Abstract
Strategic fit is intrinsic to firm performance, but it is difficult to develop and maintain both external fit to a firm's environment, and internal fit—an alignment between firm objectives and activities. In this paper, we examine how scaling entrepreneurial firms develop strategic fit. We theorize that: 1) entrepreneurs at scaling firms are experienced in developing external, product-market fit, yet inexperienced in developing internal fit; 2) entrepreneurs can use firm strategy to create heuristics and assess the internal fit of novel opportunities. We examined the prevalence of internal fit by leveraging interviews with entrepreneurs in 253 global scaling software startups and coding close to 1,000 firm decisions using large language models (LLMs). Internal fit was strongly associated with firm performance, but only one-third of firms had developed this fit. We examined whether entrepreneurs could create heuristics to assess internal fit by running an experiment with 241 different entrepreneurs with whom we shared multiple novel opportunities. Midway through, we prompted entrepreneurs to pause and articulate their firm strategy. Post-intervention, entrepreneurs screened out opportunities that did not internally fit, without reducing their pursuit of those that fit. We provide initial evidence in support of our theory, suggesting that entrepreneurs can rapidly create heuristics to drive internal fit, which is important for firm scaling.