When Does Economic Experimentation Matter? Towards a History of the Pivot

This paper asserts that economic experimentation is an effective learning mechanism that firms use to gain advantage. Empirical evidence from the nascent automobile industry suggests that firms engaged in economic experimentation by releasing more models annually were able to lower prices and improve engine efficiency. Historical analysis supports the hypothesis that economic experimentation taught unique lessons that were impossible to learn through alternate mechanisms. These findings offer new, historical insights into the workings of the increasingly popular Lean Startup framework, showing that innovative firms in nascent sectors have long employed market pivots – substantive adjustments in firm strategy – in response to economic experimentation. Our findings suggest that Lean Startup methodology is applicable when uncertainty is high and when customers cannot articulate their preferences.