Serial Entrepreneurs, Venture Failure, and Challenges to Learning

The authors wish to thank Deepak Hegde for sharing data for this project. Abstract: As part of the recent interest in serial entrepreneurship, studies have investigated the presence (or absence) of learning benefits from a first to a second venture. We extend this literature by integrating behavioral concepts on attribution and learning from failure that highlight the differences in behavioral responses to success versus failure. We theorize that serial entrepreneurs whose first venture failed are likely to blame the external environment and change industries for their second venture, and that this industry change is costly in that it invalidates much of their potentially-useful industry experience, lowering the chance of success in their second venture. By contrast, founders of failed ventures are unlikely to change aspects of their first business (when starting their second venture) that would be attributable to their leadership – strategy, management style, and planning style. Using data on both entrepreneurs in China and the U.S., we find support for our theory and show that it is primarily those serial entrepreneurs whose first venture succeeded and who stay in the same industry that perform better on their second venture. The results have important implications for the study of serial entrepreneurship, and more broadly for research on behavioral responses to failure.