Should I Stay or Should I Go?

March 10, 2015
Why are serial entrepreneurs likely to switch industries, rather than stay with the industry where they have experience, when bouncing back from a failed venture?

You’re a serial entrepreneur and you’re pouring all your energy and enthusiasm into a new manufacturing venture. But despite your best efforts, the company goes under. Undeterred, you jump into a new manufacturing project, right?

Turns out, that is often not the case. In fact, serial entrepreneurs are likely to switch industries, rather than stay with the industry where they just experienced failure.

The reason, according to a new study by Professor J. P. Eggers of NYU Stern School of Business and Lin Song of the Central University of Finance and Economics in Beijing, is that entrepreneurs blame the industry, not their own management decisions, for the business’ failure.

Nearly 46% of serial entrepreneurs in a survey in China changed industries when they started a subsequent venture. In a sample of U.S. start-ups, the rate was even higher – 54%.

In the Chinese study, manufacturing fared particularly poorly. Some 73% of the entrepreneurs who started a manufacturing firm left the industry when they started their next enterprise.

Eggers said the industry flight was particularly worrisome because entrepreneurs failed to leverage their industry knowledge and contacts in their next business. And they are unlikely to face up to shortcomings in their management style, such as with strategy or planning, when they go into their next venture.

“Our results suggest that entrepreneurs should think twice before switching industries. In fact, leveraging your industry-specific knowledge from one venture to the next can be incredibly valuable,” argues Eggers.

He also warns potential investors: “Be cautious about investing in serial entrepreneurs switching from one industry to another. They may be running from their own managerial shortcomings or strategic planning failures.”

The study, “Dealing With Failure: Serial Entrepreneurs and the Costs of Changing Industries Between Ventures,” will be published in the Academy of Management Journal.

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