Towards understanding startup product development as effectual entrepreneurial behaviors

The application of an entrepreneurial theory to study software development in startups Anh Nguven Duc 1,2, Yngve Dahle1, Martin Steinert1, Pekka Abrahamsson1,2

1 Norwegian University of Science and Technology, NO-7491 Trondheim, Norway
2 Software Startups Research Network http://softwarestartups.org
Abstract. Software startups face with multiple technical and business challenges, which could make the startup journey longer, or even become a failure. Little is known about entrepreneurial decision making as a direct force to startup development outcome. In this study, we attempted to apply a behavior theory of entrepreneurial firm to understand the root-cause of some software startup’s challenges. Six common challenges related to prototyping and product development in twenty software startups were identified. We found the behavior theory as a useful theoretical lens to explain the technical challenges. Software startups search for local optimal solutions, emphasize on short-run feedback rather than long-run strategies, which results in vague prototype planning, paradox of demonstration and evolving throw-away prototypes. The finding implies that effectual entrepreneurial processes might require a more suitable product development approach than the current state-of-practice. Keywords: effectuation, entrepreneurial behavior theory, software development, software startups, prototyping, empirical study 1 Introduction The software industry has witnessed a growing trend, where software products are developed by startup companies with limited resources and little operating history. With the advancement of technology development, it seems that everyone with a business idea, a website and a pitch can launch a new company. However, not so many business ideas are realized as concrete prototypes. Furthermore, even a smaller portion of prototypes is transformed into commercialized products. It is difficult to repeat successes, as startups operate in chaotic situations, where the links between startups’ behaviors and their effects are often not detectable [1].
Decisions made by entrepreneurs is the direct force leading to the success or failure of the startup [3]. Startup’s unique characteristics, i.e. dynamic, bootstrapping and multiple-influenced environments, make the decision-making tasks for entrepreneurs are different for project managers in more established companies [1]. Entrepreneurs often have to make decisions with little information about market, customer and product, and whether they will be accepted [2]. Entrepreneurial literature offers This is the author’s version of the work. It is self-arhived at Arxiv. The definite version was published in: Nguyen Duc A., Dahle Y., Steinert M., Abrahamsson P. (2017) Towards Understanding Startup Product Development as Effectual Entrepreneurial Behaviors. In: Ojala A., Holmström Olsson H., Werder K. (eds) Software Business. ICSOB 2017. Lecture Notes in Business Information Processing, vol 304. Springer, Cham, https://doi.org/10.1007/978-3-319- 69191-6_15

several ways to understand the startup’s decisions and behaviours [3, 4, 8]. One approach is the behaviour theory of entrepreneurial firms, which assumes the effectuation approach when developing startups’ business [4]. Recent ideologists [5, 6, 7] encourage the co-development of business and product in startups. The combination of the two line of thoughts inspires us to explore the effectual behavior of startups from product development aspect. We are interested in understanding how the theory of entrepreneurial behaviors could help to explain the challenges faced during the product development. Our research question is “How are theories of entrepreneurial behaviors applicable to explain for startup product development process?” The paper is organized as follows; firstly, we present related work about a behavior theory of entrepreneur firm (Section 2). Then, we describe our research methodology (Section 3). After that, findings are presented (Section 4). Finally, we will discuss and conclude the paper (Section 5 and 6).
2 Behavioral Theory of the Entrepreneurial Firm Entrepreneurship literature is intensive on understanding the formation, development and influencing factors to startups. There has been an increased attention on the effectuation theory in explaining entrepreneurial behaviours [8]. Effectuation processes take a set of means as given and focus on selecting between possible

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