A Tool for

Value Lab: Entrepreneurial

Strategy

©shutterstock.com/Michael Traitov

Teppo Felin, Alfonso Gambardella, and Todd Zenger

Teppo Felin,
argue that managers and entrepreneurs should develop Utah State University & Oxford
their own theory of value. They present Value Lab, a University

tool which provides the framework to help businesses Alfonso Gambardella,

Bocconi University
create such theories. Their purpose is to help start- Todd Zenger,
ups and established firms to be more scientific and University of Utah

experimental in creating new value.

T
heories drive radical break- agers and entrepreneurs. The great- who wrote that “there is nothing so
throughs in science. They help est breakthroughs in value creation practical as a good theory.”1 Theo-
scientists to see the world in are rooted in the development and ries help strategists to make sense
new ways, to make new ob- execution of unique theories of val- of an uncertain world, so that they
servations, and discover new ue. While theories are often seen can predict and see more clearly,
things. We believe that theories can as overly abstract and impractical, make better decisions, and create
be a similarly powerful tool for man- we heartily agree with Kurt Lewin radically new value.

68 Volume 01 | Issue 02 | Spring 2021 | MBR

 Over the past decade, we Managers and entrepreneurs who under the streetlight—wherever
have developed an approach hold the flashlight of theory can it’s easiest to see the data and to
that helps the leaders of startups avoid the streetlight effect—the gather evidence. Well-meaning ap-
and established organizations human tendency to search only proaches like lean start-up rein-
to develop their own theories. 2 where the light already shines, force this tendency, asking entre-
Our method doesn’t tell compa- where things are already evident. preneurs and managers to gather
nies what their theory should be. The term “streetlight effect” is data and validation for both their
Rather, it provides the scaffold- drawn from an old story about a products and strategies as quick-
ing for organizations to create drunkard searching for his keys ly as possible. We have found
their own theory. We call this tool under a streetlight. A policeman that an effective search for value
Value Lab—a virtual laboratory soon joins him and together they starts with a theory. A theory tells
in which managers and entrepre- search for the keys under the you what to look for, and where to
neurs can create and test strategy
in scientific and evidence-based
ways.
THE SCIENCE BEHIND VALUE LAB
Theories as Practical
Instruments It’s easy for us to tell stories about successful companies and retrospectively
Before launching into how to de- argue that their theories made all the difference. But is there scientific evidence
that starting with a theory really does create more value? Do those who start with
velop a theory, we need to get a bit
a theory outperform those without?
more precise about what a theory is
and what it does. There is growing evidence that the answer in both cases is “yes.” One of the
authors of this paper worked on a recently published study in which researchers
randomly placed nearly 1,000 start-ups into two groups. The treatment group
Theories illuminate paths to was taught to start by using tools like those described here to construct theories
of value. They were also taught standard business tools like market analysis,
value that might otherwise experimentation, and customer validation. The second, control group was taught
remain unseen. only the standard start-up tools. Researchers then monitored both groups for
eight months and assessed their performance.
The results were clear and persuasive. Those who were taught to compose a theory
For scientists, theories are of value before setting out to experiment and act performed significantly better.
a lens, revealing observations Their ventures generated more revenue and they were more likely to productively
and evidence which are not ap - pivot their businesses: interpreting the results of their experiments correctly
parent to others. 3 Einstein put and confidently to refine their path forward. They were also more likely to simply
it simply, “whether you can ob - exit—again, more quickly and confidently recognizing a flawed theory. Indeed, all
serve a thing or not depends on evidence across the board pointed to firms creating substantially better strategic
the theory which you use. It is outcomes when they began with a theory.
the theory which decides what Further reading can be found here.­7
can be observed.”4 Theories en-
able scientists to see the world
differently. Theories allowed streetlight. After some time the look, rather than leaving you to
Galileo to see the earth rotating policeman asks: “now, are you search randomly under the drunk-
around the sun, Newton to see absolutely sure you lost the keys ard’s streetlight. By composing a
light transformed from colorless right here?” The drunkard an- theory, entrepreneurs and man-
to intensely colored, and Ein- swers, “no, I lost them on the oth- agers are better able to imagine
stein to develop breakthroughs er side of the street. But the light and foresee opportunities. Their
which enabled others to find is much better over here.”6 theory guides the choices, ex-
eventual evidence of black periments, and investments they
holes, neutron stars, and gravi- must make. The unique theories
tational waves. A theory tells you what to of Steve Jobs, Sam Walton, How-
Like scientists, entrepreneurs look for, and where to look. ard Schultz, and Walt Disney pro-
and managers can use theories to vided each with a unique map to
see the world in new ways. 5 Theo- value which others had not seen.
ries illuminate paths to value that All too often managers and Our tool, Value Lab, offers a
might otherwise remain unseen. founders search for value only framework through which you,

MBR | Spring 2021 | Volume 01 | Issue 02 69

too, can generate and test theo- low). But they are, of course, tight- business relies upon communicat-
ries, creating your own map to ly interrelated. As you proceed ing and sharing well-established,
create and capture value. through the Value Lab process, you agreed-upon knowledge.9
may want to move back and forth be- But while common beliefs are
Value Lab tween the elements.8 important, the seeds of a valuable
The Value Lab is a virtual space de- The figures below show three theory reside in uncommon, con-
signed to help you compose a theory different iterations of the Value Lab trarian, or novel beliefs. You need
of value. It does not generate a the- framework. Figure 1 is a blank copy. an answer to the question: what do
ory automatically. Instead it invites Figure 2 includes comments about you believe that (almost) no one
entrepreneurs and managers to en- each of the columns and boxes, of- else believes? We ask this question
gage in careful thinking and struc- fering guidance on how to fill them. routinely in our interactions with
tured imagination so they can max- Figure 3 is an informal example of a start-ups and established compa-
imize their own ability to develop a filled-out framework, applying the nies. As venture capitalist Peter
valuable theory. Think of Value Lab Value Lab model to Airbnb. Thiel puts it, “most people believe
as scaffolding to help you build. in x, but the truth is the opposite
In building theories with stu- Contrarian Beliefs of x.”10 Your answer to this question
dents, executives, and founders, we A valuable theory begins with can provide the underlying raw ma-
have found that three conversations unique or contrarian beliefs. These terial for a theory of value.
are critical. The first focuses on the contrarian beliefs might be about
subjects’ beliefs about the future, anything, from the future of tech-
bringing to light their unique or con- nology, to the evolution of customer You need an answer to
trarian beliefs. The second frames tastes and preferences, or an unmet the question: what do you
and tightly formulates a specific need. Relevant contrarian beliefs
problem (and its components) that, might also touch on societal or cul- believe that (almost) no
if solved, will allow them to realize tural trends, or any other aspects one else believes?
these contrarian beliefs. And the relevant to business.
third focuses on composing a clear, Your unique beliefs need not
concise description of the theory, be expansive, but they must differ Unique beliefs can be hard to
outlining specific actions to test and from what others commonly be- come by. But if you truly want to cre-
realize it. Our framework describes lieve. This isn’t as easy as it sounds. ate new value, you have to find a way
these conversations as sequential After all, most of our beliefs are held to think about and see the world dif-
(from left to right in the figures be- in common with others. Moreover, ferently. Unless you can do that, you’ll
just find yourself going after the same
FIGURE 1: a blank copy assets, people, and strategies as ev-
eryone else, which leads to costly
VALUE LAB | A THEORY FOR YOUR FIRM competition. Unique business beliefs,
like unique scientific ones, are the
critical raw material from which new
insights and theories emerge.
In the late 1970s Steve Jobs and
his team held the contrarian belief
that personal computers would soon
become a mass market product. Al-
though it now sounds bizarre, few, if
any, agreed with him. Ken Olsen—
the founder and CEO of computer
giant Digital Equipment Corpora-
tion—told Time Magazine in 1977:
“there is no reason for any individ-
ual to have a computer in his home.”
Indeed, at the time there was lit-
tle evidence for Jobs’s belief about
the need for personal computers.
Even objective data and evidence,

70 Volume 01 | Issue 02 | Spring 2021 | MBR

perhaps a survey of potential cus- some uncommon beliefs may the identification of the new
tomers, would have concluded that sound outlandish or farfetched, observational evidence in support
a plan to build computers for the it’s important, initially, to simply of new realities.
mass market was madness. With- brainstorm and list them, Similar challenges await con-
out the ability to envision how they without discarding or filtering trarian beliefs in business. Airbnb’s
might use a computer, or even what any. Brainstorming research has founders initially met with extreme
a personal computer might look like, persuasively revealed that if several skepticism about the public’s will-
it was hard for consumers to imag- people are working together to ingness to rent homes to (or from)
ine needing one. This uncertain- generate ideas, they should first strangers. Top venture capitalists
ty means that consumer feedback brainstorm independently and then deemed the idea ludicrous, not
cannot be relied upon to validate or later discuss and work together.11 worth investing in.13 The evidence
disprove a potential breakthrough Keep in mind that uncommon that their theory was wrong seemed
product or strategy. It may also be or contrarian beliefs are fragile conclusive; industry experts dis-
why, to this day, Apple has little ap- and, often, all too easy to dismiss.12 agreed with them and customer sur-
petite for consumer surveys, includ- You may have trouble drawing any veys would likely have found no mar-
ing those which concern minimum consideration or support for them, ket or demand. After all, why stay in
viable products. particularly if they seem foolish to strangers’ homes when most places
Sam Walton also understood others. Imagine being Galileo and have hotels or, in cities, highly so-
the importance of contrarian beliefs. trying to convince the world that the phisticated hotel markets? But the
When he began to explore discount Earth really does rotate around the founders of Airbnb persisted with
retailing in the 1960s, the prevailing sun, when anyone could easily see their uncommon beliefs.
belief was that large-scale discount the contrary evidence of the planet’s Now, beliefs are just rhetoric
retailing was for large cities and sub- stability and the sun traveling daily and talk. The critical next step is to
urban America. Most discount re- across the sky, moving from east to convert these beliefs into actionable
tailers considered small towns to be west. Indeed, it is because they are problem statements, and efforts to
irrelevant to the industry. But Walton easily validated by daily experience solve these problems.
believed that discount retailing could that existing orthodoxies are hard
thrive in small towns and so devel- to topple. Contrarian or uncommon What’s the problem?
oped his contrarian theory of building beliefs, on the other hand, allow The Value Lab next requires that
discount retailing around networks of us to discover new ways of seeing you transform your unique beliefs
stores (first in small towns and then things. And this allows scientists into a clear, simple, and well-framed
elsewhere), configured densely within to formulate a theory that enables problem to solve (Column 2). Value
a geographic region to allow efficient
supply and merchandising. FIGURE 2: includes comments about each column and box, offering guidance on how to fill them.

VALUE LAB | A THEORY FOR YOUR FIRM

Every industry has its
orthodoxies, but they can
and should be questioned.

One simple way to discover or

generate uncommon beliefs is to start
by listing the common beliefs within
an industry (see Column 1). Every
industry has its orthodoxies, but
they can and should be questioned.
They generally include deeply-
held beliefs and unquestioned
assumptions about technology,
consumer needs, distribution and
more. By articulating and listing
these beliefs you can begin to
consider alternatives. Although

MBR | Spring 2021 | Volume 01 | Issue 02 71

creation can be viewed as formulat- for everyone was not meaningfully on ing this core problem led him to a
ing and solving problems.14 Contrar- the radar of other entrepreneurs or solution which others simply could
ian beliefs make these problems, computer companies. not see. By effectively framing prob-
and their potential solutions, visible. By formulating the problem in lems we are better able to solve them
Without this sequence of identifying this novel way, Jobs was able to see quickly, and to discover solutions
contrarian or uncommon beliefs, value where others could not. As a that would otherwise go unnoticed.16
turning them into problem state- result, he could walk into Xerox Parc Keep in mind that contrarian be-
ments, the underlying opportunities and find powerful solutions to the liefs and their associated problems
for value creation will not be appar- focal problem, including technolo- can be quite different even within
ent to entrepreneurs and managers. gies such as the graphical user inter- a single industry. There are many
To create new value, you must face, the mouse, and the bitmapped ways to create value. To illustrate,
either recognize and solve a prob- screen. Many others knew about a few years after Jobs’s insightful
lem previously unseen by others, these technologies. But it was Jobs’s framing of his problem, Michael
or solve a known problem in a new problem formulation that allowed Dell observed the same personal
way. And to do that, you must cor- him to see just how they would be computing industry and framed a
rectly identify some previously un- critical to enabling and unlocking the very different, but equally insightful,
recognized or unmet customer need personal computer revolution. Again, problem. At the time, key players
or desire, or find a more efficient or seeing valuable uses that others (other than Apple) were obsessed
inexpensive means of satisfying a can’t see is critical to creating value. with improving processing speed
need which has already been met. And it’s the process of articulating and storage capacity, and with de-
Although this step is akin to others’ the obstacles to a contrarian belief, veloping low cost, large scale man-
notions of jobs-to-be-done or pain in the form of problems, that allows ufacturing. Dell also aimed for cost
points, we offer a more practical way managers to identify hidden value. reduction, but his focus was on re-
of generating something unique.15 Consider Walmart. Sam Walton’s ducing the storage of finished goods
Most people recognize the impor- insightful theory was also rooted in a and parts because he realized that
tance of identifying a unique prob- contrarian belief and a core problem. both depreciated extraordinarily
lem. But the secret to finding and He believed that discount retailing fast. From this belief, Dell built a nov-
formulating unique problems is to could succeed in small towns. That el theory and a valuable strategy.
first clearly delineate your contrari- belief highlighted the core problem These are just some of the prac-
an beliefs, as discussed earlier. of efficiently supplying geographical- tical examples of how contrarian,
To practically move from a belief ly distant stores. Directly address- novel, and uncommon beliefs can be
to a core problem, you must do more
than simply restate your contrarian
beliefs as a problem. Simply restat- FIGURE 3: an informal example of a filled-out framework.
ing Jobs’s belief in a mass market
for computers as a question, “how VALUE LAB | A THEORY FOR YOUR FIRM
do I ensure the widespread use and
adoption of personal computers?”,
is not very useful. While it may be a
good place to start, this formulation
would not have provided any practi-
cal guidance on what Apple should
actually do.
A more effective course is to iden-
tify the central obstacles that stand
in the way of making your contrari-
an beliefs a reality. Steve Jobs had to
discover what, specifically, deterred
consumers from widely adopting
computers. He concluded that the
main problem was that computers
were horribly difficult to use. While
the problem may be obvious to us,
in retrospect, the idea of ease-of-use

72 Volume 01 | Issue 02 | Spring 2021 | MBR

transformed to actionable problems in an online environment. Indeed, which value will be introduced. For
and problem solving. Returning to eBay had initially faced similar, example: if the following core prob-
the Value Lab, during this phase the widespread skepticism about lem is solved by identifying and ad-
key is to articulate, in a sentence or whether strangers would be willing dressing this set of subproblems,
two, the core problem, in the form to send each other money and goods then we will introduce this value.
of the key obstacle preventing you through an online marketplace. The An expression of Airbnb’s the-
from realizing your contrarian or un- company solved this problem by ory of value might read: Airbnb
common belief or beliefs. holding the money in escrow until believes that if it can compose a
delivery and building a mutual system that efficiently matches pro-
What subproblems, if solved, rating system for buyers and sellers. viders of idle “hotel” capacity with
solve my core problem? Airbnb adopted similar tools to seekers of this capacity, a system
By articulating the core problem, solve the same problems. Through that supports secure payment, and
managers can then identify and for- this type of causal chain of beliefs- a system that uses information and
mulate the subproblems they need problems-subproblems companies screening to fuel trust between pro-
to solve. Imagine these subproblems can build a unique architecture viders and seekers, then Airbnb can
as the smaller obstacles standing to create value which may not be introduce a robust new service that
between you and solving your core evident to others. provides customers with a safe and
problem so as to realize your beliefs. Michael Dell’s breakthrough reliable local accommodation at ex-
Beliefs, problems and subproblems traces this same causal architecture. traordinarily low capital costs (see
must therefore be coherently linked. He believed he could dramatically Figure 3). Note that this statement
Consider the architecture of lower manufacturing costs in the links final success to prior steps in
Airbnb’s theory, from beliefs to core computer industry by solving the the Value Lab, by restating the core
problem and subproblems (see Fig- core problem of shortening invento- problem as well as the subproblems.
ure 3). Its founders’ early contrarian ry holding time. This core problem Of course, we do not mean to
belief was that people would rent contained a number of subproblems suggest that Apple, Airbnb, Walmart,
homes to or from strangers and including: how do we compose an and Dell worked from well-articulat-
that the world’s vast empty housing efficient mass-customized assem- ed theories of value from the get-go.
capacity could be put to efficient bly operation? How do we build a Their ideas were certainly updated
use. Despite the initial skepticism sales model that circumvents hold- and refined as they ran experiments,
of venture capitalists, the founders ing retail inventory or reduces its found solutions to subproblems,
carefully scrutinized the problems duration? How do we develop these and received feedback. Moreover,
and obstacles that stood in their changes into a valuable brand? The their ultimate success undoubted-
way. They determined that their solutions of these subproblems form ly involved some measure of ser-
core problem was how to efficiently the foundation of the architecture of endipity. The process of scientific
match suppliers with renters. A web- Dell’s theory of value. discovery is also interwoven with
site supporting peer-to-peer sharing During this step of the Value Lab, luck. But research shows that those
was the obvious solution. But they then, entrepreneurs and managers who begin with novel beliefs, a core
needed to solve a number of sub- should succinctly articulate three to problem, and an insightful theory
problems before customers would five subproblems that, if resolved, will of value substantially increase their
feel comfortable renting to or from in turn solve their core problem.17 odds of success. We have found that
complete strangers. These subprob- using Value Lab to generate a clear
lems included how to provide secure What’s your theory of value? expression of a theory of value also
payment, and how to generate trust We view a theory as encompass- significantly increases the odds of
between buyers and sellers. Identify- ing all the elements in the left two succeeding with a new business.
ing these subproblems enabled them columns of the Value Lab: beliefs,
to trace and envision a causal path core problem or obstacle, and sub- What should you do with your
to generating the foreseen value. problems. However, to successfully theory?
Having traced this path, communicate a theory of value and When you have completed the first
Airbnb could scour the landscape render it into useful guiding actions two columns of the Value Lab and
for existing solutions to solve and strategies, that theory must be articulated your theory statement,
the key problem and associated articulated succinctly. We find it ex- you can turn your attention to de-
subproblems. Companies like eBay tremely useful to begin by expressing ciding what actions to take (see the
had already solved the problem of theories as if-then statements which final column).
generating trust between strangers highlight a theoretical path through

MBR | Spring 2021 | Volume 01 | Issue 02 73

 These actions may fall within streetlight effect. Value Lab-based We have already mentioned
several distinct categories. theories, by contrast, provide a several examples of this kind of
Your theory may reveal useful flashlight so you can search for bargain shopping. Sam Walton
experiments that test key value that is unique and not evident located undervalued real estate in
assumptions and validate or to others. A well-composed theory small towns. Steve Jobs enjoyed
disprove the theory. The theory may will suggest unique experiments that a remarkable shopping spree for
also reveal critical resources which test your solutions to subproblems undervalued technologies at Xerox
you need to secure. These may and explore the theory’s core logic, Parc. Similarly, in the mid-1990s, The
include underpriced resources or generating useful data long before Walt Disney Company recognized
assets which will allow you to make you build minimum viable products, dormant value in rundown theatres
productive investments essential much less entire business models. in Times Square. Theories may also
to realizing your hypothesized Entrepreneurs and managers who reveal synergies between assets
value. Finally, the theory may allow have a theory can learn more from that are not as valuable to other
you to identify specific problems experiments and can, in response, companies. Marvel Entertainment
for which to find solutions. Some pivot nimbly and wisely. was a perfect match for Disney’s
theories may suggest actions in underlying theory of value.21
all three of these categories, while Shop for Resources
others may not. After reflecting on Your theory will help you highlight Search for Solutions
the theory, generate a list of useful critical resources that you need to Value creation has traditionally
actions in the relevant categories. secure, perhaps by hiring talent, been seen as a search for oppor-
obtaining technology, or purchas- tunities, a hunt for the proverbial
Run Experiments ing assets. Strategy scholars have needle in the haystack. 22 Start-ups
If the theory of value concerns a found extensive evidence of just and managers must navigate an
start-up or a new business for an ex- how hard it is to find bargains on overwhelming sea of information,
isting organization, you may want to such resources. All too often, com- uncertainty, and options in order
focus your initial actions on assem- panies overpay for their resourc- to determine the optimal search
bling data and running experiments es. In the merger and acquisitions pattern. A considerable body of
which test the core elements of your market, for example, organizations literature emphasizes information
theory. The key is to choose exper- routinely overpay for their target processing, environmental scan-
iments that maximize your insight companies. Overpayment is also ning, and sensing as the appropri-
about the validity of the theory. common in other settings, includ- ate guides for this search. 23
The experiments suggested ing the technology market and oth- Value Lab provides the scaf-
by Value Lab are likely to be quite er asset auctions.19 folding for entrepreneurs and man-
different from those that emerge agers to shortcut this exhaustive
from other approaches such as the and costly process of searching for
lean start-up process. That approach A good theory reveals opportunities. With the aid of novel
urges rapid experimentation and the value that others can’t see. beliefs, and the associated framing
fast development of minimum viable of relevant problems and subprob-
products to generate customer lems, you can create a lens or flash-
feedback. Our worry, which we But theories of value allow en- light that reveals what to look for,
have articulated more extensively trepreneurs and managers to, in es- targeting your search to specific
elsewhere,18 is that efforts to sence, hack these markets. A good solutions and guiding you to value
experiment quickly may fail to really theory reveals value that others not evident to others. Your theory
test the broader theory of value. We can’t see. A good theory allows you will help you know what to look for,
do not believe that experimentation to procure assets, hire talent, and and to see solutions and sources of
alone is the key. The key is to run make investments at bargain pric- value that others haven’t even con-
the right experiment. Lean start-up’s es.20 A theory can also reveal un- sidered.
sense of urgency pushes toward derpriced technology, real estate, Entrepreneurs and managers
incremental innovation because it human capital, and other services. must determine how best to orga-
leads its users to look for data and And it can unearth new and sur- nize this search for solutions, which
evidence where it’s easiest to find. Its prising uses for common objects or may lie somewhere outside the
focus on minimum viable products technologies, and thereby grant you company. An effective search might
then amplifies the aforementioned access to assets at a deep discount. therefore require you to broadcast

74 Volume 01 | Issue 02 | Spring 2021 | MBR

 4. Polanyi, M. (1974). Genius in science. In Methodological and
the problem to those with the knowl- Todd Zenger is the N. El- Historical Essays in the Natural and Social Sciences (pp. 57-
edge and tools to solve it. At other don Tanner Presidential 71). Springer, Dordrecht. For further insights, also see Polanyi,
times, problem solving may require Professor of Strategy and M. (1958). Personal knowledge. University of Chicago Press.
Strategic Leadership at 5. Here we concur with the economist Edith Penrose. Many
you to build customized solutions in- the David Eccles School of decades ago she raised the provocative question of why
ternally. In either case, the essential Business, University of there is such a disparity between what economists assume
task is to match your approaches Utah, author of the book, about managers versus what they assume about them-
selves. As Penrose put it, “For the life of me I can’t see why
to the search by understanding the Beyond Competitive Ad-
it is reasonable (on grounds other than professional pride)
nature of the underlying problem vantage (HBR Press), and Academic to endow the economist with this ‘unreasonable degree of
Director of the University of Utah’s Master omniscience and prescience’ and not entrepreneurs” (p.
and subproblems.24 of Business Creation program. 813). See Penrose, E. T. (1952). Biological analogies in the
theory of the firm. American Economic Review, 42(5), 804-
Concluding Thoughts 819. Similar sentiments can be found in Adam Smith’s work.
Both start-ups and established Acknowledgments: For more, see Rothschild, E. (2013). Economic sentiments:
Adam Smith, Condorcet and the englightenment. Harvard
companies can benefit from a scien- University Press.
The authors acknowledge the immense value of conversations,
tific, evidence-based approach to collaborations, workshop and conference panel interactions 6. Kaplan, A. (1964). The conduct of inquiry: Methodology for
value creation. Managers and en- with many colleagues in developing this work. We would like Behavioral Science. Transaction Publishers.
to particularly mention Julian Allwood, Jason Bell, Arnaldo 7. For research related to this article, see Camuffo, A., Cordova,
trepreneurs must therefore be pre- A., Gambardella, A., & Spina, C. (2020). A scientific approach
Camuffo, Giovanni Gavetti, Trish Gorman, Bill Hesterly, Russ
pared to develop their own theory McBride, Kevin Mackenzie, Jackson Nickerson, Elena Novelli, to entrepreneurial decision making: Evidence from a ran-
of value to guide this effort. The Chiara Spina, Scott Stern, Eric Van den Steen, Marc Ventresca, domized control trial. Management Science, 66(2), 564-586;
Scott Whitehead, Rob Wilkinson, and Rob Wuebker. This Felin, T., & Zenger, T. R. (2009). Entrepreneurs as theorists: on
Value Lab offers a generative tool, a the origins of collective beliefs and novel strategies. Strate-
framework has also benefited from feedback and interactions
scaffolding of sorts, to help them. A with students, colleagues, and executives at the University of gic Entrepreneurship Journal, 3(2), 127-146; Felin, T., & Zenger,
carefully formulated theory pro- Oxford, and in particular the Diploma in Strategy & Innovation T. R. (2017). The theory-based view: Economic actors as the-
program, as well as feedback from the Master of Business orists. Strategy Science, 2(4), 258-271.
vides a structure to experimenta- 8. Herbert Simon aptly captures this back-and-forth in dis-
Creation students at the University of Utah.
tion and a clear lens with which to cussing the “continuing two-way interaction between the
find the right data and interpret re- gradual construction of [a problem] representation and the
sults. Even more practically, having
Endnotes construction of the theory that [uses] it” - see Simon, H.A.
(1996). Models of my life. MIT Press.
a theory helps companies to identi- 1. Lewin, K. (1943). Psychology and the process of group living. 9. The economist Frank Ramsey discusses how beliefs can be
fy promising investments and paths Journal of Social Psychology, 17(1): 113-131. For further discus- measured by “the extent to which we are willing to act” on
sion of the role of theories in enabling sight and ob serva- them. Thus we also see beliefs (particularly contrarian and
to value which may not be evident tion, see Kitcher, P. (1982). Abusing Science. MIT Press; and novel ones) as motivating action and strategy. Ramsey, F.
to others. We invite founders, CEOs, Popper, K.R. 1969. Conjectures and refutations: The growth P. (1931). The foundations of mathematics and other logical
strategists, and their collaborators of scientific knowledge. Routledge. In terms of the origins of essays. Cambridge University Press.
theories, some useful historical background can be found 10. Thiel, P. (2014) Zero to one: Notes on startups, or how to build
to carefully develop their own nov- in philosopher Paul Feyerabend’s 1975 book Against Method the future. Crown Business.
el theories which will illuminate (New Left Books). 11. For relevant insights into brainstorming, see Diehl, M., & Stro-
previously unseen value and more 2. For early work developing this argument, see Felin, T., & ebe, W. (1987). Productivity loss in brainstorming groups:
Zenger, T. R. (2009). Entrepreneurs as theorists: on the or- Toward the solution of a riddle. Journal of Personality and
generally fuel the process of new igins of collective beliefs and novel strategies. Strategic Social Psychology, 53(3), 497. For a recent summary of brain-
value creation. Entrepreneurship Journal, 3(2), 127-146. It’s important to storming best practices, see Paulus, P. B., & Kenworthy, J. B.
note that others have made broadly related arguments. (2019). Effective brainstorming. Handbook of Group Creativi-
Perhaps the closest “cousins” to the approach suggested ty: Innovation Through Collaboration, 287-386.
Author Bios in this article can be found in some of the existing work 12. Contrarian beliefs may just seem like rhetoric or “cheap
on commitment, managerial vision, and entrepreneurial talk” and thus be easily dismissed. In a sense beliefs are
Teppo Felin is the Douglas judgment. For further work in these areas see Foss, N. J., just talk. But they can be quickly developed toward a specific
& Klein, P. G. (2012). Organizing entrepreneurial judgment: articulation of the key obstacles (or problems) standing in
D Anderson Professor of A new approach to the firm. Cambridge University Press; the way of realizing these beliefs, along with an articulation
Strategy & Entrepreneurship Gans, J. S., Stern, S., & Wu, J. (2019). Foundations of entre- of the actions—experimentation, investment, and solution
at the Huntsman School preneurial strategy. Strategic Management Journal, 40(5), search—that need to be taken.
736-756; Gavetti, G., & Menon, A. (2016). Evolution cum 13. Prominent venture capitalist Fred Wilson, among others,
of Business, Utah State agency: Toward a model of strategic foresight. Strategy thought that Airbnb was very unlikely to create significant
University. From 2013 to Science, 1(3), 207-233; Ghemawat, P. (1991). Commitment. value and thus chose not to invest in the company. His early
2021 he was a Professor of Simon and Schuster; Van den Steen, E. (2005). Organiza- correspondence and reasoning is informative and can be
tional beliefs and managerial vision. Journal of Law, Eco- found here: http://www.paulgraham.com/airbnb.html
Strategy at the University of Oxford. nomics, and Organization, 21(1), 256-283. 14. For the academic literature on problem formulation and
3. For a discussion of “theories as instruments,” see James, W. problem solving, see Baer, M., Dirks, K. T., & Nickerson, J.
Alfonso Gambardella is a (2000) Pragmatism and Other Writings. Penguin Books. Karl A. (2013). Microfoundations of strategic problem formula-
Professor of Corporate Popper also offers useful insights on the role of theories in tion. Strategic Management Journal, 34(2), 197-214; Nicker-
Management at the Boc- enabling novel observations and knowledge. In short, Pop- son, J. A., & Zenger, T. R. (2004). A knowledge-based theory
per argues “we learn only from our hypotheses what kind of of the firm—The problem-solving perspective. Organization
coni University, Milan, and
observations we ought to make: where to we ought to direct Science, 15(6), 617-632.
Co-Editor of the Strategic 15. Problems are discussed in various ways in the practitioner
our attention: wherein to take interest” (Popper, 1967: 71). See
Management Journal. Popper, K.R. 1969. Conjectures and refutations: The growth of literature, including the idea of “pain points” or “job-to-be-
scientific knowledge. Routledge. done.” For more on the latter concept, see Christensen, C.M.,

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 Hall, T., Dillon, K. and Duncan, D.S., 2016. Know your custom- problem in markets for strategy, Strategy Science, 1(2): 71-89; of these value-related considerations (for example, value
ers’ jobs to be done. Harvard Business Review, 94(9), 54-62. Ghoshen, Z. and Hamdani, A. (2016). Corporate control and creation versus capture), see Brandenburger, A. M., & Stuart
16. Strategy more generally has been cast as a “search” prob- idiosyncratic vision. Yale Law Journal, 125: 560-612; King, B., Jr, H. W. (1996). Value‐based business strategy. Journal of
lem - for example, see Kauffman, S. A. (1993). The origins of Felin, T. and Whetten, D. (2010). Finding the organization in Economics & Management Strategy, 5(1), 5-24.
order: Self-organization and selection in evolution. Oxford organization theory: A meta-theory of the organization as 22. The search for a needle in a haystack is a reoccurring met-
University Press, USA; and Lippman, S. A., & McCardle, K. F. social actor. Organization Science, 21(1), 290-305; Rajan, R. aphor in strategy. Of course, the strategy problem is even
(1991). Uncertain search: A model of search among technol- (2012). Presidential address: The corporation in finance, Jour- more radically difficult than the relatively simple search
ogies of uncertain values. Management Science, 37(11), 1474- nal of Finance, 67(4): 1173-1217; Zenger, T. (2013). Strategy: The for a needle. This is because, as Herbert Simon wrote, “the
1490. For a recent review of the “search” concept in strategy, uniqueness challenge. Harvard Business Review, November; haystack of life is essentially infinite” (1978: 502). See Simon,
see Baumann, O., Schmidt, J., & Stieglitz, N. (2019). Effective Zuckerman, E.W. (1999). The categorical imperative: Securi- H. A. (1978). On how to decide what to do. Bell Journal of Eco-
search in rugged performance landscapes: A review and ties analysts and the illegitimacy discount. American Journal nomics, 494-507.
outlook. Journal of Management, 45(1), 285-318. Search has of Sociology, 104(5), 1398-1438. 23. For information processing-related arguments in strategy,
also been central in formal approaches to varied approaches 18. Ries, E. 2011. The lean startup: How today’s entrepreneurs see Makadok, R., & Barney, J. B. (2001). Strategic factor mar-
in strategy: Steen, E. V. D. (2017). A formal theory of strate- use continuous innovation to create radically successful ket intelligence: An application of information economics
gy. Management Science, 63(8), 2616-2636. Search is also businesses. Crown Books. For a discussion of the problems to strategy formulation and competitor intelligence. Man-
a central concept in entrepreneurial strategy and the idea with lean startup, see Felin, T., Gambardella, A., Stern, S., & agement Science, 47(12), 1621-1638. Teece’s notion of envi-
of resource mobilization, see Clough, D. R., Fang, T. P., Vissa, Zenger, T. (2020). Lean startup and the business model: Ex- ronmental “sensing” is also related: see Teece, D. J. (2007).
B., & Wu, A. (2019). Turning lead into gold: how do entrepre- perimentation revisited. Long Range Planning, forthcoming. Explicating dynamic capabilities: the nature and microfoun-
neurs mobilize resources to exploit opportunities?. Academy 19. For a discussion of strategy and factor markets, see Maritan, dations of (sustainable) enterprise performance. Strategic
of Management Annals, 13(1), 240-271. Our argument is that C. A., & Peteraf, M. A. (2011). Invited editorial: Building a bridge Management Journal, 28(13), 1319-1350.
searching for value (solutions or resources) is not so much between resource acquisition and resource accumulation. 24. Of course, it’s important for us to note that a critical—sub-
about the “processing” of information or, say, who you know. Journal of Management, 37(5), 1374-1389. For an excellent sequent and ongoing—step is to build (and grow) the or-
Rather, the search for value can be radically foreshortened introduction to markets for technology, see Arora, A., Fosfuri, ganization itself to realize your theory of value. As we have
by having a theory. A., & Gambardella, A. (2004). Markets for technology: The discussed, this includes hiring and attracting the right peo-
17. Theories of value are unlikely to be pursued by an entre- economics of innovation and corporate strategy. MIT Press. ple, securing the needed financing, ensuring the right gov-
preneur or manager alone—they have to be sold to others. 20. In the academic literature in strategy, there is a de- ernance and incentive structures, perhaps partnering with
The realization of most theories requires the commitment, cades-long conversation about whether firms can find and other organizations, and so forth. Some of these activities
resources, and buy-in of various stakeholders—including purchase “bargains” (assets, technologies or other factors), are of course likely to be concurrent with the process of de-
employees, suppliers, investors, and, in corporate settings, that is, whether markets are efficient. Early, seminal argu- veloping your theory of value. But we believe that the theory
senior management. Eliciting this commitment can be dif- ments focused on market efficiency: Barney, J. B. (1986). itself needs to be articulated first, perhaps in collaboration
ficult because the very foundation of a theory of value is a Strategic factor markets: Expectations, luck, and business with those enticed to join the effort, since it will then condi-
contrarian or uncommon belief which, by definition, is not strategy. Management Science, 32(10), 1231-1241. Also see tion and shape the subsequent organizing processes. For a
widely shared or accepted by others. So, your theory has Denrell, J., Fang, C., & Winter, S. G. (2003). The economics of discussion of what types of problems need to be matched
to be persuasive enough to enlist the stakeholders that are strategic opportunity. Strategic Management Journal, 24(10), with which types of governance, see Felin, T., & Zenger, T. R.
needed for the realization and execution of your theory. If 977-990; and Leiblein, M. J. (2011). What do resource- and (2014.) Closed or open innovation? Problem solving and the
you are unable to sell your theory to others, it is likely to capability-based theories propose? Journal of Management, governance choice. Research Policy, 43(5), 914-925. For a
simply remain a dream. Employees and investors have 37(4), 909-932. However, our argument here is that theories, more general treatment of many of the key organizational
options about where to work and what to invest in. But if in a sense, allow entrepreneurs and firms to hack markets issues of “building a company,” see Boudreau, K. (2018).
they are convinced that an opportunity is significant, they’ll and to see value not evident to others. Notes on designing your company. Harvard Business School
vote with their feet and their money and join you. For further 21. In this article we focus primarily on value creation, and less Strategy Unit Working Paper, (16-131).
reading, see: Benner, M. and Zenger, T. (2016). The lemons on value appropriation and capture. For further discussion

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