When to Be a Nonconformist Entrepreneur? Organizational Responses to Vital Events

Abstract

Salient successes and failures among organizations, such as spectacular venture capital investments or agonizing bankruptcies, affect consensus beliefs about the viability of particular markets. We argue that collective sense making in the wake of such vital events triggers overreactions in shared perceptions of particular markets. Consequently, new entrants flood into markets that have experienced salient successes but they stay clear from markets that have seen recent failures. We theorize that these over-reactions shape the viability of new market entrants: conformists are predicted to be less viable, while nonconformists are predicted to prosper. We find empirical support for the theory among software startups. Non-consensus market entrants that buck the trend are most likely to stay in the market, receive funding, and ultimately go public.