16
Personal Experience: A Most Vicious and Limited Circle!?
seeking behavior, which may result in badly thought-out business activities with
an increased risk of failure. Sheperd (2003) stresses the psychological approach
in his explanation, in which the emotional fallout of previous failure prevails. A
high level of grief reduces the ability to convert feedback information into
knowledge, i.e. hampers learning, or even results in learning the wrong lessons
(Sitkin 1992). Over-optimism plays an additional role. The findings of Stokes
and Blackburn (2002) indicate that over-optimism is crucial for experienced en-
trepreneurs, too. An absolute majority of ex-entrepreneurs are motivated to start
another enterprise because they are of the opinion that they have learned and will
be able to make it work next time - even if they closed a venture unsuccessfully.
However, the most likely reason for heightened failure risk is that individuals are
prone to disavow their own failures. Mental defensive routines tempt previously
failed entrepreneurs to blame unfortunate circumstances for their failure, rather
than owning up to having failed due to their own inability (see Van den Steen
2004 for a compilation of relevant citations). They thus do not learn about their
lack of entrepreneurial talent as suggested by Jovanovic’s passive learning model
(Jovanovic 1982).
The finding that a business failure resulting in further failure is not the excep-
tion from the rule, but rather systematically dependent on the entrepreneurs, is
much more alarming against the background of the described selection mecha-
nism, which should theoretically filter the failed entrepreneurs down to an elite.
However, even this cream of the crop does not learn from their mistakes. This
indicates that lowering the barriers for restart might increase the firm birth rate,
by encouraging both first-time ventures and restarts, but it does not improve the
sustainability of new businesses.
There are limitations to consider arising from entrepreneurs evading the eco-
nomic consequences of failure. Entrepreneurs who went bankrupt are recorded in
a public debtor register. With the entry, they are faced with difficulties like lim-
ited access to finance, as explained above, or with difficulties entering into con-
tracts at all, even in private affairs. In order to avoid the restrictions, a few use
loopholes, for example by opening businesses in the name of relatives. In this
way, they are not recorded as restarters but rather as novices. Thus, they tend to
worsen the results for novices because, as we have seen, the probability of failing
anew, whether by repeating the same mistakes that led to the failure or due to
other factors, is increased.
Summarizing conclusion
The analysis herein addresses the question of whether personal entrepreneu-
rial experience promotes firm survival and therefore lowers a firm’s risk of clo-
sure. The question can even be understood as: does entrepreneurial experience
affect the probability of business failure? Not every firm closure can be consid-
ered as a business failure. Thus, failures have been disentangled from the total