Disciplined Entrepreneurship

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Although the pursuit of opportunity promises outsized rewards to entrepreneurs and established enterprises, it also entails great uncertainty. The critical task of entrepreneurship lies in effectively managing the uncertainty inherent in trying something new. Some entrepreneurs foolishly try to ignore uncertainty; others go to the opposite extreme of attempting to avoid it altogether. Rather than ignore uncertainty or attempt to avoid it in the naive belief that every contingency can be anticipated, entrepreneurs should instead manage uncertainty by taking a disciplined approach.

Over the past five years, the author conducted systematic research into how entrepreneurs manage the inevitable risks while pursuing opportunities. A synthesis of the research revealed that discipline — and its byproduct, the successful management of uncertainty — comes through the adoption of an iterative experimentation model. In this three-step process, an entrepreneur first formulates a working hypothesis about an opportunity, then assembles the resources to test the hypothesis, and finally designs and runs real-world experiments. Depending on the results of a round of experimentation, the entrepreneur may revise the hypothesis and run another experiment, harvest the value created through a sale, or abandon the hypothesis and pull the plug.

The model provides insights into some of the most daunting questions entrepreneurs face — including how to screen an opportunity, how much money to raise, when to make key hires and how to use limited resources most efficiently.

Donald N. Sull is an associate professor of management practice at London Business School. He can be reached at dsull@london.edu.

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