business model experimentation. Building upon qualitative data that we gathered and analyzed, we theorize entrepreneurs may resist pivoting their value proposition relative to other business model components despite receiving negative feedback on this aspect of their business model. However, we find three factors – entrepreneurial experience, startup mentoring, and team size – may enable entrepreneurs to pivot in response to negative feedback. We theorize that these factors broaden a startup team's perspective, enabling value proposition pivoting during early-stage business model experimentation. We test these relationships with quantitative data from 80 startups engaged in business model experimentation and find support across hypotheses. We contribute to understanding when and why entrepreneurs pivot aspects of their business models in response to negative feedback during early-stage business model experimentation. Executive summaryThe entrepreneurship literature suggests startups may benefit from experimentation and pivoting different parts of their business model in response to negative feedback from stakeholders (Andries et al., 2021; Camuffo et al., 2020; Shepherd and Gruber, 2021). In early stages of starting a new venture, a business model refers to a cognitive schema or belief about an activity system that could potentially create and capture value (Massa et al., 2017; Shepherd and Gruber, 2021). Business model experimentation is the process of testing assumptions underlying this potential business model and pivoting business model assumptions in response to negative feedback (Andries et al., 2013; McDonald and Eisenhardt, 2020; Leatherbee and Katila, 2020). Building upon prior literature, we define business model pivoting as a fundamental change to parts of the business model (Berends et al., 2021; Snihur and Clarysse, 2022; Shepherd and Gruber, 2021). Yet, literature also suggests founders often struggle to pivot assumptions despite negative feedback. Motives to preserve and protect certain assumptions relevant to founders' identities can interfere with pivoting (Grimes, 2018; Kirtley and O'Mahony, 2023; Zuzul and Tripsas, 2020). Despite the general understanding that founders struggle to change their ideas, however, the entrepreneurship literature currently lacks precise insight into when and why founders can overcome resistance to pivoting.In this research, we explore when and why startups pivot different parts of their business model. We do so within the context of early-stage business model experimentation, where founders explicitly state assumptions about different parts of their potential business model, test those assumptions against stakeholder feedback, and are encouraged to pivot business model components in response to negative feedback. Through a mixed methods research design, we find (1) founders tend to resist pivoting their value propositions relative to other parts of a business model in response to negative feedback; and (2) entrepreneurial experience, startup mentoring, and team size enables startups to overcome this resistance to pivoting in response to negative feedback. We theorize these factors broaden founders' perspectives (Warshay, 1962), contributing to a greater willingness to pivot during experimentation.We contribute to the literature on entrepreneurial pivoting by explaining nuanced variation in pivoting distinct business model components during experimentation. This contribution is important because it reveals that resistance to pivoting the business model may be more complex than previously thought. We also contribute to the literature at the nexus of business model experimentation and entrepreneurial cognition by finding that entrepreneurial experience, startup mentoring, and team size enable startups to pivot despite psychological resistance to pivoting in response to negative feedback because it broadens founders' perspectives. This insight is important theoretically because it advances what we know about enabling experimenting with business models under conditions of uncertainty. The research presented here has clear and important implications for practice. This research suggests founders often resist changing the value proposition versus other components of their business models in early stages of venture development. This resistance can impede experimentation and pivoting in response to negative feedback. To the extent founders want to broaden their perspective to enable pivoting their value propositions in response to negative feedback during early stages of venture development, our data suggest they may be able to do so by recruiting members with entrepreneurial experience on their team (or gain entrepreneurial experience themselves), engage frequently with startup mentors, and increase the size of their team. Overall, we view the breath of perspective that comes from experience and interactions with others as an advantage for entrepreneurs when experimenting with their business models during early stages of venture development.