Although we often think of entrepreneurs starting a business, some are habitual entrepreneurs who own more than one business. Ownership of multiple businesses is a widespread phenomenon in many countries. Does entrepreneurship get better with this multiple ownership experience? Do entrepreneurs who have created or owned more businesses do better than those who have not? These are important questions both for individual entrepreneurs and for the benefits that entrepreneurs bring to society. Extensive research that I have conducted with colleagues provides some answers to these questions.
It’s not just the extent of prior entrepreneurial experience that matters but its nature. Entrepreneurs who own more than one business simultaneously (portfolio entrepreneurs) seem to perform better, in general, than those who multiple businesses sequentially (serial entrepreneurs).
But it also matters whether previous entrepreneurial experience was successful or not. Prior success can bring both advantages and disadvantages. The advantages are the development of skills at being an entrepreneur, including knowing more about what is needed to start a business as well as the ability to build more effective networks. On the downside, it may lead to diminished motivation, blind spots, hubris and entrepreneurs thinking they already know enough and not adapting their approach to the circumstances of the new opportunity. Having created significant personal wealth, some experienced entrepreneurs may be unwilling to risk losing it. As a result, they may exit the entrepreneurial process, or they may become more risk averse in subsequent ventures. Providing habitual entrepreneurs with financial incentives through changes in the tax regime may encourage them to reinvest profits, or funds realized from the sale of a business, into subsequent ventures with growth potential.
It’s oftentimes suggested that policies should support entrepreneurs who have previously failed because they will have learnt from the experience and do better next time. Our research shows that this is too simplistic a view. Some do learn in this way but not all. Entrepreneurs may be more likely to learn from past failures if they recognize an element of their responsibility for it, rather than laying the blame at the door of others. If the past failure is a one-off blip among a string of prior successes, the learning experience may also be less traumatic. Even so, having failed previously entrepreneurs may be much more cautious and less innovative next time around.
But what is the role of experienced entrepreneurs in emerging and developing economies that suffer from entrepreneurial deficits? Experienced entrepreneurs, especially if they have been successful, can serve as role models for those contemplating starting a business for the first time. They can also perform a role as mentors to help novice entrepreneurs. This suggests that policies aimed at promoting wealth creation should not just focus on encouraging people to start a business for the first time but also need to develop ways of encouraging more successful entrepreneurs to continue their activities.
Professor of Entrepreneurship and Head of Innovation & Entrepreneurship Group
Imperial College Business School