How Entrepreneurs make sense of Lean Startup Approaches: Business Models as cognitive lenses to generate fast and frugal Heuristics

Abstract

The role of the business model (BM) as heuristics to support entrepreneurial and strategic problem solving at a cognitive level has been hinted at by extant literature, but left largely unexplored as of yet. This study is positioned in the emerging research on the cognitive individual microfoundations of Entrepreneurship and Strategy, and contributes to the discussion of how business models are used as heuristics, in the novel and relevant setting of Digital Entrepreneurship. We conducted a multiple case study on three digital startups that applied the emerging Lean Startup Approaches (LSAs) and embody technological development in their value proposition. We found that digital entrepreneurs applying LSAs as a systematic process to validate their business ideas rely on business models as cognitive lenses to make sense of LSAs and translate abstract guidelines into fast and frugal heuristics, in order to ‘make do’ with cognitive resource scarcity. These BM-generated heuristics in turn help entrepreneurs in the activities of: (i) making sense of entrepreneurial opportunities; (ii) formulating falsifiable hypotheses concerning their startups’ viability; (iii) filtering, selecting and organizing fuzzy and incomplete external and internal information; (iv) designing multidimensional customer experiments and tests revolving around the notion of value, through Minimum Viable Business Models (MVBMs); (v) prioritizing these experiments and tests to validate their early BM through analogical arguments; and (vi) processing the learning they obtain from experiments, and concretizing it in the form of BM pivots. We also provide empirically-driven insight on an integrative set of cognitive processes – namely (1) cognitive imprinting, (2) common language transfer; (3) attention intensity and (4) scientific and experimental cognition – that mold and blend together the BM-generated heuristics and explain how they are learnt, transferred, enacted, and how they persistently enable a cognitive transition to the application of a scientific method to Entrepreneurship based on more sophisticated experiments and metrics.