The effect of the degree of early-stage failure on entrepreneurial pivoting and success: Evidence from crowdfunding

Abstract

Entrepreneurs often respond to early-stage failure by pivoting their nascent ventures. While the nature of the experienced failure is likely to play a crucial role in determining how an entrepreneur will respond, it remains unclear how different failure experiences influence entrepreneurs to engage in different types of pivots. This study explores how the degree of failure affects the extent to which entrepreneurs engage in market positioning pivots, by targeting a different customer segment, and/or in campaign narrative pivots, where they change the narrative about how the venture will fulfil a relevant customer need. Using data from 8262 crowdfunding campaign pairs, each consisting of an initial failed campaign and a subsequent campaign on Kickstarter's reward-based crowdfunding platform, we investigate how the degree of early-stage failure affects the extent to which entrepreneurs engage in these two types of pivots. We also explore the impact of these pivots on subsequent crowdfunding campaign success. Our findings indicate that the greater the failure, the more substantial the narrative pivot, whereas the likelihood of a market positioning pivot only greatly increases after experiencing very severe failures. Contrary to our expectations, both pivots are negatively associated with subsequent campaign success. Post-hoc analyses reveal that when entrepreneurs pivoted, instead of becoming more similar to successful campaigns, they tended to move away from the strategies of successful campaigns. The findings of this exploratory study highlight the important role of the failure experience in understanding different types of entrepreneurial pivots. They also suggest that researchers might want to revisit the widely held assumption that pivoting away from a failing position inherently improves a venture's chances of success.