Ideal Failure Narrative Types How Entrepreneurs Explain Their Business Failure

Ideal Failure Narrative Types How Entrepreneurs Explain Their Business Failure Christoph Mandl, M.Sc. Univ.-Prof. Dr. Andreas Kuckertz ICSB 8 th of June 2015 0

Background Literature 1 Analytical procedure: Data Collection, Latent Semantic Analysis and Regression Analysis 2 Results 3 Ideal Failure Narrative Types How Entrepreneurs Explain Their Business Failure Implications 4 1

Background Literature 1 Analytical procedure: Data Collection, Latent Semantic Analysis and Regression Analysis 2 Results 3 Ideal Failure Narrative Types How Entrepreneurs Explain Their Business Failure Implications 4 2

The nature and role of failure narratives has not received significant attention in the literature Motivation Existing Research Our Contribution Importance of narratives for various entrepreneurial activities (e.g. funding; psychological processing, sensemaking) Empirical development of ideal failure narrative types within the context of entrepreneurial failure Construction of narratives in specific contexts Construction method of failure narratives Research question Do failure narratives share common patterns in the form of ideal types (Dotty & Glick, 1994) and how are they related to their attributions of causality? 3

Research status Existing research acknowledges narratives primarily as vehicles for psychologically processing failure, less is known about their role as a mean for self-presentation Failure narratives and self presentation (Failure) Narratives are themed accounts characterized by a sequential order of interrelated actions or events trying to convey meaning from the author to the audience (Gabriel, 2004; Wolfe & Shepherd, 2015) Insights into the emotional and cognitive landscape of failed entrepreneurs Construction and revelation of a certain view on the self The importance of failure narratives as an effective mean for self-presentation We attempt to elucidate how entrepreneurs construct and articulate a certain image of themselves in response to business failure based on their emotional and cognitive needs as well as social expectations. 4

Background Literature 1 Analytical procedure: Data Collection, Latent Semantic Analysis and Regression Analysis 2 Results 3 Ideal Failure Narrative Types How Entrepreneurs Explain Their Business Failure Implications 4 5

180 usable shut down messages of failed entrepreneurial ventures were obtained for analysis Step 1: Data Collection Procedure Screening of 2,600 Crunchbase database profiles of technology-based companies which have discontinued service Identification of 214 shutdown messages of discontinued companies Screening of lead-founders LinkedIn profiles for additional information and to validate information obtained from Crunchbase profiles 34 shutdown messages had to be excluded (e.g. founder replacement by a professional manager) 180 usable shutdown messages of discontinued entrepreneurial ventures could be included in our final sample. Sample characteristics The companies in our sample were primarily headquartered in English speaking countries (71% United States, 8% United Kingdom, 3% Canada, 3% Australia, 15% rest of the world) and share a common cultural background Time span: September 2004 until March 2014 Average length of shut down messages: 248 words (SD: 223) 6

To identify ideal failure narrative types empirically, we decided to use the quantitative text-mining technique latent semantic analysis Analytical procedure (1/2) Latent Semantic Analysis consists of multiple steps Step 1 Transformation of shutdown notices into a term-document matrix Step 2 Pre-processing documents and words (e.g. we used computer-aided text analysis Software LIWC to form 35 conceptual categories of words) Step 3 Singular Value Decomposition Step 4 Interpretation of the resulting latent semantic factors (i.e. ideal failure narrative types) 7

To further explore the nature of failure narratives, we analyzed the relationship between the ideal failure narrative types and locus of causality using binary logistic regression Analytical procedure (2/2) Dependent variables Internal locus of causality: attributing business failure to internal reasons (e.g. skills and intelligence) External locus of causality: attributing business failure to external reasons (e.g. competition and economic conditions) Independent Variables Rotated factor loadings of each shutdown message on the individual ideal failure narrative types Controls Entrepreneurial experience: habitual entrepreneurs who started up more than one previous venture before experiencing business failure were allocated a score of 1, novice entrepreneurs were allocated a score of 0 Business age: the time the business was active in months Team founder: team founders were allocated a score of 1, while single founders were allocated a score of 0 Education: measured in terms of years of formal education 8

Background Literature 1 Analytical procedure: Data Collection, Latent Semantic Analysis and Regression Analysis 2 Results 3 Ideal Failure Narrative Types How Entrepreneurs Explain Their Business Failure Implications 4 9

Ideal failure narrative types can be identified on different levels of abstraction Results 2-Factor Solution 3-Factor Solution 4-Factor Solution 5-Factor Solution Everybody s Darling Everybody s Darling Everybody s Darling The Emotional The Depressed The Depressed The Depressed The Steadfast The Steadfast The Rational The Rational The Coping with the Past Leaving the Stage Leaving the Stage 10

Failed entrepreneurs can be classified into five different ideal failure narrative types each of them reflecting specific rotated factor loadings Rotated Factor Loadings and Illustrative Text Excerpts 1/2 (emotional) The founders will stay on to help for any issues that arise I m profoundly disappointed to announce that has suspended operations The crew behind is incredibly talented, generous and hardworking It s with much sadness that will be closing its service...various stakeholders we are honored by their attention and the support Please take this post as a recommendation for each of them we lost motivation to keep pivoting was not the best way we could think of to realize our vision anymore 11

Failed entrepreneurs can be classified into five different ideal failure narrative types each of them reflecting specific rotated factor loadings Rotated Factor Loading and Illustrative Text Excerpts 2/2 (rational) Life goes on! We are that damn good. We gave it our all, we left no stone unturned. We fought the good fight. While as we know it is over, the passion, experience, and vision lives on. We took a step back and looked at what we would have to build to deliver enough value to overcome those obstacles it has been a wonderful ride and we hope our paths will cross again I wish all of you the best of luck in the future 12

Entrepreneurs constructing rational-oriented failure narratives apparently internalize business failure to the same degree as they blame others Results of Regression Analysis (2-Factor Solution) Dependent Variable Model 1: Internal locus of causality Model 2 External locus of causality β (se) β (se) Constant -1.510* 0.699-0.689 0.694 Entrepreneurial experience 1.050** 0.364-0.891* 0.363 Business age -0.012 0.009 0.015^ 0.008 Team -0.260 0.358-0.490 0.369 Education 0.028 0.068-0.085 0.072 The Rational 0.536*** 0.159 0.733*** 0.177 The Emotional -0.094 0.232 0.183 0.245 N 180 180 Nagelkerke s r² 0.235 0.273 *** p.001; ** p.01; * p.05; ^ p.10 13

On a more detailed level, we found that internalizing business failure includes emotionaloriented images which attempt to convey a favorable image on the entrepreneur Results of Regression Analysis (5-Factor Solution) Dependent Variable Model 1: Internal locus of causality Model 2 External locus of causality β (se) β (se) Constant -1.704* 0.739-1.362^ 0.764 Entrepreneurial experience 1.085** 0.372-0.950* 0.380 Business age -0.010 0.009 0.019* 0.009 Team -0.183 0.370-0.226 0.389 Education 0.058 0.071-0.036 0.076 Everybody s Darling 0.340^ 0.185 0.504** 0.197 The Depressed 0.142 0.277 0.720* 0.332 The Steadfast 0.013 0.245-0.335 0.268 The Coping with the Past 0.710* 0.298 0.560* 0.285 Leaving the Stage 0.345 0.270 0.794** 0.306 N 180 180 Nagelkerke s r² 0.263 0.331 *** p.001; ** p.01; * p.05; ^ p.10 14

Background Literature 1 Analytical procedure: Data Collection, Latent Semantic Analysis and Regression Analysis 2 Results 3 Ideal Failure Narrative Types How Entrepreneurs Explain Their Business Failure Implications 4 15

We provide some new insights on how entrepreneurs process business failure to cope with the challenging socio-psychological pressures and potential public stigma Discussion Predominantly emotional oriented Predominantly rational oriented Everybody s Darling The Depressed The Steadfast The Coping with the Past Leaving the Stage Aim on expressing and conveying the current emotional state of the entrepreneur Attempt to make sense out of the failure experience by explaining and working through this experience Each of the images helps to elucidate how entrepreneurs address not only their emotional and cognitive needs but additionally their social needs in response to their business failure Relationship between Ideal Failure Narrative Types and Sensemaking can not be reduced to a generic self-serving tendency to avoid personal responsibility may serve specific functions in making sense of and coping with failure may be employed strategically to provoke a certain image of oneself which may be the result of the individual cognitive and emotional needs as well as their surrounding social expectation 16

Thank you for your attention! Contact Christoph Mandl, M.Sc. Univ.-Prof. Dr. Andreas Kuckertz University of Hohenheim (570 C) Institute of Marketing & Management Entrepreneurship Wollgrasweg 49 D-70599 Stuttgart Germany Fon: +49 711-451017-24823 Web: https://entrepreneurship.uni-hohenheim.de christoph.mandl@uni-hohenheim.de andreas.kuckertz@uni-hohenheim.de 17