Entrepreneurs Who Get Back On That Horse

When a venture fails, some entrepreneurs turn around and launch another business. Others walk away from startups for good. What separates the two groups is whether or not the business owners think they've learned from their experiences and built a strong network of contacts. That's the finding of two papers by economists Erik Stam at the University of Cambridge and Veronique Schutjens at Utrecht University.

In a paper released in March, 2006, the economists report on 52 Dutch entrepreneurs who had started businesses in 1995 that subsequently failed within five years. They asked the owners about the failed ventures, what they had done since, and why they had decided to start or not start a new business. Those who said they had developed business skills, especially managerial experience, from the former venture were more likely to begin another.

A second study, presented in June, 2006, at the International Schumpeter Society conference in Nice came to similar conclusions. Stam looked at a group of 240 Dutch entrepreneurs who had opened businesses that either failed or were sold or closed. He found that building a solid network of business contacts also played a big role in entrepreneurs' decisions to start a second business. "Building up an entrepreneurship-specific professional network has a positive effect on the decision to start again," says Stam.

Conspicuously absent from the list of key factors in the choice to give entrepreneurship another whirl are some of the usual suspects: education level, industry experience, and having relatives who are small business owners. The results imply that taking "an experimental approach to starting a business" is very valuable, says Stam, even if it's just a part-time venture.

By James Mehring

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