Personal Experience: A Most Vicious and Limited Circle!?
sess the success prospects of new ventures more realistically than novices, i.e.
first time entrepreneurs, and should result in a lowered risk of failure.
However, the importance of human capital is not limited to established busi-
ness, but also plays a role in its pre-start-up phase. Highly educated individuals
have advantages in opening a business as they are, for example, more likely than
others to be in a position to get adequate financing (Âstebro and Bernhardt 2003;
Cressy 1996). Entrepreneurship-specific human capital, i.e. experience, strength-
ens these advantages. Experienced entrepreneurs often follow ‘role models’, i.e.
they are inspired by other entrepreneurs they know (Stam et al. 2006; Wagner
2003). Hence, ex-entrepreneurs are still insiders in the entrepreneurial commu-
nity, enabling them to profit from their contacts. Westhead et al. (2005) argue
that they can avoid the time-consuming establishment of business relations, as
these already exist. Such existing business relations can be compared to superior
start-up conditions (Âstebro and Bernhardt 2003; Brüderl et al. 1996), which
heighten a firm’s prospects of success (Geroski et al. 2003). Additionally, task-
related experience leads to more knowledgeable actions and decisions (Reuber
and Fischer 1999). Ex-entrepreneurs can therefore identify promising business
opportunities more easily (Dutta and Crossan 2005; Ucbasaran et al. 2003).
Compared to novices they thus have advantages when it comes to taking their
chances.
A further reason why experienced entrepreneurs are likely able to assess the
success prospects of new ventures more realistically is that experience leaves
somatic markers which play a prominent role in decision processes (Bechara and
Damasio 2005). Somatic markers improve intuition. Decisions that are similar to
tasks already encountered can be tackled better. Novices cannot benefit from
previous decisions, they “cannot rely on behavior and habit if they intend on
surviving [...] they must learn through their experience [...]” (Corbett 2005, p.
482). Entrepreneurial learning, for the most part, comes from individuals’ own
experience, i.e. ‘learning-by-doing’ or, in other words, learning from repeated
behavior (Cope and Watts 2000). Such behavioral learning is mainly adaptive
and its ability to modify routines depends on the outcome of the previous experi-
ence (Lumpkin and Lichtenstein 2005). The outcome of previous events deter-
mines the mode by which experience is transformed into knowledge (Politis
2005). That is, previous success results in a different type of learning than previ-
ous failure. While it is more likely that success stabilizes routines, failure may
disrupt them, triggering modes of higher-order learning (Cope 2005). Chandler
(1996) illustrates this by an anecdote from a previously successful entrepreneur
who failed with a new firm in spite of applying the same “formula” that made
the first business succeed.
Chialvo and Bak (1999) even regard learning as a purely mistake-driven proc-
ess. They argue that only negative reinforcement helps in making progress while
positive reinforcement can even reduce the ability to adapt. Even if, ideally,