The exploratory processes of entrepreneurial firms: The role of purposeful experimentation

While it is widely recognized that firms in an era of technological ferment exist under conditions of significant uncertainty and ambiguity, little is known about the exact processes through which firms explore their ideas and resolve uncertainty. Arguing that our understanding of the era of ferment is much less developed than other aspects of the technology life cycle, we examine the micro-dynamics of technology-based entrepreneurial firms during this period. We focus on the role of purposeful experimentation as a key form of learning for start-ups firms in the era of ferment. Our approach contrasts with the prevailing view in the literature in which the era of ferment is characterized by extensive experimentation across firms, with each firm representing a single data point in an industry-level experiment. It also extends the learning literature by focusing on start-ups and taking the perspective that teaming can encompass purposeful experimentation as well as local search and chaotic adaptation in the era of ferment. Building on the literature on experimental design, we propose a definition and taxonomy of purposeful experimentation. The taxonomy defines the experimental landscape as having three domains technological, product and business model; and two dimensions - degree of simultaneity and degree of parameter manipulation. We examine this framework using data from a technology-based start-up and find evidence for purposeful experimentation as a key element of the firm's learning strategy. We also highlight the organizational constraints and challenges that are associated with experimentation. Our findings emphasize the importance of entrepreneurial action, choice and internal experimentation processes.