Entrepreneurial performance is almost always confounded with firm performance. In this paper we argue for an instrumental view of the firm by formally showing that entrepreneurs can amplify their expected success rates by designing their careers as temporal portfolios that exploit contagion processes embedded in serial entrepreneurship. The advantages to holding concurrent portfolios that exploit heterogeneity are well known. The same advantages may be achieved in the serial context through contagion. Our model exploits an observation due to William Feller on the near equivalence of the two, statistically speaking. It also leads to empirically plausible implications about the size distribution of firms in the economy and illustrates the relevance of considering firms and entrepreneurs as distinct loci of analysis.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Quoted in Sarasvathy (2000, p.14).
We abuse notation slightly in that we do not explicitly indicate the dependence of the p.m.f on the firm success probability. Also, there are a great many different equivalent formulae for the negative binomial; for a survey of the mess, see (Ross and Preece 1985). The above formulation may be found in (Feller 1968, section VI.8).
Typically, processes such as the Yule process, Polya urn processes, epidemic processes, etc. are pointed to, or specific distributions such as the Pareto, power law, negative binomial, Zipf’s law, etc. are held up as exemplars (Feller 1943; Greenwood and Udny 1920; Xekalaki 1983). The study of contagion originated in the classic analysis of industrial accidents by Greenwood and Yule (1920). Not only has much of the work on contagion remained confined to this literature, but contagion has usually been studied in the context of counting processes. While it is natural to think of contagion as an increase in the number of something or the other, it is also limiting in that it forces a frequentist flavor onto events that may be best described otherwise (for example, belief contagion). Growth is not to be confused with contagion. In the Polya urn, the number of marbles of either color is a non-decreasing function of time, but what makes the process contagious is the conditional increase in numbers.
The events, \( E(0),E(1), \ldots \) etc. are considered as the same event occurring at different time instants.
Acs, Z., & Armington, C. (2006). Entrepreneurship, geography and American economic growth. Cambridge: Cambridge University Press.
Acs, Z., Parsons, W., & Tracy, S. (2008). High impact firms: gazelles revisited. small business research summary, No. 328. Office of advocacy, U. S. small business administration. http://www.sba.gov/advo/research/rs328tot.pdf. Accessed 19 March 2010.
Aldrich, H. E., & Fiol, C. M. (1994). Fools rush in? The institutional context of industry creation. Academy of Management Review, 19, 645–670.
Aldrich, H. E., & Martinez, M. A. (2001). Many are called, but few are chosen: An evolutionary perspective for the study of entrepreneurship. Entrepreneurship Theory and Practice, 25, 41–57.
Almus, M., & Nerlinger, E. A. (2000). Testing ‚Gibrat’s Law’ for young firms–empirical results for west Germany. Small Business Economics, 15, 1–12.
Alsos, G. A., & Kolvereid, L. (1999). The business gestation process of novice, serial, and parallel business founders. Entrepreneurship Theory and Practice, 22(4), 101–114.
Amaral, M., Baptista, R., & Lima, F. (2009). Serial entrepreneurship: impact of human capital on time to re-entry. Small Business Economics, doi: 10.1007/s11187-009-9232-4.
Audretsch, D. B., Klomp, L., Santarelli, E., & Vivarelli, M. (2004). Gibrat’s Law: Are services different? Review of Industrial Organization, 24(3), 301–324.
Bahadur, R. R. (1960). Stochastic comparisons of tests. Annals of Mathematical Statistics, 31, 276–295.
Baird, D. G., & Morrison, E. R. (2005). Serial entrepreneurs and small business bankruptcies. Columbia Law Review, 105, 2310–2368.
Baron, R. A. (1998). Cognitive mechanisms in entrepreneurship, why and when entrepreneurs think differently than other people. Journal of Business Venturing, 13, 275–294.
Baron, R. A. (2000). Psychological perspectives on entrepreneurship: Cognitive and social factors in entrepreneurs’ success. Current Directions in Psychological Science, 9, 15–18.
Barron, D. N., West, E., & Hannan, M. T. (1994). A time to grow and a time to die: Growth and mortality of credit unions in New York City, 1914–1990. American Journal of Sociology, 100, 381–421.
Bates, T. (1990). Entrepreneur human capital inputs and small business longevity. The Review of Economics and Statistics, 72, 551–559.
Baum, J. A. C. (1989). Liabilities of newness, adolescence, and obsolescence: Exploring age dependence in the dissolution of organizational relationships and organizations. Proceedings of the Administrative Science Association of Canada, 1095, 1–10.
Baum, J. R., Frese, M., & Baron, R. (2007). The psychology of entrepreneurship. Mahwah: Lawrence Erlbaum.
BERR. (2008). High growth firms in the UK: Lessons from an analysis of comparative UK performance. BERR Economics paper No. 3, Nov 2008. http://www.berr.gov.uk/files/file49042.pdf. Accessed 19 March 2010.
Bertinelli, L., Cardi, O., Pamukcu, T., & Strobl, E. (2006). The evolution of the distribution of plant size: evidence from Luxemburg. Small Business Economics, 27, 301–311.
Birley, S., & Westhead, P. (1993). A comparison of new businesses established by “novice” and habitual” founders in Great Britain. International Small Business Journal, 12, 38–60.
Birley, S., & Westhead, P. (1994). A taxonomy of business start-up reasons and their impact on firm growth and size. Journal of Business Venturing, 9(1), 7–31.
Blanchflower, D. G., & Oswald, A. J. (1998). What makes an entrepreneur? Journal of Labor Economics, 16, 26–60.
Bosma, N., Van Praag, M., Thurik, T. & Wit, G. (2004). The value of human and social capital investments for the business performance of startups. Small Business Economics, 23, 227–236.
Botazzi, G., Cefis, E., Dosi, G., & Secchi, A. (2007). Invariances and diversities in the patterns of industrial evolution: Some evidence from Italian manufacturing industries. Small Business Economics, 29, 137–159.
Boyd, N. G., & Vozikis, G. S. (1994). The influence of self-efficacy on the development of entrepreneurial intentions and actions. Entrepreneurship Theory and Practice, 18, 63–77.
Brandstaetter, H. (1997). Becoming an entrepreneur: A question of personality structure? Journal of Economic Psychology, 18, 157–177.
Brockhaus, R. H., Sr. (1980). Risk taking propensity of entrepreneurs. Academy of Management Journal, 23, 509–520.
Bruderl, J., & Schlussler, R. (1990). Organizational mortality: The liabilities of newness and adolescence. Administrative Science Quarterly, 35, 530–547.
Burke, A. E., FitzRoy, F. R. & Nolan, M. A. (2008). What makes a die-hard entrepreneur? Beyond the ‘employee or entrepreneur’ dichotomy. Small Business Economics, 31(2), 93–115.
Busenitz, L., & Barney, J. B. (1997). Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making. Journal of Business Venturing, 12, 9–30.
Cader, H. A., & Leatherman, J. C. (2009). Small business survival and sample selection bias. Small Business Economics, 21, 2–17.
Calvo, J. L. (2006). Testing Gibrat’s Law for small, young and innovating firms. Small Business Economics, 26, 117–123.
Carter, S., & Ram, M. (2003). Reassessing portfolio entrepreneurship: Towards a multi-disciplinary approach. Small Business Economics, 21(4), 371–380.
Caves, R. E. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36, 1947–1982.
Chen, C. C., Greene, P. G., & Crick, A. (1998). Does entrepreneurial self-efficacy distinguish entrepreneurs from managers? Journal of Business Venturing, 13, 295–316.
Christensen, L. R. (1971). Entrepreneurial income: How does it measure up? American Economic Review, 61, 575–585.
Coleman, J. S. (1964). Introduction to mathematical sociology. London: The Free Press of Glencoe, Collier-Macmillan Ltd.
Contini, B., & Revelli, R. (1989). The relationship between firms growth and labor demand. Small Business Economics, 1, 309–314.
Cope, J., & Watts, G. (2000). ‘Learning by doing. an exploration of experience, critical incidents and reflection in entrepreneurial learning’. International Journal of Entrepreneurial Behaviour and Research, 6, 104–124.
Cross, M. (1981). New firm formation and regional development. London: Gower.
Ericsson, K. A. (2006). Introduction to Cambridge handbook of expertise and expert performance: Its development, organization and content. In K. A. Ericsson, N. Charness, P. J. Feltovich, & R. R. Hoffman (Eds.), The Cambridge handbook of expertise and expert performance (pp. 3–19). Cambridge: Cambridge University Press.
Evans, D. S., & Leighton, L. S. (1989). Some empirical aspects of entrepreneurship. American Economic Review, 79, 519–535.
Feller, W. (1943). On a general class of contagious distributions. Annals of Mathematical Statistics, 14, 389–400.
Feller, W. (1968). An introduction to probability theory and its applications, Vol. 1 (3rd ed.). New York: Wiley Eastern.
Feltovich, P. J., Prietula, M. J., & Ericsson, K. A. (2006). Studies of expertise from psychological perspectives. In K. A. Ericsson, N. Charness, P. J. Feltovich, & R. R. Hoffman (Eds.), The Cambridge handbook of expertise and expert performance (pp. 41–67). Cambridge: Cambridge University Press.
Fichman, M., & Levinthal, D. A. (1991). Honeymoons and the liability of adolescence: A new perspective on duration dependence in social and organizational relationships. Academy of Management Review, 16, 442–468.
Flajolet, P., Gabarró, J., & Pekari, H. (2005). Analytic urns. Annals of Probability, 33, 1200–1233.
Forbes, D. P. (1999). Cognitive approaches to new venture creation. International Journal of Management Reviews, 1, 415–439.
Gartner, W. B. (1988). Who is an entrepreneur is the wrong question. American Journal of Small Business, 12(4), 11–32.
Geroski, P. A. (1995). What do we know about entry? International Journal of Industrial Organization, 13, 421–440.
Gimeno, J., Folta, T. B., Cooper, A. C., & Woo, C. Y. (1997). Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms. Administrative Science Quarterly, 42, 750–783.
Gompers, P., Kovner, A., Lerner, J., & Scharfstein, D. (2007). Performance persistence in entrepreneurship. Journal of Financial Economics, 62, 731–764.
Greenwood, M., & Yule, G. U. (1920). An inquiry into the nature of frequency distributions representative of multiple happenings with particular reference to the occurrence of multiple attacks of disease or of repeated accidents. Journal of the Royal Statistical Society, 83, 255–279.
Griffin, D. W., & Varey, C. A. (1996). Towards a consensus on overconfidence. Organizational Behavior and Human Decision Processes, 65, 227–231.
Hamilton, B. H. (2000). Does entrepreneurship pay? An empirical analysis of the returns to self-employment. Journal of Political Economy, 108, 604–631.
Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American Sociological Review, 49, 149–164.
Haunsperger, D. B., & Saari, D. G. (1981). The lack of consistency for statistical decision procedures. The American Statistician, 45, 252–255.
Headd, B. (2003). Redefining business success: Distinguishing between closure and failure. Small Business Economics, 21(1), 51–61.
Henderson, A. D. (1999). Firm strategy and age dependence: A contingent view of the liability of newness, adolescence, and obsolescence. Administrative Science Quarterly, 44, 281–314.
Holmes, T. J., & Schmitz, J. A., Jr. (1995). On the turnover of business firms and business managers. Journal of Political Economy, 103, 1005–1038.
Ijiri, Y., & Simon, H. A. (1975). Some distributions associated with Bose-Einstein statistics. Proceedings of the National Academy of Sciences of the United States of America, 72, 1654–1657.
Irwin, J. O. (1941). Discussion on chambers and Yule’s paper. Supplement to the Journal of the Royal Statistical Society, 7, 101–107.
Jain, G. C., & Consul, P. C. (1971). Generalized negative binomial distribution. SIAM Journal on Applied Mathematics, 21, 501–513.
Kane, T. (2010). The importance of startups in job creation and job destruction. Kauffman Foundation Research Series: Firm Formation and Economic Growth.
Kirchhoff, B. A. (1997). Entrepreneurship economics. In W. Bygrave (Ed.), The portable MBA in entrepreneurship (2nd ed., pp. 444–474). New York: Wiley.
Klotz, J. (1973). Statistical inference in Bernoulli trails with dependence. The Annals of Statistics, 1, 373–379.
Kolvereid, L., & Bullvag, E. (1993). Novices versus experienced business founders: An exploratory investigation. In S. Birley, I. C. MacMillan, & S. Subramony (Eds.), Entrepreneurship research: Global perspectives (pp. 275–285). Amsterdam: Elsevier Science.
Lotti, F., Santarelli, E., & Vivarelli, M. (2009). Defending Gibrat’s law as a long-run regularity. Small Business Economics, 32, 31–44.
Low, M. B., & MacMillan, I. C. (1988). Entrepreneurship: Past research and future challenges. Journal of Management, 14, 139–161.
MacMillan, I. C. (1986). To really learn about entrepreneurship, let’s study habitual entrepreneurs. Journal of Business Venturing, 1, 241–243.
Mansfield, E. (1962). Entry and market contestability: An international comparison. Oxford: Blackwell.
Mata, J. (1994). Firm growth during infancy. Small Business Economics, 6, 27–39.
McGrath, R. G. (1996). Options and the entrepreneur: Towards a strategic theory of entrepreneurial wealth creation. Academy of Management Proceedings, Entrepreneurship division, 101–105.
Miner, J. B. (1997). The expanded horizon for achieving entrepreneurial success. Organizational Dynamics, 25, 54–67.
Miner, J. B., & Raju, N. S. (2004). Risk propensity differences between managers and entrepreneurs and between low- and high-growth entrepreneurs: A reply in a more conservative vein. Journal of Applied Psychology, 89, 3–13.
Moskowitz, T. J., & Vissing-Jorgensen, A. (2002). The returns to entrepreneurial investment: A private equity premium puzzle? American Economic Review, 92, 745–778.
Oliveira, B., & Fortunato, A. (2006). Firm growth and liquidity constraints: A dynamic analysis. Small Business Economics, 27, 139–156.
Palich, L. E., & Bagby, D. R. (1995). Using cognitive theory to explain entrepreneurial risk-taking: Challenging conventional wisdom. Journal of Business Venturing, 10, 425–439.
Petrunia, R. (2008). Does Gibrat’s Law hold? evidence from Canadian retail and manufacturing firms. Small Business Economics, 30, 201–214.
Phillips, B., & Kirchhoff, B. A. (1989). Formation, growth and survival; Small firm dynamics in the U.S. economy. Small Business Economics, 1, 65–74.
Plehn-Dujowich, J. (2009). A theory of serial entrepreneurship. Small Business Economics, doi:10.1007/s11187-008-9171-5.
Reid, G. C. (1995). Early life-cycle behaviour of micro-firms in Scotland. Small Business Economics, 7, 89–95.
Rerup, C. (2005). Learning from past experience: Footnotes on mindfulness and habitual entrepreneurship. Scandinavian Journal of Management, 21, 451–472.
Rodriguez, A. C., Molina, M. A., Perez, A. L. G., & Hernandez, U. M. (2003). Size, age and activity sector on the growth of the small and medium firm size. Small Business Economics, 21, 289–307.
Ronstadt, R. (1986). Exit, stage left: Why entrepreneurs end their entrepreneurial careers before retirement. Journal of Business Venturing, 1(3), 323–338.
Ross, G. & D. Preece. (1985). The negative binomial distribution. Statistician, 34, 323–335.
Samuelson, P. A. (1967). General proof that diversification pays. Journal of Financial and Quantitative Analysis, 2, 1–13.
Sarasvathy, S. D. (2000). Seminar on research perspectives in entrepreneurship (1997). Journal of Business Venturing, 15, 1–57.
Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. The Academy of Management Review, 26, 243–263.
Sarasvathy, S. D., Simon, H., & Lave, L. B. (1998). Perceiving and managing business risks: Differences between entrepreneurs and bankers. Journal of Economic Behavior and Organization, 33(2), 207–226.
Schollhammer, H. (1991). Incidence and determinants of multiple entrepreneurship. In N. C. Churchill, W. D. Bygrave, J. G. Covin, D. L. Sexton, D. P. Slevin, K. H. Vesper, & W. E. Wetzel Jr. (Eds.), Frontiers of entrepreneurship research (pp. 11–24). Wellesley: Babson College.
Scott, M., & Rosa, P. (1996). Opinion: Has firm level analysis reached its limits? Time for rethink. International Small Business Journal, 14, 81–89.
Simon, H. A. (1955). On a class of skew distribution functions. Biometrika, 42, 425–440.
Simon, H. A., & Bonini, C. P. (1958). The size distribution of business firms. American Economic Review, 58, 607–617.
Stam, E., Audretsch, D. B., & Meijaard, J. (2008). Renascent entrepreneurship. Journal of Evolutionary Economics, 18(4), 493–507.
Stangler, D. & Litan, R. E. (2009). Where will the jobs come from? Ewing Marion Kauffman Foundation. http://www.kauffman.org/uploadedFiles/where_will_the_jobs_come_from.pdf. Accessed 23 July 2010.
Starr, J., & Bygrave, W. (1991). The assets and liabilities of prior start-up experience: An exploratory study of multiple venture entrepreneurs. In N. C. Churchill, W. D. Bygrave, J. G. Covin, D. L. Sexton, D. P. Slevin, K. H. Vesper, & W. E. Wetzel Jr. (Eds.), Frontiers of entrepreneurship research (pp. 213–227). Wellesley: Babson College.
Stewart, W. H., & Roth, P. L. (2001). Risk propensity differences between entrepreneurs and managers: A meta-analysis review. Journal of Applied Psychology, 86, 145–153.
Stinchcombe, A. L. (1965). Social structure and organizations. In J. G. March (Ed.), Handbook of organizations (pp. 142–193). Rand McNally: Chicago.
Storey, D. (1989). Firm performance and size: Explanations from the small firm sectors. Small Business Economics, 1, 175–180.
Sutton, J. (1997). Gibrat’s legacy. Journal of Economic Literature, 35, 40–59.
Taibleson, M. H. (1974). Distinguishing between contagion, heterogeneity and randomness in stochastic models. American Sociological Review, 39, 877–880.
Taylor, R. (1999). The small firm as a temporal coalition. Entrepreneurship and Regional Development, 11, 1–19.
Ucbasaran, D., Wright, M., & Westhead, P. (2003). A longitudinal study of habitual entrepreneurs: Starters and acquirers. Entrepreneurship and Regional Development, 15(3), 207–228.
Ucbasaran, D. (2004). Business ownership experience, entrepreneurial behavior and performance: Novice, serial and portfolio entrepreneurs. Unpublished doctoral thesis, Nottingham University Business School.
Ucbasaran, D., Westhead, P., Wright, M., & Binks, M. (2006). Habitual entrepreneurs. Cheltenham: Edward Elgar.
Ucbasaran, D., Wright, M., & Westhead, P. (2008). Opportunity identification and pursuit does an entrepreneur’s human capital matter? Small Business Economics, 30(2), 153–173.
Ucbasaran, D., Westhead, P., Wright, M. & Binks, M. (2009). The nature of entrepreneurial experience, business failure and comparative optimism. Journal of Business Venturing, doi: 10.1016/j.jbusvent.2009.04.001.
Van Gelderen, M., Van der Sluis, L., & Jansen, P. (2005a). Learning opportunities and learning behaviors of small business starters: Relations with goal achievement, skill development and satisfaction. Small Business Economics, 25, 97–108.
Van Gelderen, M., Van der Sluis, L., & Jansen, P. (2005b). Learning opportunities and learning behaviors of small business starters: Relations with goal achievement, skill development and satisfaction. Small Business Economics, 25, 97–108.
Vaupel, J. W., & Yashin, A. I. (1985). Heterogeneity’s ruses: some surprising effects of selection on population dynamics. The American Statistician, 39, 176–185.
Viveros, R., Balasubramanian, K., & Balakrishnan, N. (1994). Binomial and negative binomial analogues under correlated Bernoulli trials. The American Statistician, 48, 243–247.
Wagner, J. (1992). Firm size, firm growth, and persistence of chance: Testing GIBRAT’s Law with establishment data from Lower Saxony, 1978–1989. Small Business Economics, 4, 125–131.
Weiss, C. R. (1998). Size, growth and survival in the upper Austrian farm sector. Small Business Economics, 10, 305–312.
Westhead, P., & Wright, M. (1998). Novice, serial and portfolio founders: Are they different? Journal of Business Venturing, 13, 173–204.
Westhead, P., Ucbasaran, D., Wright, M., & Martin, F. (2003). Habitual entrepreneurs in Scotland: Characteristics, search processes, learning and performance. Glasgow: Scottish Enterprise.
Westhead, P., Ucbasaran, D., Wright, M., & Binks, M. (2005). Novice, serial and portfolio entrepreneur behaviour and contributions. Small Business Economics, 25, 109–132.
Woo, C. Y., Daellenbach, C, & Nicholls-Nixon, C. (1994). Theory building in the presence of randomness: the case of venture creation and performance. Journal of Management Studies, 31(4), 507–524.
Wright, M., Robbie, K., & Ennew, C. (1997a). Serial entrepreneurs. British Journal of Management, 8(3), 251–268.
Wright, M., Robbie, K., & Ennew, C. (1997b). Venture capitalists and serial entrepreneurs. Journal of Business Venturing, 12(3), 227–249.
Xekalaki, E. (1983). The univariate generalized Waring distribution in relation to accident theory: proneness, spells or contagion? Biometrics, 39, 887–895.
Yang, C., & Huang, C. (2005). R&D, size and firm growth in Taiwan’s electronics industry. Small Business Economics, 25, 477–487.
Zhang, J. (2009). The advantage of experienced start-up founders in venture capital acquisition: evidence from serial entrepreneurs. Small Business Economics, doi:10.1007/s11187-009-9216-4.
Zhao, H., Seibert, S. E., & Hills, G. E. (2005). The mediating role of self-efficacy in the development of entrepreneurial intentions. Journal of Applied Psychology, 90, 1265–1272.
We would like to thank Professor James G. March for taking the time to give us detailed comments on feedback on an earlier version of this paper and the Darden School Foundation and Batten Institute for funding.
About this article
Cite this article
Sarasvathy, S.D., Menon, A.R. & Kuechle, G. Failing firms and successful entrepreneurs: serial entrepreneurship as a temporal portfolio. Small Bus Econ 40, 417–434 (2013). https://doi.org/10.1007/s11187-011-9412-x
- Serial entrepreneurship
- Firm performance
- Industrial organization
- Population ecology
- Labor economics
- Financial economics