International Journal of Global Business and Competitiveness

https://doi.org/10.1007/s42943-021-00044-6

ORIGINAL RESEARCH

A Decision‑Making Framework for Entrepreneurial Venture

in Emerging Economies
Shashi Bhushan Kumar1   · Nandan Sudarsanam1 

Received: 1 June 2021 / Accepted: 8 December 2021

© The Author(s) under exclusive licence to Global Institute of Flexible Systems Management 2022

Abstract
Entrepreneurship is major source of jobs creation, economic growth, and innovation in most of economies. It entails identi-
fication of opportunity, and a series of steps taken to commercialize the identified opportunity in profitable manner. Along
the way, entrepreneur encounters many decision problems pertaining to strategy and operation, ranging from deciding on
the business opportunity to go-to-market plan. Decision-making in entrepreneurial setting becomes difficult and challeng-
ing because of many unknowns requiring knowledge of contextual intelligence and changing business environment, further
accentuated in emerging economies because of regulatory uncertainty and change. Right decision-making is key to profit-
able exit or early disengagement, resulting in reduced sunk cost. The paper proposes a framework for decision-making in
entrepreneurial setting based on experimentation. We posit that entrepreneurial decision-making can be modelled in the
settings of contextual bandits. In the process, we detail out aspects of decision problems, entrepreneurial ecosystem, and
experiments, which impacts decision-making processes and associated cost. We develop propositions pertaining to association
between decision problems, ecosystem, and entrepreneurial growth. Based on that, we draw implications for entrepreneurs
and policymakers.

Keywords  Entreprenuership · Decision-making · Experimentation · Entrepreneurial growth · Ecosystem

Introduction Competitiveness is relevant and studied across the differ-

Entrepreneurship is actively encouraged as mechanism for
business creation and vehicle of economic growth across
all countries of the world. While there are benefits from the
continuous emergence of new firms, there are substantial
social costs involved with failed ventures, in terms of time
and money involved, offsetting the public benefits obtained
from maintaining active entrepreneurial sector (Reynolds,
2016). An efficient decision-making process for entrepreneur
will go a long way in reducing the social cost by reaching
the outcome—either by venture becoming profitable or con-
cluded to be unviable—sooner and making the process of
entrepreneurship efficient.
* Shashi Bhushan Kumar
shashibhushank@gmail.com
Nandan Sudarsanam
nandan@iitm.ac.in
1
Department of Management Studies, Indian Institute
of Technology Madras, IIT P.O., Chennai 600 036, India
ent levels ranging from firm to region to nation (Momaya,
2019). For firm, it pertains to the capacity of the firm to
viably compete in identified market; whereas for region
or nation, it refers to ability to generate high and rising
incomes and improve livelihoods of people (Satyanarayana
et al., 2021). Firm strategy is one of the firm-specific factors
determining competitiveness (Satyanarayana et al., 2021).
An efficient decision-making process will make entrepre-
neurial firm competitive by influencing firm strategy. Early
conclusion of outcome for entrepreneurial firm will improve
allocation of financial resources, in turn increasing produc-
tivity (Arulraj & Annamalai, 2020) and increasing the com-
petitiveness of region or nation.
Entrepreneurs in emerging economies generally tread in
the environment of institutional voids (Khanna & Palepu,
1997) and market and institutional development (Peng,
2003) in addition to uncertainty about markets they create
or enter, outcomes of technological development and com-
petencies to run a venture (Shepherd et al., 2015) because
of inherent nature of entrepreneurship itself. Entrepreneurs
decide on a set of interdependent activities to create and

1 Vol.:(0123456789)
3

capture values by thinking (cognition) and doing, where
focus is on action and adaptation (Eisenhardt & Bingham,
2017). Premise behind cognition is that entrepreneurs use
accurate mental models (organization of knowledge into rep-
resentation or map), appropriate analogies, identity, knowl-
edge structures (heuristics and schema) to make assess-
ments, judgements and decisions pertaining to opportunity
evaluation, venture creation, or growth (Michael Haynie
et al., 2010; Ott et al., 2017). Causal and effectual reasoning
are two predominant cognitive decision processes popular
in entrepreneurship literature (Michael Haynie et al., 2010).
According to causation approach, entrepreneur identifies
opportunities and then organizes necessary resources to
exploit those opportunities, whereas effectuation theory
postulates that entrepreneur rather than predicting social or
business needs, assembles the resources and set of means
available to oneself to provide something useful to market
or society or address some good idea (Sarasvathy, 2001). In
fact, entrepreneur alternates between causation, effectuation,
or a combination of both mode in response to the evolv-
ing environment, regulatory and funding constraint during
lifecycle of a venture (Maine et al., 2015). Both causal and
effectual reasoning is predicated on pre-existing knowledge
structures, analogies, and mental models. But pre-existing
knowledge structures, analogies and mental models does not
equip entrepreneurs fully to think through consequences of
different actions taken or predict the future in an environ-
ment characterized by high velocity—novel, unpredictable,
fast-paced and ambiguous nature of entrepreneurial settings
(Ott et al., 2017) and consequently make decisions about
customer value propositions, business model, organization
structure, go-to-market model, financing, technology and
operations, exit mode, in short every aspect of a firm's opera-
tion and long-term health.
An entrepreneur has to validate her assumptions and aug-
ment extant knowledge structures based on experimenta-
tion to quickly adapt to changing environment on continuous
basis (Nicholls-Nixon et al., 2000). Venture capital in devel-
oped economies already adopts the process of experimenta-
tion to some extent by following the approach of different
sequential rounds of funding based on validation of concepts
and results achieved in earlier rounds. Experimentation takes
place at two different levels. In first level, new ideas, prod-
ucts, and technologies are continually tested in marketplace;
and either fail themselves or replace existing solutions from
the market. At next level, different processes are experi-
mented to bring these ideas to market (Kerr et al., 2014). It
rarely happens that business plan created before launching
the venture is completely followed by entrepreneur without
any deviation or considerable adjustment; however, detailed
and carefully crafted the plan may be (Nicholls-Nixon et al.,
2000; Reynolds, 2016) because process of new business
development involves iterative changes as the entrepreneur
13
S. B. Kumar, N. Sudarsanam
develops an understanding about what does and what does
not work (Nicholls-Nixon et al., 2000).
The paper proposes a framework for decision-making in
entrepreneurial setting based on experimentation. We posit
that entrepreneurial decision-making can be modelled in
the settings of contextual bandits. The paper is developed
as follows. First, we discuss modelling decision problems
in settings of multi-armed contextual bandits. Based on
the model, we conclude that attributes of decision prob-
lem, ecosystem, and experiment will determine cost and
design of experiments. We survey the literature to identify
dimensions of decision problem, ecosystem, and experi-
ment, which could conceivably influence cost and design
of experiments. We further develop propositions stating
the relationships between identified dimensions of decision
problems, ecosystem, cost of experimentation—predicated
on the modelling of decision problem in contextual ban-
dit settings—and its impact on entrepreneurial growth. An
understanding of nature of decision problems and ecosys-
tems to be encountered pertaining to a specific entrepre-
neurial proposal will provide a perspective to the concerned
entrepreneur and venture capitalist about the cost entailed
in figuring out unknowns through experimentation to arrive
at right decision at different junctures and finality of the
venture. This understanding can also be leveraged to enable
policy formulation to reduce the cost of experimentation,
promote entrepreneurial growth for a specific industry seg-
ment/domain or geography and increase competitiveness of
the region. Based on the propositions, we draw implications
for different stakeholders.
Decision Problem Model
Decision problem entails searching for the best solution
from a set of alternatives, which would result in minimal
regret or maximal benefit; post decision is taken from prob-
able set of actions at minimal search cost, in response to an
assessment of environment around (Schade & Burmeister-
Lamp, 2009). For example, entrepreneur would be coming
up with different possible customer value propositions to be
addressed as part of start-up or identifying a set of specific
technology options or process mechanism, which could be
used for developing the product based on her assessment of
environment and available resources. Post identification of
a set of possible solutions for specific decision problems,
exercise turns to identifying best solution from available
solution spaces.
Identifying the solution from possible solution space
can be modelled as sequential decision-making problem
using multi-armed contextual bandits in sequence (Fig. 1).
In contextual bandit setting, agent selects a specific action
in response to an observed context and is then permitted to
A Decision‑Making Framework for Entrepreneurial Venture in Emerging Economies
Action
Context A Space Context B
for A
Entrepreneurial Ecosystem
Fig. 1  Modelling entrepreneurial decision-making problem.
Note: Depicting a sequential decision problem with multi-armed
contextual bandits. Oval shape indicates a specific context and set of
arrows indicate possible action space. Taking a specific action in con-
observe outcome corresponding to selected action. Outcome
is generated based on interaction between being in a specific
context, choosing a specific action and ecosystem. Contex-
tual bandits allow for encoding prior knowledge based on
pre-existing knowledge structures, mental models, analogies,
and identity—cognitive mechanism for decision-making—in
the form of possible set of actions (arms of bandits) cor-
responding to specific context of the decision problem and
limited understanding of business environment; and further
exploration to discover unknowns to arrive at most appropri-
ate action from probable action spaces (Silver et al., 2021;
Sutton and Barto, 2015).
Arms of a bandit can be designed to replicate different
options available within an action set and depending on the
nature of problem, experimentation can be performed to find
out the best arm among other arms corresponding to most
appropriate action. Representation of these options as arms
of bandits can be suitably chosen—either as a set of discrete
arms or a continuous function of a set of parameters—based
on the nature of problems and options available. In case
of decision problem entailing sequential decision-making;
sequential bandits need to be designed with sequences in
bandits mapped to the sequences in decision-making. Mod-
elling decision problems in contextual bandit setting pro-
vides an opportunity to integrate decision-making by think-
ing and doing.
Once decision problem is modelled as contextual multi-
armed bandit problem, it turns into a problem of identify-
ing optimal action from available action spaces (referred
to as optimal arm of bandits in bandit literature) through
experimentation and analysis before finally committing to
a specific action and going ahead with implementation of
identified decision.
Economic benefit of taking any decision based on existing
knowledge structures or mental model without experimen-
tation is given by expected value of economic benefits of
choosing arms from decision sets.
∑ world, but at the same time, validity of results need to be
Eprior = P(i)prior ∗ E(i) (1)
Action
Space for
Action
B
Context C
Space for
C Outcome
text “A” takes to context “B” and finally context “C” based on action
taken in Context “B”. Outcome is finally observed post taking action
in Context “C” based on interaction between agent and ecosystem
P(i)prior = Prior probability of ith action being the best
decision.
Prior probability would be based on extant belief of the
decision-maker of ith action being the best decision (hav-
ing maximum economic value) among the available options.
E(i) = Economic value associated with ith action.
“E(i)” is the economic value obtained post taking ith
action based on being in a specific context and state of envi-
ronment. Though, the decision-maker may have some prior
belief about the value of “E(i)” and accordingly choose a
probability distribution P(i)prior over set of available options;
actual value of “E(i)” may be different and needs to be dis-
covered and confirmed through experimentation.
Assuming that the decision-maker spends cost “C” on
carrying out experiments, which reveals additional details
about “E(i)”. The decision-maker will change the probability
distribution over available options to P(i)posterior based on
additional knowledge obtained from experimentation.
∑
Eposterior = P(i)posterior ∗ E(i) (2)
Pposterior = Posterior probability of ith action being the best
decision.
Additional economic benefits obtained because of experi-
ments without factoring in cost of experimentation is
∑
(Pposterior(i) − Pprior(i)) ∗ E(i). (3)
For experiments to make economic sense, expected value
of choosing any specific decision post experimentation
should be greater than or equal value prior to experimenta-
tion and cost of experimentation.
∑ ∑
P(i)posterior ∗ E(i) ≥ P(i)prior ∗ E(i) + C. (4)
For the information emanating from experiments to be
valid, it needs to be ensured that experiments are conducted
in a setting such that results obtained are applicable in real
balanced with cost of carrying out experiments. Explora-
tion of different possible options in action set will increase
13

the narrowness of probable action set, increasing the diver-
gence of probability distribution within action set (decrease
in entropy in information theory parlance) with higher prob-
ability being associated with action having higher economic
value; but it will also increase the cost of experimentation.
Though E(i) (economic value associated with option
“i”) may change during course of experimentation because
of change in time value of the options, opportunity cost
entailed because of delayed execution, and changes in busi-
ness environment; for the sake of simplicity and without
any loss of generality for what is being discussed; for this
exposition, we will assume that E(i) does not change.1
Cost of experiments will depend on nature of decision
problems, ecosystem and design of experiments based on
decision problems and ecosystem. Design of experiments
entails optimizing across validity, exploration, and cost of
experiments. So, for experimentation to be feasible, decision
problems and ecosystem should be such that experimenta-
tion can be carried out at much lower cost, which aids in
decision-making.
Decision Problems
An entrepreneur encounters decision problems pertaining
to opportunity assessment, entrepreneurial entry, exploit-
ing opportunities and entrepreneurial exit (Shepherd et al.,
2015) as venture goes through different stages: (i) pre-
entry, (ii) business creation, (iii) business operation, and
(iv) disengagement (Bhave, 1994; Reynolds, 2016). An
entrepreneur has to decide about customer value propo-
sition, financing, technologies and operations related
choices to realize the value proposition, mechanism to take
product or services to customer and exiting or disengaging
from venture as an entrepreneur.
We surveyed the literature to identify dimensions of
decision problems and collated those having possible
implications on the cost and design of experiment. The
entrepreneurship literatures have focused on individual
aspect of decision problem in isolated manner as an ante-
cedent of the dependent variable of its study. Nicholls-
nixon et al., (2000) discusses strategic nature (core and
peripheral to organization) of decisions in context of
frequency of changes undertaken. Amason et al., (2006)
deliberates on novelty for information processing required
1
  Even if we factor in change in “E(i)” during course of experimenta-
tion. At any time, t for exploration to continue for incremental dura-
tion of Δt, following conditions need to hold.
 
E(posterior)(t + Δt) ≥ E(posterior)(t) + ΔC,
 where E(posterior)(t + ∆t) = ∑P(i)posterior(t + ∆t)*E(i)(t + ∆t).
 ∆C = Incremental cost of experimentation.
  Above does not impact the generality of current exposition.
13
S. B. Kumar, N. Sudarsanam
of top management team and its constitution. Agrawal
et al., (2021) examines irreversibility for optimal sequenc-
ing of strategies for testing. Kerr et  al., (2014) reason
about technological advancement facilitating simulation
and rapid prototyping to allow learning from experimen-
tation in some industry segments and enabling entrepre-
neurial growth.
From the perspective of modelling decision problems
in the settings of contextual bandits for experimentation,
decision problems pertaining to entrepreneurship is char-
acterized by four different constructs: (i) degree of strate-
gic nature, (ii) degree of novelty, (iii) degree of reversibil-
ity, (iv) degree of prototype-ability of different solutions as
these dimensions of a decision problem have implications
for design of experiments.
Strategic nature determines the level of downstream
decisions, which are dependent on this decision. Deciding
on customer value proposition, what the venture intends
to offer to its customer, has high degree of strategic nature
as it will have impact on decisions further down the line,
like choice of technology or business model to be adopted;
whereas deciding on go-to-market model has low degree
of strategic nature as very few downstream decisions are
dependent on it. Strategic nature will determine number
of sequences in contextual bandit settings before outcome
could be observed based on interaction with ecosystem.
Netflix initially started as rent-by-mail DVD service to
challenge Blockbuster, but later pivoted to online stream-
ing service (https://​w ww.​b rita​n nica.​c om/​t opic/​Netfl​i x-​
Inc). Decision such as this is strategic in nature, because
downstream it influences other decisions pertaining to
technology to be adopted (for streaming vs. mailing DVD)
and go-to-market model (subscription, pricing model).
Typically, decisions with higher degree of strategic nature
get encountered early in the life cycle of ventures; and
define the purpose of organization, give institutional real-
ity to insiders and outsiders, and determine distribution of
resources (Nicholls-nixon et al., 2000).
Degree of novelty is guided by the amount of prior
information available from different sources, which helps
narrow down the probable solution spaces for a specific
decision problem. Novelty may emanate from newness of
business concept/model, product or technology involved
(Bhave, 1994). Degree of novelty relates to level of igno-
rance about the decision problem. Normally, in specific
case of decision problems pertaining to identifying busi-
ness opportunities, a higher degree of novelty corresponds
to Schumpeter’s (1934) creative destruction, whereas a
lower degree of novelty corresponds to market and societal
inefficiencies in resource allocation. Market inefficiencies
(5) may exist because of either incongruity like information
asymmetry among market participants or limitations of
means to satisfy certain known but unfulfilled market
A Decision‑Making Framework for Entrepreneurial Venture in Emerging Economies
needs (Choi et  al., 2008). Prior information available
determines the boundaries of solution spaces or number
of arms in contextual bandits in case of discrete solution
spaces, which needs to be searched to identify optimal
solution. In case, all the required information is avail-
able then decision can be taken analytically, otherwise
experimentation would be required to gather additional
information. Novelty in Google’s search business or Ama-
zon’s retail business is due to innovative business model,
whereas in case of Tesla’s self-driving car, novelty is com-
ing because of new and innovative technology involved.
In case of Google search business, problem pertains to
identifying parameters of business model versus in case
of Tesla problem is related to identifying right sensing
and machine learning/artificial intelligence technology to
interpret the data coming from sensors and making right
decisions of controlling the car based on that.
Degree of reversibility indicates the feasibility of choos-
ing different options for carrying out experimentation
sequentially or simultaneously (Agrawal et al., 2021) At
times, regulatory and legal constraints may prohibit choosing
different options. Sometimes high switching cost involved in
reversing the choices might be barrier to exploring different
options in course of experimentation. For example, experi-
menting with organization structure and processes might be
relatively easier compared to deciding on different financing
options based on experimentation as once financing decision
is committed, there would be significant legal barriers or
cost associated with changing that decision.
If a start-up venture has accepted some funding and later
want to go through some incubation program with some
accelerator or want to go for crowdfunding, but contractual
obligations as part of initial funding does not allow it to do
that, it indicates the low degree of reversibility. Similarly, if
a start-up has hired a set of persons with specific skill set but
need to retrench them later because those skill set no longer
needed in current circumstances, degree of reversibility of hir-
ing decision would be high if cost of retrenchment is small.
But degree of reversibility will decrease with cost of retrench-
ment increasing.
Degree of prototype-ability pertains to degree to which dif-
ferent alternative solution within the solution set correspond-
ing to a decision problem lends itself to modelling or proto-
typing for experimentation, which can be used for evaluating
those solution in the actual business environment. A specific
solution within the set having low degree of prototype-ability
will require closer to actual implementation of the solution
for experimentation to ensure that inference derived from the
experiment is valid, whereas a specific solution with high
degree of prototype-ability can be experimented with simpler
model or a prototype to draw valid inferences.
In internet and software industry, concept of MVP (mini-
mum viable product) has become popular, wherein only a
small subset of all envisioned features is developed, which
is required to solicit customer inputs. Complete product is
developed based on feedback solicited from customers (Kerr
et al., 2014). Degree of prototype-ability will determine
how close MVP should be to actual product to be able to
solicit valid inputs from customers. Advances in computing
and simulation technologies have increased the degree of
prototype-ability across different industries. For example,
Terrapower, a start-up in domain of commercializing new of
way of generating nuclear energy, can simulate inside work-
ing of nuclear reactors and learn the feasibility of different
technological solutions using supercomputer without build-
ing physical nuclear reactors, which would have costed it
billions of dollars (Kerr et al., 2014). Computing model has
also enabled biotechnology and drug development industry
to do simulate drug-target interaction for identifying thera-
peutically important molecules for further experimentation
and trial (Sliwoski et al., 2014).
Above-mentioned dimensions of decision problems ema-
nate from the nature of product and solution being envisaged
by entrepreneur to be developed, nature of industry, and life
cycle phases of organization.
Ecosystem
Arriving on best possible decision from available solution
space entails identifying the solution which is best fit given
the external ecosystem and business environment. Ecosys-
tem provides feedback in form of economic outcome in
response to selecting an action from possible alternatives
in a specific context.
We reviewed the literature to find out dimensions of
ecosystem having effect on business or organization and
collated those having probable implications on design or
cost of experiments. We observe that different aspects of
business environment/ecosystem on business/organizations
have been dealt in isolated manner for its effect on depend-
ent variable. Hayton and Cacciotti (2013) discuss the effect
of cultural dimensions on entrepreneurship activity. Valdez
and Richardson (2013) talk about the effect of normative,
cultural–cognitive, and regulative institutions on entrepre-
neurial activity. Schmitt et al., (2018) study the relation-
ship of perceived uncertainty on opportunity identification
mediated through exploration. Gans and Stern, (2003) dis-
cuss commercialization strategy for start-ups in view of dif-
ferent distribution patterns of ownership and control over
key capabilities and supplementary assets. Environmental
munificence is considered an important variable affecting
business and organization (Castrogiovanni, 1991). From the
limited perspective of experimentation, we are concerned
with only those aspects of environmental munificence (own-
ership and control over key capabilities and supplementary
13

assets) which facilitates or impedes experimentation. Mosa-
kowski (1997) discuss how causal ambiguity (arising out of
complexity in environment) may affect the decision-making.
There is gap in literature pertaining to complete characteri-
zation of dimensions of ecosystem having implications on
design, and cost of experiments and entrepreneurial growth
mediated through cost entailed in experimentation for
decision-making.
Dimensions of ecosystem having implications on experi-
mentation are: (i) degree of environmental uncertainty, (ii)
degree of excludability of complementary assets in value
chain, (iii) level of indirection in getting input, (iv) time
delay in getting input.
Environmental uncertainty pertains to rate, unpredictabil-
ity of changes in business environment, and understanding
impact of these changes (Milliken, 1987). In an environment
of high degree of environmental uncertainty, it will be dif-
ficult to extrapolate or infer from observations made during
experiment to arrive at appropriate decision, as environ-
ment pertaining to decision problem under experimentation
is changing frequently, even during experimentation. Even
in the same industrial and technological space, ecosystem
in emerging economies is characterized by high degree of
environmental uncertainty.
Validation of specific concepts, especially like product/
solution ideas to be offered, would require availability of
many other complementary assets in the value chain. For
example, a start-up developing a mobile app, can very
quickly upload the app to repository and check, if people
are willing to use that app versus a start-up, developing a
more fuel-efficient engine technology, would need the avail-
ability of assets with existing car manufacturers to test the
concept. It would be very difficult for car engine technology
developer to test the concepts in market without the help
of incumbent car manufacturers. Degree of excludability
of complementary assets determines cost and feasibility of
acquiring complementary assets in value chain for running
the experiments to validate the concept.
Level of indirection refers to different layers involved in
getting input from ecosystem for specific decision problem
during experimentation. In a B2B set up, it would be easier
to get feedback and inputs on specific solutions or products
as inputs need to be solicited only from few customers com-
pared to B2C set up where inputs need to be collected and
consolidated from larger market. In a B2B2C set up, it would
be comparatively difficult to seek input and validate concepts
to conduct experiments. Level of indirection corresponds to
complexity of value delivery chain, and degree of separa-
tion between venture creating the value and intermediate or
final user of the created value, who can provide feedback. It
increases causal ambiguity. (Mosakowski, 1997).
Nature of industry and ecosystem determines time delay
(Δt) between taking a specific action from action set at time
13
S. B. Kumar, N. Sudarsanam
(t) and observing corresponding outcome at time (t + Δt)
based on interaction between chosen action and business
environment for identifying appropriate action for a deci-
sion problem. Δt is delay incurred between taking an action
and observing corresponding outcome and impacts cost of
experimentation. In case of biotechnology-based drug devel-
opment, identification of target till getting clinical approval
entails long development cycle compared to software devel-
opment, where incremental inputs can be solicited as and
when features are developed and available for customer to
test.2
Experiments
Design of experiments is based on nature of decision prob-
lem and ecosystem. Experiment is to be designed for opti-
mization across validity of inference and cost of executing
the experiment.
We examine the structure of sequential bandits depicted
in Fig. 1 to arrive at dimensions of experiments. It has two
parts: (i) number of options associated with a decision prob-
lem, which is mapped to degree of exploration; (ii) number
of decision steps in sequence one need to take associated
with each option, before environment generates the outcome
corresponding to that option, mapped to sequential series.
Each option can be simulated on the continuum of labo-
ratory settings to field experiments to natural experiments
(ranging from researcher-controlled settings to no researcher
control) (Sorensen et al., 2010) to achieve desired validity,
which is indicated by closeness to real-world settings.
Any experiment can be parameterized along three differ-
ent dimensions of: (i) degree of exploration, (ii) degree of
closeness to real-world settings, and (iii) degree of sequen-
tial series. Degree of exploration refers to no. of available
options in solutions spaces which needs to be experimented
with before arriving at conclusion. In case of completely
novel problem with no prior information available, all pos-
sible options in solutions spaces needs to be tried, whereas
availability of some prior information will help in eliminat-
ing less optimal solutions based on analysis itself without
any experimentation, limiting the set which needs to be
evaluated for optimal solution.
Experimental settings could be located on a continuum
from a lab to field experiments to natural experiments,
which is performed in actual settings, in which solution is
being explored. Different problems would require different
degree of similarity with actual environment for the results
2
  This concept of time delay(Δt) is different from the notion of time
when entrepreneur decides and commits resources to business, usu-
ally discussed in the context of pros and cons of first mover advan-
tages.
A Decision‑Making Framework for Entrepreneurial Venture in Emerging Economies

Dimensions of Decision Problem

• Degree of Strategic nature

• Degree of novelty
• Degree of reversibility
• Degree of prototype-ability
Dimensions of experiments

• Degree of Exploration
• Degree of sequential series Cost of
• Degree of closeness to real Experimentation
world setting
Dimensions of ecosystem

• Degree of environmental
uncertainty
• Degree of excludability of
complementary assets in
value chain
• Level of indirection in
getting input
• Time delay in getting input

Fig. 2  Depicting dimensions of decision problem and ecosystem and their influence on dimensions of experiment and cost of experiments

obtained from experiment to be valid in real-world settings
(Sorensen et al., 2010). Degree of closeness to real-world
settings refers to how similar to real-world setting experi-
ments need to be designed.
Most of the problems also require a series of experiments
to be conducted to arrive at final decision-making, wherein
next set of experiments to be conducted is dependent on
the results from previous experiments to arrive at decision-
making. For example, in pharmaceutical and biotechnology
research, a series of experiments is conducted, before the
drug could be approved. Degree of sequential series refers
to number of such experiments which need to be conducted
before outcome in form of feedback can be observed.
As exploration correlates with different options to be
experimented, resource requirement will increase as explora-
tion increases and consequently associated cost too. Degree
of sequential series positively impacts the resource require-
ment by necessitating to choose multiple options at differ-
ent stage in series and by holding the resources for longer
before outcome is observed. Since recreating the scenario
in real-world setting is more resource intensive compared to
simulating it in a lab, cost of experimentation will increase
as closeness of experimental setting moves from lab to
real world. Cost of experimentation is positively related to
degree of exploration, closeness to real-world settings and
degree of sequential series, impacting the cost of decision-
making for entrepreneurs.
Proposition Development
Decision-making is at the core of entrepreneurship activities
(Schade & Burmeister-Lamp, 2009). As indicated in Equa-
tion no. 4, cost of experimentation is important factor for
the quality of decision-making and thus central to improv-
ing the efficiency of entrepreneurship process and maintain-
ing vibrant entrepreneurial growth. Experimentation allows
investors and entrepreneurs to test and assess project without
investing full amount. Reduction in cost of experimentation
because of recent technology trends like cloud computing
(by obviating the need for hardware and associated fixed
cost) and open-source software (reducing labor cost of hir-
ing) has led to explosion of experimentation with new entre-
preneurial ideas and consequently entrepreneurial growth in
domain of consumer internet and information technology
(Kerr et al., 2014).
We develop propositions stating the relationship
between dimensions of decision problems and ecosystems
with dimensions of experiment and cost of experimenta-
tion (Fig. 2). Cost of experimentation meditates growth of
entrepreneurship.
If decision problem pertains to the core of venture like
product scope, business concept having high degree of stra-
tegic nature, any change in these decisions impacts down-
stream choices to be made like technology to be adopted,
go-to-market plan. Outcome can be observed only after
choosing a specific action from the possible alternative
action sets for downstream steps, which increases cost of
experimentation. For example, a software product can be
offered as traditional model of installing at customer prem-
ises (in-premise) or software-as-a-service (SaaS) offerings
through cloud. An entrepreneur deciding on the scope of
software product has to also choose go-to-market mecha-
nism (in-premise or SaaS, and corresponding pricing points)
before outcome related to success or failure of product can
be observed in market. Inferring the results from experi-
ments becomes difficult, because of combinatorial nature
of problem; for example, in this case outcome is not only

13

function of set of product feature and scope, but also go-to-
market mechanism. Any change in customer value propo-
sition will invalidate the decisions which had been taken
downstream, requiring experimentation to be done again for
those decisions.
Complexity of ecosystem value chain, indicated by
level of indirection, increases the cost of experimenta-
tion because outcome from experiments can be observed
only at the end of value chain. Indirect nature of feedback
increases causal ambiguity (Mosakowski, 1997) making
interpretation and learning also difficult. For example, in
case some start-up is developing user interface (or some
other technologies having impact on user experience) for
mobile phones, feedback needs to be come from end user
rather mobile phone manufacturer.
In such cases, experimentation would require design of
multi-sequential bandits replicating the real-world envi-
ronment to have required degree of validity for experi-
mental results.
Proposition 1a: Degree of strategic nature of decision
problem positively relates to degree of sequential series of
experiments increasing cost of experimentation and inhib-
iting growth of entrepreneurship.
Proposition 1b: Level of indirection in getting inputs
from ecosystem positively relates to degree of sequential
series of experiments increasing cost of experimentation
and inhibiting growth of entrepreneurship.
Impact of complexity of value chain on experimenta-
tion can be mitigated in case well developed “market for
ideas” exist wherein incremental value created at each step
of value chain can be evaluated and exchanged in market
generating the required feedback for experimentation-
based decision-making. Though both sector, clean energy
and biotech have complex value chain, biotech/pharma
industry has vibrant “market for ideas” allowing start-ups
to generate incremental value and sell that compared to
clean energy sector, which has not been able to attract
entrepreneurial activities. “Market for ideas” work for bio-
tech because value created is observable and verifiable,
strong intellectual property rights protect start-up’s inter-
est and long-term opportunity is more protected compared
to clean energy, which can face competition from other
alternative sources of energy too (Kerr et al., 2014).
As per legitimacy literature, degree of novelty of a busi-
ness opportunity is indicator of stakeholder’s perceived
legitimacy and likelihood of downside loss. There is a
notion of ignorance threshold, a lower bound on level of
ignorance required to be achieved for making decisions,
associated with each entrepreneur (Choi et al., 2008). A
novel problem would require more exploration compared
to the problem, about which one has some prior knowl-
edge, to arrive at ignorance threshold, increase perceived
legitimacy and reduce the likelihood of downside loss.
13
S. B. Kumar, N. Sudarsanam
In terms of bandit literature, a bandit corresponding to a
novel problem will have higher number of arms compared
to a bandit corresponding to a comparatively less novel
problem. So, experimentation cost to arrive at appropriate
solution/decision corresponding to a novel problem would
be more compared to experimentation cost associated with
a less novel problem.
For example, developing a self-driving car will require
extensive experimentation with different technology com-
pared to developing a mobile app for some aggregation
services like restaurant. Novel technology will have long
gestation cycle and cost of experimentation would also be
high. It is also the reason that entrepreneurship does not
flourish in the new technology domain and entrepreneurship
starts flourishing only after technology attains certain level
of maturity. Not many start-ups are seen to be working in the
domain of quantum computing or similar other technologies
that are still under development.
Proposition 2: Degree of novelty of decision problem
positively relates to degree of exploration of experiments,
increasing cost of experimentation and inhibiting growth of
entrepreneurship.
In case of high environmental uncertainty, environment
context for business keeps changing either because of rapid
technology shifts or socio-political changes, which causes
changes in probable action sets for specific decision prob-
lem. The process of new business development entails itera-
tive changes in the way entrepreneur positions her firm, so
in a situation of high environmental uncertainty, a start-up is
constrained to take recourse to more frequent experimenta-
tion to decide on right solution and stay relevant to current
environment context.
Proposition 3a: Degree of environmental uncertainty
positively relates to frequency of experimentation to be car-
ried out as earlier conclusions are invalidated because of
changing circumstances.
Proposition 3b: Increased frequency of experimentation
increases cost of experimentation to arrive at right decision.
High degree of reversibility decreases the cost of experi-
mentation by reducing the cost of experimenting with differ-
ent possible solution to the decision problem. For example,
deciding whether to offer a software package over software
as a service or in-premise, or deciding on the marketing
channel to distribute a product is easier compared to decid-
ing on the features in product or solution as later entails
higher switching cost because of R&D and product develop-
ment cost for corresponding features.
Prototype-ability of a solution determines whether experi-
ments can be lab experiments, field experiments or natu-
ral experiments (Sorensen et al., 2010). It also determines
similarity of arms of bandits to real world scenario and thus
influencing cost of experimentation. A web 2.0 software
or a mobile app can be easily validated in market, whereas
A Decision‑Making Framework for Entrepreneurial Venture in Emerging Economies
developing a biotechnology drug requires series of experi-
ments starting from computer simulation to animal testing
and finally clinical trials on human. Demonstration of tech-
nological feasibility and unit economics in renewable energy
production requires to be proven at large scale making it
capital intensive (Kerr et al., 2014) and reducing its degree
of prototype-ability. As a result, most of start-up activities
within clean energy sector is focused on commercializing
energy efficiency, smart grid and other software technologies
rather than renewable energy production like bio-fuel, solar
technologies (Kerr et al., 2014).
So, higher degree of prototype-ability of solution enables
growth of entrepreneurship by reducing the cost of experi-
mentation, but an industry not amenable to prototype-ability
of different solutions inhibits entrepreneurship.
Proposition 4a: Degree of reversibility negatively relates
to cost of experimentation thereby facilitating experimenta-
tion and enabling growth of entrepreneurship.
Proposition 4b: Degree of prototype-ability negatively
relates to cost of experimentation thereby facilitating experi-
mentation and enabling growth of entrepreneurship.
Cost of acquiring complementary assets directly impacts
overall cost of experimentation. At times such complemen-
tary assets are controlled by incumbent firms competing
with start-ups especially in capital intensive industries like
aircraft, and automobiles (Gans & Stern, 2003) exhibiting
high degree of excludability of complementary assets. In
such scenario, start-ups can work by co-creating with exist-
ing players. Co-creation provides the access to complemen-
tary assets for experimentation and validation also allows for
ease of experimentation as larger partner can act as sounding
board by providing quicker inputs.
Proposition 5: Degree of excludability of complementary
assets positively relates to cost of experimentation inhibiting
growth of entrepreneurship.
Time delay(Δt) between choosing a specific action from
probable action set and observing the corresponding out-
come increases cost of experimentation by holding resources
for longer period. Time delay(Δt) may emanate from either
nature of technological solutions (drug and pharma test-
ing requiring minimum duration of observation period for
clinical trial) or longer regulatory approval and is different
from when entrepreneur herself starts thinking or working
on venture.
Industry having long gestation period entailing regulatory
environment, like biotechnology needs high upfront invest-
ment for validation of ideas and product and thus have very
sparse start-up population.
Proposition 6: Time delay positively relates to length of
experiment duration increasing the cost of experimentation
and preventing early conclusion, and thereby inhibiting the
growth of entrepreneurship.
Proposal for Operationalizing Constructs
We make proposal for operationalizing the constructs of
decision problem, ecosystem, and experiments, which could
be further reified and adapted by researchers based on spe-
cific empirical context.
Strategic nature of decision problem can be measured
by (a) number of decisions getting impacted downstream,
(b) impact to resource distribution, and (c) how central is
this decision in determining the characteristics of venture
as it appears to stakeholders (employees, customers, and
industry partners). Number of decisions getting impacted
downstream and impact to resource distribution are more
objective in nature compared to assessing centrality of the
decision, which is perceptual in nature.
There are different measures for novelty of products/
solutions (Leifer et al., 2001; Mascitelli, 2000), technol-
ogy (Ahuja & Lampert, 2001; Schoenmakers & Duysters,
2010; Shane, 2001; Trajtenberg et al., 1997) and business
model (Zott & Amit, 2007) in literature. But these meas-
ures are for specific aspect like business model, technology
and product/solutions and are also ex post in nature to the
extent that normally these pertain to successful invention
or innovation or commercialization. Ex ante measure for
novelty for decision problem needs to be devised irrespec-
tive of outcome (in terms of success or failure) post imple-
mentation. A perceptual measure for novelty of decision
problem can be operationalized based on adaptation from
Amason et al., (2006) by assessing decision problem on
these parameters: (a) decision problem is materially same
as the decision problem previously solved by other firms,
(b) decision problem pertains to advances in existing tech-
nologies, business model, products/services, and (c) deci-
sion problem pertains to context and business environment
never before been encountered.
Reversibility of decision problem can be measured
using (a) feasibility of choosing different action from an
already chosen one, and (b) cost involved in backtracking
or undoing of an already chosen action from solution set.
Prototype-ability can be measured by (a) actual cost of
implementing identified solution, and (b) percentage cost
for creating prototype for experimentation.
Environmental uncertainty of ecosystem can be opera-
tionalized using Milliken’s (1987, 1990) perceived envi-
ronmental uncertainty measure by asking respondents to
assign a probability and a degree of certainty to changes
on sub-scale of different components (for example: sup-
plier, customer, technology, competition) of ecosystem
(Buchko, 1994) to factor in state, effect, and response
uncertainty.
Measure for excludability of complementary assets of
ecosystem can be adapted from measure for environmental
13

munificence. Environmental munificence refers to availabil-
ity or scarcity of critical resources for one or more firms
operating within environment (Castrogiovanni, 1991).
Adapted measure should account for degree of control exer-
cised by competitors/incumbent firm and other value chain
partners (suppliers and resellers), and feasibility of acquiring
the assets for experimentation.
Level of indirection in getting the input can be measured
by no. of intermediaries in the value chain between taking an
action within organization and observing outcome.
Time delay can be operationalized by asking respond-
ents about estimated time gap between taking an action and
observing corresponding outcome.
Degree of exploration of experiments can be measured
by no. of options to be tried to bring ignorance threshold
to desired level before committing to a specific action in
action set.
Sequential series of experiment can be measured by no. of
decision steps taken within organizational boundary, which
will be encountered before outcome from choosing a specific
action is observed.
Closeness of nature of experiments can be operational-
ized on a continuum of lab experiments to natural experi-
ments by asking the respondents.
Implications for Entrepreneurs
Though entrepreneur may have presumptions about the prob-
ability distribution over action set for a specific decision
problem and the probability distribution may have a high
degree of divergence and be non-uniform in nature, clearly
preferring one item over other items in the action set; actual
probability distribution might be different from that as exist-
ing knowledge structures and mental models of entrepreneur
may not suffice or be apposite for the specific decision prob-
lem and business environment. Intent of experimentation is
to derive additional economic benefits as indicated in Eq. (3)
by discovering actual probability distribution over action set
of the decision problem.
It will entail an entrepreneur to identify the key implicit
and explicit decisions points on which business plan is prem-
ised upon. Identifying the implicit decision points may not
be easy, given the individual biases and belief system of an
entrepreneur as she might be of view that some of the deci-
sions, taken by her, is the most natural thing to do, given the
circumstances without evaluating any other options. Review-
ing a written business plan with a set of persons may help
identify key decision points inherent as part of the plan.
Business plan could be structured as series of hypothesis
to be tested as a part of creating start-up, which allows for
13
S. B. Kumar, N. Sudarsanam
course correction and adaptation as we go along rather than
a linear plan of tasks and milestones to be achieved over
course of time. An entrepreneur needs to identify the differ-
ent options available for each decision points and her beliefs
about probability distribution of options within the decision
set of being the best option. An entrepreneur can also ana-
lyze with the help of different persons as to, for which all
decision points, enough information is available, and choices
can be decided analytically. Process should be performed in
consultation with some other person to reduce the influence
of individual biases. Rest of decision problems and ecosys-
tem available for experimentation need to be evaluated for its
characteristics. Analysis will provide details like suitability
of nature of experiments (lab, field, and natural), availabil-
ity of complementary assets for experimentation, level of
indirection present in seeking input. If nature of business is
such that it does lend itself to experimentation, entrepreneurs
can seek innovative ways like co-creation, and other web 2.0
tools and mechanism to seek inputs.
While VCs had been perceiving the entrepreneurship as a
process of experimentation by having a sequential round of
funding each dependent on the results obtained from previ-
ous round and maintaining a portfolio of different compa-
nies across different sector, entrepreneurs can also get into
process of starting up with the knowledge that it is going
to be experimentation process with validation of their plan
and assumptions.
A successful entrepreneur would be able to design experi-
ments in a way that she can take most appropriate decisions
and quickly adapt and come up with additional set of possi-
ble solutions in case it is concluded that none of the existing
possible options might be optimal.
Implications for Policy Formulation
Government wants to promote growth of entrepreneur-
ship to promote economic growth in their jurisdiction. One
of important way, government can promote start-up and
entrepreneurs is by facilitating experimentation. To enable
experimentation and allowing exit from business, govern-
ment needs to create the ecosystem of VCs, angel investors,
and incubators, which enables seeking guidance and inputs
for start-up and permeation of knowledge gained from one
start-up—successful or failed—to be taken to ecosystem for
benefit of other start-ups.
Government can provide whatever resources, it has under
its command, especially from defense and public sector,
and government funded research labs for experimentation
in case complementary assets for validation are not easily
available from ecosystem. Government can also participate
A Decision‑Making Framework for Entrepreneurial Venture in Emerging Economies
in co-creation with start-ups on friendly business terms in
the domain having higher degree of excludability of busi-
ness assets.
A conducive legislative framework—bankruptcy laws for
smoother winding up of companies and exit from business,
employment protection laws for easier employment adjust-
ment to respond to changes, institutionalized intellectual
property rights for vibrant “market for ideas”—will promote
experimentation and entrepreneurial growth. For example,
bankruptcy law reform in Japan encouraged growth of entre-
preneurship by reducing the cost of closing a firm (Eberhart
et al., 2017).
Reducing the cost of experimentation will go a long way
in reducing the cost associated with entrepreneurship, pro-
viding impetus to regional development, and increasing the
competitiveness of region/industry and nation.
Future Work
Propositions pertaining to experimentation stated above can
be validated as part of empirical work by collecting data
from start-ups and entrepreneurs. Different dimensions of
decision problem (strategic nature, novelty, reversibility,
and prototype-ability), ecosystem (environmental uncer-
tainty, excludability of complementary assets in value chain,
level of indirection in getting input, and time delay in getting
input), and experiment (exploration, closeness to real-world
settings, and sequential series) signify aspects of decision
problem, ecosystem, and experiments, respectively, osten-
sibly independent of each other. Also, these dimensions
apparently influence design and cost of experiments through
different mechanism. Premised on above, we believe that
dimensions of decision problem, ecosystem and experiment
are independent of each other, but it needs to be empiri-
cally validated. While the set of variables to be controlled
as part of empirical validation will depend on the design
of the study and the data collection mechanism, research-
ers may need to control for macroeconomic environment
(Eberhart et al., 2017), cultural dimensions (Hayton & Cac-
ciotti, 2013), normative, cultural–cognitive, and regulative
institutions (Valdez & Richardson, 2013) as these factors
influences entrepreneurial growth. A country’s or a region’s
business environment can be assessed for enabling the entre-
preneurship by facilitating experimentation and how ease of
decision-making is promoted by favorable or unfavorable
business environment.
Although we are using the contextual bandit framework
for conducting experimentation, cognitive interpretation of
result by a human could be broadened to apply the results
in similar other decision problems and learning can also be
faster for human, compared to an interpretation by software/
machine. Also, interpretation of results by a human could
be colored by individual biases. So, future work needs to
link the cognitive biases with interpretation of result and
how results obtained can be generalized to other decision
problems.
Entrepreneur also makes something work and succeeds
because of their passion, execution skills, and quick adapt-
ability. They keep trying out different options till they suc-
ceed. It seldom happens that successful entrepreneur quits
after first failure whether it is sales pitch or technology trial.
Future research should be able to explore as how individual’s
execution skills and perseverance needs to be accounted for
while interpreting results and deciding next course of action
based on experimentation.
Conclusion
The paper attempts to integrate two popular but diverse
decision-making approaches: (i) decision-making by
thinking and (ii) decision-making by doing, in entrepre-
neurship literature by proposing contextual bandits as a
framework for entrepreneurial decision-making. Initial
set of proposed actions for a specific decision problem
is obtained premised on extant knowledge structures by
mechanism of thinking, but final decision is arrived at
based on experimentation. The paper goes on identify
the dimensions associated with decision problem, entre-
preneurial ecosystem, and experiment, which are needed
to model decision problem in settings of contextual ban-
dits and derives implications for cost of experimentation
based on nature of decision problem, entrepreneurial eco-
system, and design of experiments. We develop proposi-
tions for implications of nature of decision problems and
ecosystem on entrepreneurial growth mediated cost of
experimentation. Satyanarayana et al., (2021) study the
combined impact of entrepreneurial, firm-specific, and
external environment-related factors on competitiveness
of technology-based start-up. In this study, we propose
experimentation-enabled decision-making as one possi-
ble mechanism through which some of these factors may
affect firm and region/nation’s competitiveness. Finally,
the paper also summarizes implication of above for entre-
preneurs and policy formulation.
Key Questions Reflecting Applicability in Real Life
1. What are parameters of entrepreneurial decision prob-
lems impacting cost of decisions and competitiveness?
13

2. What frameworks and models can be used to assess as
to what it will take to reach the finality of the venture?
3. What are dimensions of entrepreneurial ecosystems
impacting cost of decisions, entrepreneurial growth,
and competitiveness of the cluster or region?
4. What are the factors for policy-makers to work to
encourage entrepreneurial growth and increase com-
petitiveness of a region?
Acknowledgements  The authors thank two anonymous reviewers and
the editor, Dr. Deepak Chandrashekar for constructive feedbacks. Ear-
lier version of this paper was presented in INDAM Conference 2020.
The authors also acknowledge inputs provided by Dr. Raj Krishnan
Shankar during the conference.
Author Contributions  All authors contributed to the study conception
and design. The first draft of the manuscript was written by Shashi
Bhushan Kumar and all authors commented on previous versions of
the manuscript. All authors read and approved the final manuscript.
Funding  No funding received from any source. It is work done by
authors for academic interest.
Data availability  No additional data referred for this paper.
Code availability  No code written for this paper.
Declarations  Earley, P. (2010). A situated metacognitive model of the entre-
Conflict of Interest  On behalf of all authors, the corresponding author
states that there is no conflict of interest.
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Press. https://​web.​stanf​ord.​edu/​class/​psych​209/​Readi​ngs/​Sutto​ high-frequency algorithmic trad-
nBart​oIPRL​Book2​ndEd.​pdf. ing firm in New York. His
Trajtenberg, M., Henderson, R., & Jaffe, A. (1997). University versus research and work experience
corporate patents: a window on the basicness of invention. Eco- focuses on applications of exper-
nomics of Innovation and New Technology, 5(1), 19–50. imentation, machine learning and the abstraction of data to models and
Valdez, M. E., & Richardson, J. (2013). Institutional determinants of algorithms. This spans data and problems across different domains,
macro-level entrepreneurship. Entrepreneurship Theory and Prac- including but not limited to finance, urban mobility, digital platforms,
tice, 37, 1149–1175. civic services, and criminology. He publishes in machine learning con-
Zott, C., & Amit, R. (2007). Business model design and the perfor- ferences as well as peer-reviewed journals in engineering and applied
mance of entrepreneurial firms. Organization Science, 18(2), statistics.
181–199.

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