Professor J.P. Eggers of the NYU Stern School of Business and Lin Song of the Central University of Finance and Economics in Beijing have conducted an interesting new study regarding serial entrepreneurs. They examined data on Chinese entrepreneurs as well as startups supported by venture capital in the United States. Their paper is titled, "Dealing With Failure: Serial Entrepreneurs and the Costs of Changing Industries Between Ventures.” It will be published soon in the Academy of Management Journal.
Eggers and Song find that serial entrepreneurs often change industries after an initial startup failure. However, changing industries often proves to be a mistake. Why do entrepreneurs switch industries? Consider the fundamental attribution error, a phenomenon discovered years ago by psychologists. When others fail, we look inside of them to identify the reasons for their failure. We examine their expertise, capabilities, personality, and motives. However, when we fail, we tend to blame external factors. We attribute the failure to uncontrollable factors in the environment. For this reason, serial entrepreneurs sometimes blame their initial startup failure on the industry environment, and they change industries for their next venture.
These serial entrepreneurs may encounter difficulty, though, because they are not leveraging the learning fully from their initial startup. Moreover, they may not be leveraging their social networks as well as they can. Changing industries may mean having to build entirely new networks. Finally, they may not be taking a hard look at internal issues such as leadership style, ability to work with others, and other competencies that may be at the heart of their initial failure. Not correcting these issues may lead to a subsequent failure.