by Timothy Ott
We often think of entrepreneurial firms in the 21st century as disrupters – agile, fast-moving ventures which can out-maneuver incumbents or upend entire industries. They rapidly experiment, trying new solutions and listening to feedback over and over until they get it right. What they are doing is so novel and uncertain that they have no choice but to learn on the fly. Yet we also know – and still teach in core strategy classes – that the best strategies for organizations are often complex, with many different activities interacting with one another to make the strategy difficult for copycats to recreate. Entrepreneurs who are moving too fast to plan anything out may find themselves constantly putting out fires of their own creation as changes to one part of the business create inconsistencies elsewhere. Even Mark Zuckerberg eventually realized that “move fast and break things” ultimately led to less coherent solutions which limited growth, changing the famed mantra to “move fast with stable infra” in 2014. As entrepreneurs move on from exploiting internet and mobile technologies to exploring newer, more complicated technologies or solving the grand societal challenges that are at the forefront of all our minds as we write this, their need to balance novelty and complexity to form winning strategies will become even more important.
Our study, published in Strategic Management Journal, explores how entrepreneurs manage this tension by taking a deep dive into the strategy formation processes of six two-sided market ventures. We interviewed the founders of those ventures repeatedly over a four year period in order to track the strategic decisions they made in real time and how they went about making them. Through this, we uncovered a unique problem solving process – decision weaving – which allowed some of the firms to effectively form strategy, survive, and grow, while their peers floundered. We further detail the three interrelated behaviors that decision weaving is comprised of: sequential focus, learning plateaus, and stepping stones. Together, these behaviors allowed the entrepreneurs to focus on in-depth learning about one piece of the strategy at a time, without losing sight of how that piece may interact with the rest of the business.
Perhaps the biggest takeaway from our paper is that the problem solving approach which founders take when forming strategy can be the difference between seizing a promising opportunity or not. While much attention has been given to the question of how founders come up with promising opportunities to pursue, the importance of the decision weaving process shows that how they choose to pursue (i.e. seize) those opportunities is just as critical. We found that it was the combination of behaviors, rather than any one behavior on its own, which led to better strategy formation. It was not enough to just focus on learning one piece of the business at a time, as entrepreneurs often got distracted or moved on too early. The other aspects of decision weaving, learning plateaus and stepping stones, were critical to the ability to maintain focus and persist in building a coherent strategy.
To better understand why decision weaving is effective at forming novel, complex strategies we further unpacked the behaviors we observed by connecting them back to underlying cognitive processes in literature from cognitive science and psychology. For instance, one of the key aspects of sequential focus is consciously moving non-focal domains to the proverbial “backburner.” Unbeknownst to our entrepreneurs, by doing so they were forming what is known in cognitive science as “open goals.” Holding open goals tends to improve the ability of individuals to peripherally notice information relevant to those goals while focused elsewhere. In other words, entrepreneurs who consciously move parts of their business to the back of their minds are better able to focus without losing sight of the bigger picture.
While decision weaving is a novel strategy formation process, there are certainly ties to existing popular solutions for the entrepreneurial process such as lean startup and the business model canvas. Indeed, many of our entrepreneurs reported using concepts from these frameworks like testing hypotheses in focal domains – one founding team had even completed one of Steve Blank’s classes! However, we observe a much wider range of learning processes than lean startup tends to prescribe (not just serial experimentation) and identify learning plateaus and stepping stones as critical behaviors to a successful process. We think these additions can build on the prior frameworks to advance how we educate potential entrepreneurs and help them successfully navigate the entrepreneurial process.
Overall, we help explain why some entrepreneurs are better able to find winning strategies than their peers, despite similar or identical ideas. Decision weaving allows them to simultaneously be experiential learners and master planners when forming strategy.
Watch the video abstract
Reference
Ott, Timothy E. & K.M. Eisenhardt. (2020) Decision Weaving: Forming Novel, Complex Strategy in Entrepreneurial Settings. Strategic Management Journal, https://doi.org/10.1002/smj.3189.
About the authors
Timothy E. Ott is an Assistant Professor at Kenan‐Flagler Business School, University of North Carolina. He studies strategic decision making, entrepreneurial strategy and organizational learning.
Kathleen M. Eisenhardt is a Professor at Department of Management Science & Engineering, Stanford University. Her research focus is strategy and organization, especially in technology-based companies and high-velocity industries.