Experimentation Strategies and Entrepreneurial Innovation: Inherited Market Differences in the Iphone Ecosystem

Abstract: Although experimentation is critical to the innovation process in startups, little research has explored the link between different experimentation strategies and entrepreneurial innovation. We use unique data on experimentation strategies and innovation outcomes of firms producing iPhone applications to show that the appropriateness of different strategies depends on market characteristics. Simultaneous experimentation strategies are better suited to markets characterized by strong market inheritance, where innovative know-how, development technologies, and heterogeneous preferences from established markets can be leveraged by entrepreneurs. In markets with fewer skills, fewer developmental technologies, and less understood demand expectations, innovations are more likely to result from sequential product improvements based on customer feedback, allowing the entrepreneur to develop skills and clarify what may be singular customer preferences.