Abstract
Prior work highlights the importance of cognitive approaches to strategy formation for startup growth. They enable entrepreneurs to strategically reason—logically and convincingly formulate their strategic choices before executing them. However, whether the value of strategic reasoning generalizes across contexts, particularly different financing environments, remains unclear. While practitioners and scholars have popularized less-reasoning-oriented approaches, like the Lean Startup movement, in financing-rich contexts like Silicon Valley, they have suggested mixed results with such approaches elsewhere. Through interviewing 253 scaling software startups from 34 economies and scoring how well they reason through market, moat, and organizational choices, this study theorizes that strategic reasoning is more valuable in less-financing-rich contexts, where bad investments—that reasoning can help avoid—are more irreversible. However, these contexts also have less prior scaling successes to learn from, making strategic reasoning harder to develop. Findings show that higher reasoning scores more strongly predict startup growth in less-financing-rich cities. Yet, startups there do not have higher reasoning scores, despite the greater need. These results suggest that local financing—and irreversibility more generally—are critical boundary conditions for strategic cognition theories. Moreover, where strategic reasoning is more valuable, it is also harder to develop, contributing to global scaling disparities.