Are unsuccessful entrepreneurial experiences harmful?: Product failures in medical device ventures

Abstract

Entrepreneurial processes are learning journeys; as entrepreneurs found one company after another, they learn from those experiences to create better-performing companies. Compared with this widely documented learning effect, knowledge on debilitating behavioral consequences of entrepreneurial processes, especially involving unsuccessful entrepreneurial experiences (UEEs), remains limited. By drawing on behavioral decision theories, we argue that UEEs can lead to entrepreneurs’ increased desperation to succeed and higher tolerance for risk, which in turn may result in the dysfunctional outcome of product-harm crises in their subsequent ventures. We further argue that desperation effects may be stronger when the venture is founded by a solo entrepreneur or during an economic recession. On the other hand, the positive effect of higher risk tolerance on product-harm crises is argued to be less pronounced when the penalty against risk taking is high, such as when the venture has several product lines and one product-harm crisis can have a spillover effect on other products, or when the venture faces stricter regulations for product functionality, quality, and safety. An analysis of new ventures in the U.S. medical device industry provides an overall support for our claims.