Entrepreneurial pivots – research interview

Entrepreneurial pivots are a core skill set in every entrepreneur’s tool kit right? Well new research suggests this might not be correct. The idea of the adaptive, change orientated entrepreneur probably needs updating. In this interview with Professor Regan Stevenson from the Kelley School of Business at Indiana University, he looks at some of his recent research into entrepreneurial pivots.

Interview with Assistant Professor Regan Stevenson – Kelley School of Business – Indiana University

This podcast was recorded in April 2020 right during the first weeks of the lockdown in both the UK and US. You may find a few sound issues.

University profile page : Assistant Professor Regan Stevenson

LinkedIn page: linkedin.com/in/reganstevenson/

Twitter: @ReganStevenson

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How To Pivot – What The Research Says: Successful entrepreneurial, business and organisational pivots

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How To Pivot – What The Research Says: Successful entrepreneurial, business and organisational pivots

By David J Wilkinson Editor of The OR Briefings (oxford-review.com)

Interview Transcript – entrepreneurial pivots

David Wilkinson (00:00):

Okay. And welcome back to the podcast. And today I’ve got Regan Stevenson from Indiana university in the States who’s been doing some research around entrepreneurial pivots and it’s really interesting some of the work that they’ve been doing. So Regan, can you just give me a couple of minutes to just introduce yourself, give the listeners a little bit of background about your personal journey so far and some academic history.

Regan Stevenson (00:32):

Absolutely. Thank you so much for having me today. So originally my background, I guess it starts with being an entrepreneur first. So I spent about 10 years myself as an entrepreneur, and I did all of those things that entrepreneurs have to deal with. So, getting the business off the ground, trying to raise capital. Eventually we did raise capital. Building a business, assembling a team, and then exiting the business and actually ended up doing that a couple of times. So what’s described by friends and the term that’s commonly used as kind of a serial entrepreneur. So I was in my third business and was doing some consulting for some other businesses and I realized around that time that I really wanted to stay involved with entrepreneurship. I love the ideas. I love being involved with entrepreneurs, but that I thought the next pursuit for me should be something that is a little different.

            And I decided I wanted to go after the intellectual challenge of getting a PhD. So that was fun. After I exited my last business, I decided to do a PhD. I chose the University of Central Florida for my PhD. The reason for doing that is because they had a really great organizational behavior team who were trained in social psychology methods and had a really strong background in that area. And I knew for myself that I wanted to study the behavioral side of entrepreneurship, and that was an area that was only developing in our field, in our academic field. So I felt that my best bet would probably be to get involved with an organization that was already, or an institution that already had a good background with social psychology, even though they didn’t have much happening with entrepreneurship research itself.

            So I chose University of Central Florida, did my PhD there and then ended up finishing the PhD. Had a great experience and was super fortunate to get the opportunity to come to Indiana University, the Kelley School of Business, which is you’re surrounded by a group of incredible entrepreneurship researchers. We have one of the largest groups of entrepreneurship researchers in the world and continually receive accolades for the productivity that the group does. So when I got the opportunity to come here, I jumped at it, of course, and just being around Indiana University and the people in the halls, I feel was an opportunity I couldn’t miss as my first academic placement and I have been pleased every day that I’ve gone [inaudible 00:03:12]. Unfortunately not going into the office anymore, given the situation, but we’ll be back there soon again.

David Wilkinson (03:19):

Yes. Great. So what kinds of research have you been involved in up until this paper around entrepreneurial pivots?

Regan Stevenson (03:27):

So generally I like to study the behavioral side of entrepreneurship. And so a lot of the initial papers I was working on, were it related to the phenomenon of crowdfunding, which was an emerging trend, emerging system of finance that really started in 2009 with Kickstarter and started to gain additional momentum 2015 with some equity crowd funding coming online. So I’ve been doing a lot around that and really just trying to understand the behavioral foundations of how entrepreneurs raise capital, whether it be through crowdfunding, through angel investment, through venture capital.

            But overall my general interest lies in trying to understand, I guess, a lot of the early stage challenges that entrepreneurs go through and really trying to unpack those from more of a behavioral aspect. And I like to start with this phenomenon in mind. So some kind of empirical puzzle that’s happening in the natural entrepreneurship world. So I try to stay closely connected with entrepreneurs that I know from my previous life with what’s happening in accelerators and incubators around the country. And from there, I try to derive what will be an interesting research question and of course bring theory to it as well, but starting with a phenomenological puzzle is the way I like to approach it.

David Wilkinson (04:50):

Right. And so what brought you to this study around looking at entrepreneurs and pivoting?

Regan Stevenson (04:58):

So as you know, pivoting is all the rage, you can’t go anywhere.

David Wilkinson (05:04):

Especially at the moment.

Regan Stevenson (05:06):

That’s absolutely true. You can’t go anywhere without somebody telling you about the importance of entrepreneurial pivots. And while I completely agree and subscribe to the importance that entrepreneurs need to be pivoting and market sensing, one of the things that I noticed just in interacting with a lot of entrepreneurs, whether it’d be through coaching or mentoring them, or just talking with friends that are still involved in several businesses, that it’s quite often that even though the standard practices, pivot, pivot, pivot that entrepreneurs like to resist or for some reason resist the pivot and I’ve got some related research on coachability. And so that really tries to unpack why certain entrepreneurs are more coachable and that to some extent could explain this pivoting puzzle, but we thought there was something more going on. And so we just wanted to see what are the things that kind of hold entrepreneurs back from pivoting and what are the enablers of pivoting?

David Wilkinson (06:10):

Yeah, there’s been some because I’ve been doing quite a lot of looking around pivoting, we’re doing quite a lot of work in the Oxford review around pivoting. And so there’s a 2015 study that contrary to a lot of people’s expectations, this kind of expectation that entrepreneurs are very ready to pivot, they pivot very easily, that they’re the kind of the masters of the pivot, the study that I’ve got in mind by Brush, Edelman and Manolova was showing that actually that’s contrary to their findings. And that one of the big indicators of a pivot is when entrepreneurs actually attract angel funding. And it’s the pressure and coaching from the entrepreneur who’s bringing the money in that actually gets them to start to change their model. So what was it that you were finding in your research?

Regan Stevenson (07:11):

Yeah, that’s really interesting and has a lot of similarities to what we were finding. So one of the things initially when you talk with entrepreneurs and when you see entrepreneurs and you ask them about pivots, what was evident and we did some qualitative studies before taking on our more quantitative approach here was that they kind of, a lot of entrepreneurs kind of think about their idea as their baby. So if you tell somebody, hey, you got to go get feedback, you got to find out information, and then you got to pivot. And by the way, you got to pivot away from what you believe in your mind to be your baby, you can just imagine how they might react, right? So, you can’t go up to somebody and say, hey, your baby’s ugly, you need to leave your baby behind because there’s greener pastures on the other wall and expect that they’re going to listen to you, even though that’s the common practice in Silicon Valley. You’ve got a lot of people coming in from the outside that are first time entrepreneurs.

            And so we really wanted to try to understand that phenomenon a little bit more. So we kind of set up this research paper by looking at entrepreneurs that were in a program called I-Corps where you had entrepreneurs that were traditionally technologists and engineers take on a program, it was a structured program seven weeks, which was designed to essentially get them to unpack and discover their value proposition, through the act of pivoting. And so each week this group would meet and every week they’d be challenged by coaches. So similar to the venture capital paper that you were referring to and they would be tasked with recording the interviews that they did on a week to week basis in a structured system, online system, and then identifying positive, negative, neutral feedback, and then identifying whether or not they acted upon that feedback.

            So it was a really nice data set from, I think there was around 70 teams and something like 500 or 600 different decision points that were made in various areas across the United States. So when we had that data, we felt that we would be able to assess feedback, positive or negative, and then look at how that impacted pivots on various aspects of the business model.

            So in general, there’s been discussion about pivoting, and we wanted to go a little bit further and say, how might the feedback influence different types of pivots? Whether that’s something toward the value proposition, whether that’s something toward more of your supply chain or your customer segment, we felt that there would be some nuance there in terms of how entrepreneurs would respond to this negative feedback. Mainly because we had this underlying assumption that certain parts of the business model are more core to the identity of the entrepreneur. So we termed that the core venture identity, and of course, that kind of falls toward if you’re familiar with the business model canvas that falls toward the center of the value proposition is, and that’s how we kind of operationalized and unpacked this research.

David Wilkinson (10:27):

Interesting. So what did you find out actually about this connection between an entrepreneur’s core identity and their identity with the business, their baby is as you put it?

Regan Stevenson (10:41):

The first thing we did was we wanted to just reconfirm the importance of negative feedback on pivot. And we expected that in general, if you received negative feedback as an entrepreneur, that you were going to pivot, and we did find that, so that was not terribly surprising, but that was a good starting point for the research. And the next thing we wanted to see was, does the nature of the feedback or the direction of the feedback in terms of which position on the canvas matter or moderate that relationship. And we found that as the information and the feedback gets closer to the core identity of the venture, entrepreneurs kind of dig in and they’re resistant to pivoting, even though that is probably potentially the most important area, practically speaking, that you’d want the pivot. You want to have a repeatable and scalable business model, and that’s done through pivoting the value proposition.

            So it’s kind of counter to what the practical literature would say, which is you got to pivot, you got to pivot, you’ve got to pivot. As soon as I challenge an entrepreneur on pivoting their core business [inaudible 00:11:53], they dig in and we term that an identity trap. So we unpack that this is really something that’s happening at the psychological level for entrepreneurs. And if it’s something that’s not core to their identity, like, hey, you’ve got to change your revenue structure, they’re much more likely to do it than the core closer to their identity. And we took it a little bit further and we thought, okay, so maybe it’s the case that the more experience you have as an entrepreneur, the more likely you are to recognize your own biases towards your core venture identity and pivot.

            And this research that I’m describing by the way is still kind of ongoing. We’re still in the working paper stage. So we have not found that yet. And what we’re doing is we’re going a little bit deeper with some qualitative work, if there’s something else going on there. But experience, it wasn’t the right direction, but it was almost significant, but not quite there. So we want to go a little deeper and look at some other contingencies that might be influencing that.

David Wilkinson (13:00):

That is interesting, because again, you would expect a lot of this kind of traditional narrative is the more experienced an entrepreneur is, the more likely they’re able to be able to cutoff and then move. And whilst there’s a trend that it’s not significant, that is interesting, that’s very interesting.

Regan Stevenson (13:22):

It’s on the right direction and our power is a little limited. So we think that there’s some things going on probably with the industry and the nature of the relationship and trying to increase the scope of our research before we actually move it through to the publication process.

David Wilkinson (13:41):

You’ve mentioned this idea of an identity trap, can you just explain a little bit more about what that is?

Regan Stevenson (13:47):

Okay. So what we think is happening is that entrepreneurs may know that it’s good practice to pivot and they may want to engage in Entrepreneurial pivots, but their own identity, their own tie to their business idea is trapping them or getting them to resist the change at the psychological level. And it’s really just similar to what I described earlier with being tied to your baby. Of course, you don’t want to change when you begin to get passionate about something, when you love something, it’s going to be more and more difficult for you to want change. So we wanted to explore that in a little bit more detail because prior work has talked about pivoting and the importance of it and the challenges of pivoting, but has not been able to break it down on [inaudible 00:14:37] types of pivots versus other types of pivots.

David Wilkinson (14:42):

Okay. And is there anything that entrepreneurs can actually do about this to help them with Entrepreneurial pivots because what I find interesting about this is there’s two kind of identities pulling in two different directions. One is the identity of an entrepreneur and this idea that actually I’m flexible and I just go with where the market’s telling me to go, and then there’s other idea that actually I’m tied to the identity of my organization or my business.

Regan Stevenson (15:12):

Yeah, I completely agree. So in some ways, the thing that an entrepreneur should be aware of, especially a first time entrepreneur, is that when it comes to finding the repeatable and scalable business opportunity, while entrepreneurs think this is a challenge of the environment or that this could be something that they really needed capital for, but it turns out based on our research that entrepreneurs could be their own worst enemy at identifying and finding that scalable and repeatable business opportunity, right? So just the knowledge that that is a potential that could be hindering you, I think is really important.

            And we don’t have evidence on this yet, but one of the things that we are getting some information on from our qualitative research is that this seems to be potentially impacting first time entrepreneurs and entrepreneurs that are more, I guess that embrace more of a research or an engineering, technology identity, as opposed to entrepreneurs that embrace a, I’m a start up entrepreneur, and I’m passionate about the process of entrepreneurship type of identity. So again, it’s popping a little bit in the qualitative interviews we’re doing, but more work needs to be done there before we can confirm whether or not that’s an accurate finding.

David Wilkinson (16:28):

Brilliant. Yeah, it’s really interesting and a really interesting set of findings that are coming out from your studies and other studies around this, that the whole idea of pivoting, which is interesting on its own, but also entrepreneurs and early stage entrepreneurs and the way they’re doing it or not doing it as the case may be. So, what do you think practitioners can actually take away from these studies around pivoting?

Regan Stevenson (17:00):

Yeah, I think there’s a lot to take away. First, as I mentioned, just being aware of your own knowledge limitations, and embracing this idea of epistemic humility. And this is really just the idea that, knowledge is important, but you may not know everything and you need to be humble about the fact that you probably don’t know, and if you’ve dealt with entrepreneurs, you usually know that by the first time they’re coming in, they’re pitching you and they’re really good at that, right. So they figure out how they want to pitch the idea and sell you on it. And then they start to tie into that, right? And when challenged, sometimes the natural tendency is to react with a little bit of defensiveness and to dig in further and what we’re seeing is really just kind of embracing the fact that sometimes it’s okay to say, I don’t know.

            Sometimes it’s okay to say this is something that I’m searching for. And investors, those that have a lot of experience around entrepreneurship really get that what they’re betting on is somebody that has that humility to know what they know and to know what they don’t know. And then once they figure it out using primary market research and actually going out there and taking action, that’s the time where you can then invest in scale up. But before that period in time, you really got to be flexible both in your business model and in your mindset.

David Wilkinson (18:27):

Yeah. And it’s very much about following the data as an entrepreneur, but it is very difficult, especially when as you say, it’s your baby, when you’ve put a lot of effort into it and you’ve kind of molded it. And there’s also probably this, and I liked the idea of humility, that idea of, well, nobody else knows my business better than me. And I think there’s a big trap inside that. Interesting. So in terms of you and your research and your team’s research, where next?

Regan Stevenson (19:04):

We’re continuing down this path where we’re kind of looking at pivoting and early stage challenges. Some of the other research that we’re working on right now are related to minimum viable products and MVPs and what that means and how they’re used and the opportunities to use them for legitimacy because I find kind of the dark side of things interesting. When MVPs kind of go wrong as well. So that’s some of the research we’re working on now. And then just honestly, with the situation here with COVID-19 being all that anybody is talking about, I’ve spent a lot of time over the last month, really trying to dig back in to some COVID-19 data and approaching it in the way that I like to approach research from this behavioral side and trying to understand a little bit more about individuals bias toward exponential risk and their understanding of exponential risk and how that influences their actions and behaviors.

            So we’ve got some cool data at the political level in the United States, looking at governor decisions to lock down that we’re working on. And I want to take that a little bit further and really kind of look at maybe entrepreneurs and startup founders that have now been leading public companies. And just trying to understand whether or not how quickly they reacted to it. My hunch is here that the exponential function is really what underlies entrepreneurial growth. So entrepreneurs are going to get this, they’re going to understand this better than the average person.

            And that applies both on the upside, which is the reason why entrepreneurial businesses can scale, you have to have belief or understanding of the exponential function to actually take that risk and want to proceed with an entrepreneurial venture. And also on the downside. So when there’s a threat that has the characteristics of this exponential function, will they be quicker to recognize? And some of the anecdotal evidence suggests that they are. You saw Facebook and Microsoft and others lock down before anybody else really considered it to be a problem. So just want to explore that further, I’m not sure where it will lead to and how long that will last, but I’m just fascinated with it right now.

David Wilkinson (21:20):

So, my research is around uncertainty and areas allied to that, things like emotional regulation and things like that. And one of the things that I got involved in a few years ago was looking at entrepreneurial problem solving and the range of ways that entrepreneurs engage in problems and Entrepreneurial pivots from opportunity seeking and having the mindset of, okay, looking where the reality is right now and really doing a kind of a scan of, okay, you what’s the data telling me that’s really happening right now? Not what I think is happening. And trying to take kind of a series of diverse views of that to work out what’s going on and then, okay. So what do we do? Where do we move from here from an opportunity base right through to the other end, which tends to be people who aren’t very tolerant of uncertainty who are solving… Oops, we lost you. Yeah, looks like it. Solving problems.

Regan Stevenson (22:29):

I was there for a second then I froze but I’m back.

David Wilkinson (22:35):

There we go. Where was I at?

Regan Stevenson (22:38):

Yeah. You were telling about your research.

David Wilkinson (22:41):

Yeah. Just around entrepreneurial problem solving to do with uncertainty and this idea that there’s just obviously a range, there’s the opportunity seeking behavior, where entrepreneurs are trying to find out what the reality of any particular situation in the moment is by taking diverse views and then saying, okay, so where can we move from here? Right through to people who are less tolerant of uncertainty who are just trying to get back to how it was before. So we saw a lot of that in 2008, people thinking that they could actually just somehow solve the problem which actually meant for them going back to how it was before. I’m not sure whether there’s such a thing as a true entrepreneur, but more entrepreneurial thinking around the discovery of fast identification of where we are and saying, right, okay, what’s the opportunity to here? And in this country, we’ve seen a number of businesses that have done that.

            I don’t know whether they’re in the States, there’s a chain of cafes, restaurants, kind of health food called Leon. And almost immediately that they recognized what was going on. They diverted their, because all the cafes and everything was shut down in the UK. They diverted their attention to delivery in the immediate area of the cafes. So you could buy packs of things to cook at home, but then also selling their wares through local supermarkets and doing local deals with some of the larger supermarket chains. And then other organizations have just gone bust actually because they really haven’t reacted very quickly. So I think there’s an awful lot of work to be done in that area, trying to identify what the factors are that are involved in these. I think this whole idea of pivoting is really important. And I think the work that you’re doing is very important. So thank you very much. This has been really, really interesting and very instructive. Where can people contact you if they want to do so, and how?

Regan Stevenson (25:03):

So you can find me, I’m a professor at the Kelley School of Business. So you can find me on their website. You can also find me, I think it’s just a redirect, but I have a URL for www.reganstevenson.com that redirects you to my faculty page. So yeah, I’ve been busy working on some research and busy working with this COVID-19. I also work with a lot of entrepreneurs recently, as you’re describing that’re looking to pivot, that are thinking about challenges or how disruption is going to impact them.

David Wilkinson (25:34):

Okay. So, where next and for you and for the research?

Regan Stevenson (25:45):

Yes. So, and some of the other work related to early [inaudible 00:25:48] challenges. And that’s where I’m focusing my research and also just helping some startups work through this incredible crisis that we’re dealing with. And although it’s a human tragedy, I am encouraged to see entrepreneurs trying and playing a key role in the comeback. And I believe we’re going to see some incredible entrepreneurial businesses emerge over the next year to two of it. They’re going to play pivotal roles in all this.

David Wilkinson (26:18):

Yes. Yeah. I absolutely agree. And we’re starting to see it happening with some businesses and hopefully more and more, will be able to do Entrepreneurial pivots, particularly on the back of some of the research that you’re doing. Yeah. Thank you very much. I really appreciate your time and sharing some of the research with us. It’s been really interesting.

Regan Stevenson (26:39):

My pleasure. Thanks so much for having me.

David Wilkinson (26:41):

It’s an absolute pleasure. Thank you.

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