Learning from entrepreneurial failure

Where it went wrong?

Learning from Entrepreneurial Failure

Ing. M.H.M. Hammer M.Sc.

• Theory:• What is Entrepreneurial Failure?• Can you find some examples?

• Practice:• What could help to prevent an

Entrepreneur from failure?

Index

Entrepreneurial Failure

Definition:According to the entrepreneur, undesirable stopping the company

Introduction to the topic• Why some entrepreneurs succeed and others fail?• At the time of launch all entrepreneurs are convinced

of their businesses to achieve success (Shane & Venkataraman, 2000; Driessen, 2005, Shane, 2003).

• In the Netherlands ± 50% of the ventures is not surviving the first 5 years (Meijaard et al, 2007; Bangma & Snel, 2009).

• TOP program: dropout rate is 25%, while unaccompanied spin-off companies have a dropout of 40% (University of Twente, 2005).

Key concepts• Why quit a venture (dropout)?:

– Entrepreneurial exit; quit because of good performance (e.g. Detienne, 2008; Wennberg et al, 2009)

– Entrepreneurial failure; quit because the performances are not good (e.g. Samuels et al, 2008; Wennberg et al, 2009)

• Ratio (after 1st 7 years) EE/EF: 50/50 (Wennberg et al, 2009).

Key concepts• Entrepreneurial Failure is divided in (Cardon et al, 2009):

– tough luck– mistakes by the operator

• Reasons for Entrepreneurial Failure:– the entrepreneur (e.g., Simon et al, 2000, Ottesen &, 2005,

Hayward el al, 2006)

– The entrepreneurial environment (Vaillant, 2007)

Theory

• Fostering entrepreneurship:– the person of the entrepreneur (e.g. Stewart & Roth,

2007, Judge & Ilies, 2002 and Kirton, 1976)

– the process of entrepreneurship (e.g. Shane & Venkataraman, 2000, Gartner, 1985 and Shapero, 1982).

• A starting entrepreneur, sequential runs a number of steps (van der Veen & Wakkee, 2004, van der Sijde, 2004, Shane & Venkataraman, 2000, Low & MacMillen, 1988, Gartner, 1985; Shapero & Sokol, 1982).

Theory

• Generalized model is that of Veccio (Veccio,

2003):– the preparatory phase (pre-start) – start, – the venture being in action (exploration) – stopping doing business (exit)

Reasons for Failure• Lack of experience• Insufficient capital (money)• Poor location• Poor inventory management• Over-investment in fixed assets• Poor credit arrangements• Personal use of business funds• Unexpected growth• Competition• Low sales• (Source: Michael Ames, Custav Berle)

Your turn!• Please write down some examples you

know of an entrepreneur who failed with the enterprise.– Stopped, unwanted.– Bankruptcy– Closed down with grieve.

What are causes?• What could be causes for the failure?• Please write down as much as you can

come-up with. • (Use yellow post-it’s)

Goal / Question

How to reduce Entrepreneurial Failure (EF) in the post start-up phase of entrepreneurship?

Finaly:

What should have helped the entrepreneur to prevent from failure?

Research model

Summarize

Thank you for your help andattention!

For more information, suggestions or cooperation, do not hesitate to

contact:

m.h.m.hammermsc@saxion.nl