Experimentation and Appropriability in Early-Stage Ventures: Evidence from the US Software Industry
45 Pages Posted: 10 Dec 2018 Last revised: 25 Jun 2019
Date Written: January 1, 2019
This study examines the tension between learning and appropriability in the experimentation process of early-stage ventures. I build a stylized model to argue that, when formal intellectual property is weak, the learning benefit of experimentation may be offset by its imitation risk. I test this argument on a hand-collected dataset of 1200+ US-based software ventures, exploiting the software release life cycle terminology to measure experimentation and the US Supreme Court ruling Alice Corp v CLS Bank International as a negative shock to patent protection. Following the ruling, the affected ventures experiment less but enter the market earlier. This pattern is moderated by learning incentives and competition. The evidence confirms that the learning-appropriability tension plays a central role in entrepreneurship and suggests boundary conditions for the use of experimentation. This study contributes to the emerging debate on entrepreneurial strategy, combining insights from the literatures on organizational learning and appropriability.
Keywords: Experimentation, Learning, Appropriability, Entrepreneurship, Software
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