Four Approaches to New Venture Creation: Taking Stock and Moving Forward

Abstract

Lean startup, effectuation, creation theory, and the theory-based view represent four different descriptive theories of how new ventures emerge and/or normative theories of how new ventures should be developed. We juxtapose the four approaches and describe their similarities and differences, which provides a foundation for considering complementarities among the approaches and constructing a future research agenda for additional reconciliation and contextualization regarding how successful new ventures are, or should be, developed under varying circumstances.

Keywords

opportunity recognition new venture creation entrepreneurship innovation and learning MACRO

Lean Startup offers a methodology that focuses on continuous, iterative learning and experimentation supported by a set of business tools designed to support entrepreneurs during this process. Arguably, this methodology is the most widely used toolset in entrepreneurship and innovation worldwide, profoundly shaping how practitioners, educators, and academics think about new venture creation. The first three special issue papers following Eckhardt and Blank’s (2024) summary of Lean Startup, written by Sarasvathy; Alvarez, Barney, Arikan, and Arikan; and Felin, Gambardella, Novelli and Zenger, directly challenge the Lean Startup methodology by offering competing descriptions of how new ventures are or should be created. We therefore thought it appropriate to clarify similarities and differences between the Lean Startup and these alternatives and offer some thoughts about how they might be used in tandem or how different approaches might be preferred in different contexts and about how scholars can move forward from here.

While each set of authors describes their approach in their special-issue paper and in other publications (e.g., Alvarez & Barney, 2007; Sarasvathy, 2009; Wuebker, Zenger, & Felin, 2023), a direct comparison of approaches, including the Lean Startup, is lacking. Indeed, a careful reading of these three special issue papers shows that authors sometimes deemphasize elements of Lean Startup in their efforts to draw contrasts with their own work. To bring greater clarity and objectivity to the debate, we begin by summarizing our best interpretation of each approach. We then describe key dimensions upon which they differ, offer some thoughts about how the approaches might be viewed as complementary, and conclude with some unanswered questions that researchers might pursue to advance understanding of how entrepreneurs should best proceed under different conditions.

Four Approaches to New Venture Creation

Lean Startup

Eckhardt and Blank’s (2024) description of Lean Startup is largely consistent with our interpretation. It is a normative theory wherein entrepreneurs start with an assessment of their resources and capabilities, which often includes a newly developed product, service, or technology. The Where to Play tools help entrepreneurs evaluate alternative markets where the entrepreneurs’ resources and capabilities might be productively deployed (Gruber & Tal, 2017). Once a set of potential customers is selected, the business model canvas (BMC) is used to build a theoretical sketch of what a successful business might look like (Osterwalder & Pigneur, 2010). The business theory as described by the BMC includes a description of the proposed product or service, the customers the venture will target and the plan for reaching and relating to them, the value proposition (i.e., a description of why the entrepreneur thinks customers will want the product and/or service), the resources and partnerships necessary to deliver it, and a description of the financial model in terms of revenues and costs. Once the theory of the business is articulated, entrepreneurs “get out of the building” (Blank & Dorf, 2012) to talk to customers and other stakeholders (e.g., potential funders or suppliers) and run experiments (often using minimum viable products [MVPs]) to test the viability of each aspect of the BMC, starting with the most critical aspects of the theory that must be true. When collected data fails to support some aspect of the business model, the entrepreneur “pivots” by reimagining those aspects of the business model that did not receive support. When the unsupported elements are central to the business model (e.g., the value proposition), pivoting might involve returning to Where to Play to find a second-choice market where the entrepreneur’s specific resources and capabilities might be successfully leveraged.

Creation Theory

Whereas the Lean Startup framework is decidedly normative, creation theory is descriptive in its attempt to explain how novel business ideas emerge (Alvarez & Barney, 2007; Alvarez, Barney, Arikan, & Arikan, 2024). Under the assumption of Knightian uncertainty, where neither customers nor entrepreneurs know what might work, people share their ideas with one another about what they believe is needed or what they would like to create. Some of these “conversational experiments” gain traction because they appeal to a group of people with real interest in the ideas. Successful new ventures are born when exciting and appealing conversations converge with people who, because of their unique (path-dependent) knowledge, social connections, and life experiences, are willing and able to take actions that create the opportunity described in the conversations (Alvarez et al., 2024).

In addition to being more descriptive than Lean Startup, creation theory operates at a different level of analysis and describes the emergence of only a subset of the most novel new ventures. Whereas Lean Startup describes what individual (and teams of) entrepreneurs should do, creation theory draws on evolutionary theory’s variation, selection, and retention model (i.e., Nelson & Winter, 1982) to offer an economy-wide account of how uncertain environments select and retain successful new ventures that create previously unseen opportunities from a wide variety of potential ideas. It also differs from Lean Startup in that it focuses on explaining how highly novel business models involving new market categories come into being. While most conversational experiments fizzle out (perhaps after some investment), those that survive are often highly novel businesses that sometimes have significant social and economic impact. Lean Startup, in contrast, claims to be applicable for discovering both highly uncertain opportunities and small variations of previously successful business models (Blank & Dorf, 2012), though its efficacy in different contexts remains an empirical question.

Effectuation

As described by Sarasvathy (2001, 2024), effectuation is both descriptive and normative. It describes the behavior of experienced entrepreneurs who have learned through practice how to develop new ventures, and it is normative in that it offers principles that less experienced entrepreneurs can learn and apply. Rather than developing a theory of the business, effectuators simply take action based on what they have (i.e., bird-in-hand principle) by building a product or service, or just an idea, and talking to people (i.e., crazy quilt principle), changing direction when confronting inevitable road blocks (i.e., lemonade principle), and co-creating with anyone interested in committing resources (i.e., pilot-the-plane principle). All this is done while minimizing downside potential (i.e., affordable loss principle).

Effectuation is about control. It emphasizes taking actions using expendable resources under the entrepreneur’s control. It deemphasizes the need to build a predictive theory of the business, even if such an exercise is done knowing that the theory is likely wrong as in Lean Startup. Without a predictive theory, the concept of pivoting doesn’t make much sense; there isn’t much to pivot from. Potential stakeholders might love and commit to the entrepreneur’s initial idea, but more likely, the venture will change in unpredictable ways based on whom the entrepreneur talks to and what potential stakeholders are willing to commit to. Finally, unlike Lean Startup (and the theory-based view: Felin, Gambardella, Novelli, & Zenger, 2024), effectuation does not promise to increase the probability that any one effort will yield a scalable new venture. Many effectuation efforts fail. The promise instead is that through effectuation, the entrepreneur increases the odds that one of their potentially many efforts will pay off; what that successful venture might look like is unpredictable a priori.

Theory-based view

The theory-based view is a relative newcomer, first articulated in 2017 (Felin & Zenger, 2017). In their special issue paper, Felin et al. (2024) focus on describing differences between the theory-based view and Lean Startup. Like Lean Startup, their view is normative and begins with a theory of the business. It also embraces data collection and experimentation. The similarities end there, however. Whereas the theory of the business in Lean Startup is relatively complete, addressing each box in the BMC, the theory in the theory-based view is centrally about what is contrarian. The entrepreneur must theorize something that does not exist and might appear surprising and contradict what is normative or thought possible. In a Knightian uncertain world where customers do not know what they want and other stakeholders do not know what customers might buy, the entrepreneur proceeds as if their theory is correct. They begin by articulating the theory’s core assumptions and beliefs that must be proven true for the theory to be validated. Core assumptions present problems or sets of subproblems that must be solved to validate the theory. Solutions are identified and data are collected and/or experiments performed to assess the effectiveness of proposed solutions. When data from experiments reject the efficacy of one proposed solution, the entrepreneur searches for alternatives. Only when no viable solutions to core problems can be found do entrepreneurs abandon the theory and begin the theory-building process anew.

Like creation theory, the theory-based view restricts itself to the domain of Knightian uncertainty, where potential customers, funding sources, suppliers, and other stakeholders have no more useful information than do entrepreneurs. The difference is that rather than engaging in conversations to see what emerges (as in creation theory and effectuation), the entrepreneur assumes they know best and takes action to validate their contrarian theory, which makes the approach both prediction-oriented like Lean Startup and control-oriented like effectuation. As the process unfolds, the entrepreneur might identify and test different potential solutions to core problems and subproblems, but these changes do not meet the definition of a pivot (see Allen et al., 2024). Major changes in strategic direction (i.e., pivots) come only after the entrepreneur gives up on their theory and begins to formulate a new one. Although still an open empirical question, when solutions are found to core problems and the theory is validated, Felin et al. (2024) argue that their approach to new venture creation is more likely to generate novel breakthrough ventures that create significant economic value.

Differences Among Approaches

Table 1 summarizes core differences we identify among the approaches along the following dimensions: type of theory, place in the prediction-control space, assumptions about the environment, assumptions about entrepreneurs, new venture process, pivoting, and new venture success.

Table 1

Differences Among Approaches

	Lean Startup	Effectuation	Creation Theory	Theory-based view
Type of Theory	Normative	Normative & descriptive of experienced entrepreneurs	Descriptive	Normative
Place in the Prediction-Control Space	Moderately high prediction, moderately low control	Low prediction, high control	Low prediction, moderately low control	High prediction, high control
Assumptions About the Environment	Information asymmetries between what customers want and what entrepreneurs know or think	None. Works under all conditions.	Knightian uncertainty makes prediction meaningless.	Knightian uncertainty makes one’s generative theory the only thing to base actions on.
Assumptions About Entrepreneurs	Entrepreneurs are biased decision makers and boundedly rational information processors.	Entrepreneurs are action takers.	Small path dependent differences lead to large outcome differences.	Entrepreneurs are generative actors who create internally rational systems of thought.
New Venture Process	Convert theory to testable hypotheses and gather low-cost data. Use results to refine, revise, or reject the theory of the business	Create something affordable and talk to people. Find self-selected stakeholders who will commit to and co-create what they want/need.	Evolutionary process in which many variations of conversational experiments take place, but most are selected out.	Contrarian theory guides search for core obstacles. Its validity is established by hypothesizing and testing solutions.
Pivoting	When tests of some part of the BMC reveal that the business theory won’t work as stated, especially product-market “fit”	When a stakeholder identifies something they want to do/have and are willing to commit resources	When nothing comes of a conversational experiment and a new conversation begins	When an (sub)problem necessary for proving the theory is unsolvable
New Venture Success	Success follows finding evidence of product-market fit supported by a business model (with its multiple elements) that generates revenues and profits in a repeatable manner.	No promise of a best path for any one effectuation effort, but repeated acts of effectuation increase the odds that one effort will succeed	Conversational experiments improve odds, but the environment selects and retains creations that resonate with stakeholders.	Success follows finding evidence that proposed solutions to problems posed by contrarian beliefs are effective.

Type of theory

Creation theory stands apart with its focus on description. Alvarez et al. (2024) are less interested in telling entrepreneurs how to go about establishing successful new ventures than providing an academic explanation for how new ventures come into being. Though they describe actions entrepreneurs can and probably should take to increase their odds of success, the primary causal mechanism is environmental. Entrepreneurs create under uncertainty; the environment selects and retains those creations that resonate with customers and interested stakeholders. While Sarasvathy’s (2001) effectuation theory also describes the behavior of experienced entrepreneurs, it joins Lean Startup and the theory-based view in offering normative actions all entrepreneurs can take to reduce the negative consequences of uncertainty and thereby improve chances for success.

Place in the prediction-control space

Sarasvathy’s (2024) contribution to the Special Issue provides another important way to distinguish among the approaches. Drawing on Wiltbank, Dew, Read, and Sarasvathy (2006), she places several approaches to new venture development in a 2 × 2 matrix based on the approach’s reliance on predicting what might work versus controlling what one has; we offer a modified version (of her Figure 2) as our Figure 1. We follow her lead by placing effectuation in the lower right-hand quadrant defined by high control and low prediction and placing Lean Startup in the upper left-hand quadrant depicting high prediction and low control. However, we placed Lean Startup in the lower-right corner of the high-prediction low-control quadrant because, by advocating talking to customers and other stakeholders, conducting experiments, and pivoting frequently, entrepreneurs applying the Lean Startup framework are action (or control) oriented and taught not to get too tied to their predictions (though it happens: see Grimes, 2018). Reading the special issue contributions by Alvarez et al., and Felin et al., we believe that they can also be usefully distinguished in Figure 1 by placing creation theory in the lower left-hand low control-low prediction quadrant and placing the theory-based view in the upper right-hand quadrant of high control and high prediction. As with Lean Startup, we place creation theory more toward the control side of the quadrant because it involves taking action through conversational experiments. Indeed, research shows that successful entrepreneurship involves taking action under risk and/or uncertainty (McMullen & Shepherd, 2006), leaving only the practice of constructing full business plans (far out) on the low-control side of Sarasvathy’s (2024) framework. We placed the theory-based view in the middle of the high-prediction high-control quadrant because while it involves fewer predictions/hypotheses than Lean Startup or a traditional business plan, the (visionary) contrarian theory is a strong-form prediction that the entrepreneur attempts to prove through control-oriented action to identify obstacles, generate solutions, and establish their efficacy.

Figure 1

The Four Theories of New Venture Creation in the Prediction-Control Matrix

Assumptions about the environment

Creation theory and the theory-based view assume Knightian uncertainty, an extreme version of uncertainty where any predictions are irrelevant and where no information can be trusted as a basis for action. For creation theory, such uncertainty suggests engaging in conversations until a direction or set of actions starts to gain traction and uncertainty around select courses of action subsides. For the theory-based view, it means that entrepreneurs’ theories are as good as anybody else’s, so they should move forward with their own internally consistent theory. Effectuation appears agnostic to uncertainty. The principles should increase entrepreneurs’ probability of success under both uncertainty and risk. Lean Startup accepts variation in uncertainty: introducing new products based on new technologies in new markets involves significant uncertainty; there is less uncertainty when new products are introduced to existing markets or existing products are carried over to new markets; and even less uncertainty, perhaps low enough to be called risk, exists when new variations of existing products are introduced to existing markets (Blank & Dorf, 2012; Gruber & Tal, 2017). However, grounded in the individual-opportunity nexus (ION) view that opportunities exist, at least in latent form (e.g., Shane, 2003; Shane & Venkataraman, 2000), Lean Startup assumes a less extreme version of uncertainty. Some useful information is assumed to exist, suggesting an information asymmetry between entrepreneurs and the environment that can be reduced to point entrepreneurs in potentially successful directions. Creation theory and the theory-based view are less confident about such an assertion.

Assumptions about entrepreneurs

Creation theory is agnostic about entrepreneurs, suggesting that small differences in path-dependent life-experiences can cause some people to create opportunities while others who start in a similar place or reside in a similar context fail to pursue, or unsuccessfully pursue, the creation process. For effectuation, taking entrepreneurial action while avoiding unaffordable loss is what defines an entrepreneur; an entrepreneur is someone who engages in effectuation. The theory-based view sees people as generative actors who maintain internally consistent theories of how the world works. Given Knightian uncertainty, entrepreneurs have only their theories of what is possible to guide action, leading to a view of entrepreneurs as visionaries who work to prove to others that their theory is right. Lean Startup, in contrast, focuses on bounded rationality in decision-making, especially under conditions of incomplete information, and uses fast and rough versions of scientific data collection methods and experimentation to improve decision-making. As in effectuation, an entrepreneur or innovator is anyone who takes action to reduce information asymmetries in pursuit of sustainable business models.

New Venture Process

Given their different purposes and assumptions, it should not be surprising that the four approaches advocate different processes for creating successful new ventures. Lean Startup and the theory-based view both start with a theory of the business, but the nature of the theory and the next steps are different. In Lean Startup, the theory is relatively complete as articulated in the BMC, and initial steps involve interviewing critical stakeholders about the viability of different aspects of the BMC, often by testing potential customers’ response to a minimum viable product (MVP). The Lean Startup therefore places an important emphasis on the viability of the new venture under the assumption that the venture’s revenue and profit generating ability is critical to survival. The theory in the theory-based view, in contrast, involves a less-complete theory of the business that focuses narrowly on those beliefs the entrepreneur has about a potential business that contradict and potentially challenge what currently exists. Once the entrepreneur articulates a contrarian belief that must be true for the business theory to work, they set to work solving core problem(s) that challenge their beliefs. Data gathering and experiments revolve around testing whether proposed solutions resolve the core problems.

Rather than developing theoretical (and predictive) beliefs, effectuation and creation theories start with taking action. In the case of creation theory, the action is conversations, a few of which will resonate with people and spark efforts by would-be entrepreneurs who are uniquely poised because of their path-dependent experiences to create the opportunity described in the emerging conversation. As a normative theory, effectuation offers more concrete advice: make/sell something—anything—from what you have (bird-in-hand) without risking too much (affordable loss) and look for people who are interested in what you are doing (crazy quilt). If they don’t like what you were doing, ask what they would be interested in (lemonade) and what they would commit to and work with you on (pilot the plane).

Pivoting

The different approaches offer different advice for when to change direction or “pivot.” In creation theory and effectuation, changing direction is quick, constant, and natural as conversations fade and restart in creation theory and entrepreneurs co-create with self-selected committed stakeholders in effectuation. Pivoting is more systematic in Lean Startup and the theory-based view. In Lean Startup, the entrepreneur “pivots” when interviews and/or tests do not support the viability of key aspects of the BMC. Just like a basketball player who pivots on one stationary foot by changing direction with the other (Ries, 2011), some aspects of the business model remain (e.g., the entrepreneur’s unique technology) but much of the BMC is reimagined and the testing process restarts (Allen et al., 2024). In the theory-based view, early and frequent change is common as the entrepreneur proposes and tests different solutions to core problems, but the big changes in strategic direction that define a pivot come only after the entrepreneur acknowledges that core challenges to their contrarian theory cannot be overcome with current technology. At this point, the entrepreneur pivots by imagining a new theory with new contrarian beliefs (Felin et al., 2024).

New Venture Success

Finally, the approaches differ in their predictions about new ventures success. Though it might involve multiple pivots and restarts, only Lean Startup promises a process designed to identify a sustainable business model, one that introduces a product or service that customers want and will pay for above production costs. Effectuation comes close to such a promise by suggesting that engaging and repeated acts of effectuation increases the probability that once such act will result in a successful new venture. Because of their assumptions about Knightian uncertainty, creation theory and the theory-based view require a bit of luck (cf. Barney, 1986). In the theory-based view, the entrepreneur’s contrarian theory must ultimately prove correct in a context where no one knows for sure; conventional wisdom must be proven wrong. In those potentially rare cases where the entrepreneur is correct and conventional wisdom wrong, the theory-based view provides a roadmap for revealing the truth and overcoming doubts found in conventional wisdom. Creation theory similarly requires luck. The creator-entrepreneur must participate in a conversational experiment that gains momentum under conditions where it is unknowable a priori which among many conversations will do so. Then the entrepreneur needs to have the correct path-dependent life experiences and resulting capabilities and access to resources needed to create something that is selected and retained by the environment. Others attempting to create similar products and services based on similar conversational experiments are unsuccessful because they lack the unique path-dependent life experiences necessary to precisely match what the environmental demands for retention, which is also unknowable a priori.

Complementarities Among Approaches

Reading the first four papers of the special issue and our description of their different assumptions and approaches might lead one to the conclusion that there are (at least) four irreconcilable approaches to starting new ventures, and entrepreneurs must guess which approach might work best for them. Only Alvarez et al. (2024) take meaningful steps toward reconciliation by suggesting that less prediction-oriented approaches like creation theory and effectuation can be grouped as a “family” of compatible approaches they call Type I Entrepreneurship Theories. These theories assume (or embrace) Knightian uncertainty and suggest that opportunities are endogenously created through entrepreneurial actions. These are contrasted with Type II Entrepreneurial Theories, such as Lean Startup and the ION, wherein opportunities are assumed to exist and entrepreneurs take actions to find and exploit them. They suggest that one way to reconcile the different theoretical families is based on the level of Knightian uncertainty versus risk. When Knightian uncertainty is so high that no one has trustworthy information about what approach might work, engaging in low-cost conversational experiments or creating acceptable loss products/services based on bird-in-hand resources are the only logical ways to proceed. When one of these experiments begins to gain traction and uncertainty recedes, refining the ideas through stakeholder feedback, as in Lean Startup, makes more sense. Stated differently, Type I Entrepreneurship theories explain the earliest stages of new venture creation and the formation of high-risk ventures that were difficult-to-imagine prior to their coming into existence. Type II Entrepreneurship Theories explain later stages of the venture creation process and the establishment of ventures that involve extensions of existing markets, products, and technologies (Alvarez et al., 2024).

We note that while Alvarez et al. (2024) describe the theory-based view as a Type II Entrepreneurship Theory because it assumes the exogeneous existence of the opportunity within the entrepreneur’s theory of the business, it also assumes Knightian uncertainty like Type I Entrepreneurship Theories. However, unlike creation and effectuation, where the response to uncertainty is to make small bets to see what emerges, the entrepreneur assumes their internally consistent theory is as good as anybody else’s (because nobody really knows under Knightian uncertainty), and thus works to prove their theory correct. In some ways, the theory-based view is like the old business plan approach except that rather than flushing out an entire business plan as if it is correct, the entrepreneur identifies only the most critical and contrarian elements and works to prove these first, which suggests that it too can be used sequentially with other approaches. Once solutions to contrarian aspects of the theory are established, for example, entrepreneurs might turn toward Lean Startup or effectuation to make sure customers will actually pay for the entrepreneur’s new solution and to flesh out other aspects of the business model that will be needed to bring the solution to market.

While we agree with Alvarez et al. (2024) and believe that their reconciliation based on uncertainty versus risk both makes sense and is worthy of empirical scrutiny, we think there might be other complementarities among the four approaches. In particular, it seems worth investigating the extent to which the four approaches are using different language to talk about the same fundamental processes. For example, Southwest Airlines famously got its start as a 1966 back-of-a-cocktail-napkin drawing by Herb Kelleher at the St. Anthony’s Club in San Antonio, Texas (Southwest Airlines, 2024). Is a sketch on the back of a cocktail napkin a conversational experiment (creation theory), a theory of the business (theory-based view), or a first-draft BMC (Lean Startup)? Since the BMC is simply a piece of paper, one could suggest that it is not a large intellectual or resource step-up from a conversation, and it can be viewed as an affordable-to-lose bird-in-hand paper to start crazy quilt conversations with stakeholders (i.e., effectuation). Also, the MVP described in Lean Startup seems akin to an affordable loss product/service created with bird-in-hand resources. The key difference appears to be that the business model/conversation starter is more methodically thought through and data gathered more systematically in Lean Startup. This difference, however, should not matter under Knightian uncertainty where knowing who the right person to talk to is impossible. Under such uncertainty, either approach has an equally random chance of finding the “right” stakeholder, assuming that such a stakeholder exists (which is also unknown).

It appears to us that even those aspects of the different approaches that seem most in conflict might be reconcilable. One such difference under Knightian uncertainty is what the entrepreneur should do when talking to potential stakeholders (whether systematically or in random conversations) yields insights that point the entrepreneur away from their initial idea, whether fully described on a BMC, a product or service created from bird-in-hand availability, or simply articulated through conversation. Creation theory suggests starting a new conversation and repeatedly doing so until something resonates; effectuation suggests asking what the stakeholder wants and will commit to and doing that; the theory-based view suggests finding another solution to proving the theory correct; and Lean Startup suggests “pivoting” those aspects of the proposed model that do not resonate well with the stakeholders in question.

These seemingly large differences regarding how to respond to information that contradicts a proposed business idea might shrink when the nature and source of uncertainty is taken into consideration. As Alvarez et al. (2024) correctly point out, different parts of the business model might confront different levels of uncertainty as the business develops. We agree but point out that full Knightian uncertainty is rare, even in the earliest stages of what eventually emerge as highly innovative business models. Southwest Airlines, for example, looks retrospectively like it introduced a revolutionary new business model, but it was initially modeled on existing intrastate carriers in California. AirBNB’s founders are often credited with revolutionizing short-term rentals, but the idea of short-term rentals from private owners was not new; VRBO (vacation rental by owner) was founded 12 years earlier. Tesla is credited for introducing and popularizing electric vehicles, but electric vehicles have been around since the 1830s and General Motors and Toyota had previously mass-produced commercial models. Thus, even businesses that scholars often point to as having emerged from Knightian uncertainty were based on existing ideas and available technology. Further reducing uncertainty, entrepreneurs often start with unique path dependent experiences and knowledge that provide a foundation for identifying and acquiring the missing element(s) needed to successfully commercialize what, in retrospect, look like impossible-to-anticipate business models (e.g., Shane, 2000).

Once the source and nature of uncertainty is defined, complementarities among the four approaches become apparent. For example, abandoning a conversational experiment makes sense when there is uncertainty about what products and services can be created and who might buy them. However, it might not be the best approach when the entrepreneur has little uncertainty that a new technology works but is uncertain only about how to commercialize it. In such a mixed uncertainty situation, Lean Startup and effectuation’s emphasis on taking what you have (MVP in Lean Startup and bird-in-hand in effectuation) and listening to and responding to stakeholders (pivoting in Lean Startup and co-creating in effectuation) seems reasonable. When an entrepreneur has a clear theory about what customers want (even if customers do not know it) but is unsure how to deliver a solution that meets theorized customer needs, experimenting with different solutions as described by the theory-based view makes sense. In sum, while Alvarez et al. (2024) suggest broad categories of uncertainty and risk that might determine broadly when Type I or Type II Entrepreneurship Theories work best, we think uncertainty is a bit more nuanced. Such a possibility suggests future work that describes which tools entrepreneurs use to respond to different sources (and kinds?) of uncertainty and to investigate which responses work best and under what conditions.

Toward a Best-Practice Research Agenda

We believe that the four papers describing four unique approaches to starting a new venture, along with our efforts to clarify their distinctions and commonalities, offer a starting point for future researchers interested in testing the comparative efficacy of these approaches. For such efforts to be successful, however, it will be critical to further theoretically define and then empirically isolate where the approaches are different. For example, the treatment groups in Camuffo, Cordova, Gambardella, and Spina (2020) and Camuffo, Gambardella, Messinese, Novelli, Paolucci, and Spina (2021), cited by Felin et al. (2024) as support for the theory-based view over Lean Startup, were given additional training in how to develop and test hypotheses more rigorously and scientifically. Not surprisingly, the treatment groups using a more rigorous application of Lean Startup as described in papers urging entrepreneurs to act more like scientists (e.g., Zellweger & Zenger, 2023) performed better. However, because both the control and treatment groups developed theory using the BMC and collected data from potential customers as described by Lean Startup, there was no way to isolate unique effects from using the theory-based view. Such a test would require more subtle distinctions between the nature of the theory, whether it is complete as in Lean Startup or narrowly focused on contrarian beliefs as in the theory-based view, whether hypotheses center on customer/stakeholder feedback (Lean Startup) or testing proposed solutions to core problems/subproblems (theory-based view), and whether pivoting occurs when key elements of the business model are not supported (Lean Startup) or when all possible avenues for solving key problems/subproblems are exhausted (theory-based view). These are subtle but important distinctions that will require additional efforts to articulate clear differences that allow more refined tests. As we have suggested, we believe Sarasvathy’s 2 × 2 matrix might be one tool for defining such subtle distinctions.

We also agree with both Alvarez et al. (2024) and Felin et al. (2024) that steps towards a contingency approach have merit. What the entrepreneurs starts with might be one example. With its focus on finding solutions to problems/challenges that stand in the way of delivering a theorized product/service, the theory-based view implies starting with the entrepreneur’s contrarian theory about what customers want and will pay for. Like effectuation, Lean Startup often starts with a (bird-in-hand) solution or set of resources (e.g., new technology, the founder’s skills) and looks for a set of customers (using the Market Navigator to prioritize possibilities) who will pay for a product/service configured from those solutions/resources (hence, the focus on “product-market fit”). Although the entrepreneur would still need to make sure customers will pay for any solution they develop, this observation suggests there might be advantages to adopting the theory-based view when entrepreneurs see a customer need but have no idea how to address it and Lean Startup when they have potentially valuable solutions/resources that can be configured in multiple ways and the goal is to find the right product-market fit. Whether our speculation is correct is a question for future research.

Consistent with efforts to learn what works best under different conditions, we also see value in describing what entrepreneurs actually do and explaining why. Among all new ventures created each year, what percent adopt one or more of these approaches? Are there contingencies that drive entrepreneurs toward one approach over another? Sarasvathy (2024) suggests effectuation is descriptive of what experienced entrepreneurs do because they have learned the approach through trial and error. It seems likely that there are other contingencies besides experience. We previously used the example of Southwest Airline’s start on a cocktail napkin as evidence of a minimalistic bird-in-hand BMC/business theory, but that was not the first conversation Herb Kelleher and Rollin King had about starting an airline. Consistent with Alvarez et al.’s (2024) hypotheses that Type I entrepreneurial processes take place earlier and in more uncertain stages of new venture creation, perhaps their previous conversational experiments did not resonate, and the napkin marked a transition from a creation theory conversational experiment to another startup processes. The nature and context of the entrepreneur or entrepreneurial team might furnish another important contingency. Teams might, for example, be more likely to adopt a confluence of approaches, and entrepreneurs/teams based in certain locales (e.g., Silicon Valley) or with certain kinds of stakeholders (e.g., venture capital) might be more likely to adopt certain approaches under normative institutional pressures.

Given the importance of uncertainty as a defining characteristic of entrepreneurial action, it is important for scholars to define it more precisely, and perhaps describe gradations of uncertainty, not unlike Milliken (1987), but in ways that are better suited for entrepreneurship. Doing so seems important given the degree to which different theories of new venture creation rely on Knightian uncertainty as an assumption. It seems likely there might be variations of uncertainty between absolute uncertainty, where no one knows anything, and risk, where probabilities can reasonably be assigned. Creation theory, in particular, seems most appropriate for “no one knows anything” uncertainty where conversations are logically the only avenue toward creating some sort of collective reality. The theory-based view similarly requires a high level of uncertainty wherein only the entrepreneur and their team have any confidence in what they theorize (Felin & Zenger, 2017). Effectuation and Lean Startup, in contrast, require some knowledge about what the entrepreneur has available to them and, in the case of effectuation, what they are willing to lose. These approaches also suggest that some stakeholders have preexisting knowledge regarding what they would like and are willing to support. Overall, while we believe that all four approaches have value under conditions where probabilistic outcomes (i.e., risk) are impossible to assign, the level and breath of reliable knowledge, and thus uncertainty, varies across people and situations, and such variation might affect which approach to new venture creation entrepreneurs gravitate toward in different situations and which approach is normatively optimal.

More research is needed to empirically connect (or differentiate) the four approaches. To be impactful, this research should articulate the assumptions made about entrepreneurs, the processes they undertake, expected outcomes, and relevant contingencies. Such research would offer a more descriptive (and realistic) view of the entrepreneurial act and address at least four areas of concern. First, this research would be helpful in delineating how the entrepreneurial act unfolds under each approach and how (when) it is triggered. Unlike in prior ION research where would-be entrepreneurs are immersed in the market and presumed to be knowledgeable and motivated by a desire to make a profit, the four approaches appear silent about entrepreneurial motives and how they shape the actions entrepreneurs undertake.

Second, all four approaches assume relatively rational behavior regarding how entrepreneurs respond to feedback, which contradicts research showing that entrepreneurs often erect emotional, cognitive, and behavioral barriers that slow their learning and adaptation (e.g., Argote 2012; Huber 1991). How do such barriers affect their chosen path to new venture creation? Do they “stick” to one approach throughout the process, or do they switch among the four approaches, and if so when, how, and to what effect? For example, Lean Startup and the theory-based view adopt a mechanistic view: If you fail, then you pivot! However, failure might have paralyzing emotional and behavioral consequences; it might also lead to stubbornness and persistence along the same path (Grimes, 2018). Alternatively, as Sarasvathy (2024) suggests is the case with effectuation, prior successes versus failures might shape which approach entrepreneurs adopt in subsequent efforts. Potential differences in predictions regarding the effects of feedback or failure across the four approaches therefore seem worthy of study.

A third area of concern comparative research might address pertains to the role of the entrepreneur. Research shows that many ventures (especially in high-tech) are created by two or more individuals (Nikiforou, Zabara, Clarysse, & Gruber, 2018), which raises the question: When entrepreneurs work in teams, does a collective approach develop? If so, when and how? The four approaches seem to overlook team dynamics and how they might influence decisions. For example, conflicts and power differentials within entrepreneurial teams could shape individual and collective learning, reaching agreement, and pivoting. In fact, some of the entrepreneurial activities (e.g., pivoting and scaling up) may induce conflicts and fragment the team’s vision for the venture.

A final area of concern that might be addressed pertains to generalizability across time and location. Longitudinal studies, especially in different international and thus institutional settings are needed to establish the usefulness of the four approaches across contexts. With globalization and the proliferation of born global and born digital new ventures, we need cross-national field and archival studies. Rigorous empirical examinations are needed, for instance, via randomized control trials, that take into consideration the full scope of the Lean Startup toolset and offer an unbiased comparison between approaches.

Conclusion

The first four papers of the special issue present different and, at times, seemingly conflicting descriptions of new venture processes, descriptions that conjure the proverbial parable of blind men and the elephant. We juxtaposed several assumptions, predictions, and normative claims among these competing approaches to help clarify their differences. We also highlighted ways these competing approaches might describe the same phenomenon—the same proverbial elephant—using different language. Our discussion illustrates the growing richness of theoretical views but also shows the need for continued dialogue among scholars. Finally, we presented some ideas for moving forward toward further reconciliation and toward empirical research that might help researchers better understand the efficacy of competing approaches under different conditions. Our hope is that by juxtaposing competing approaches described thus far in the special issue, we further the conversation describing what entrepreneurs do under different circumstances and normatively should do to maximize their chances of success.

Footnotes

ORCID iDs

James G. Combs

Shaker A. Zahra

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