Junior Management Science, Volume 1, Issue 2, December 2016, 32-60

Learning from Business Failure – Does Restarting Affect the Business Model Design?

Alice Katharina Bauer, Otto-von-Guericke University Magdeburg (Masterarbeit)

Business failure is an existent and severe threat for entrepreneurs, but also offers an opportunity for learning. According to literature, failed entrepreneurs are facing a tremendous learning experience. However, only very few studies focus on the long-term entrepreneur-related consequences of failure and even less work is available on entrepreneurs who decide to restart (Ucbasaran et al. (2013)). The goal of the thesis is to enhance business failure literature by focusing on behavioral outcomes of failure-based learning in the context of entrepreneurs who decide to restart after experiencing business failure. Hence, it will be possible to analyze whether cognitive learning processes result in changes of the entrepreneur’s behaviors and actions with respect to the subsequent business. Thus, the aim is to answer the following research questions: (1) How do business models of an entrepreneur’s failed business and the subsequent business differ? (2) What explains possible business model differences? The business model concept is employed as a unit of analysis to identify learning outcomes of entrepreneurs by comparing the business models of the initial, failed business and the subsequent business by conducting an in-depth multiple-case study. Particularly, five semistructured interviews with entrepreneurs who failed and restarted were conducted to allow for the theory building approach according to Eisenhardt (1989). In addition, to triangulate data and enrich the findigns objectively two interviews were held with bankruptcy trustees, experts in the field of business failure. Especially the information provided by the experts enhanced the cross-case analysis. By employing the business model concept as a unit of analysis in the context of restart entrepreneurship, I am able to provide in-depth, empirically-based insights into behavioral outcomes of failure-based entrepreneurial learning. The multiple-case study provides evidence that an entrepreneur rather improves the business model of the failed business than creating a completely novel business model design for a subsequent, new business. Findings also show that learning from failure is affected by situation-specific, entrepreneur-related conditions, which becomes obvious in the business model design of the subsequent businesses. Particularly, the time span between failure and restart, external support and outside options have an impact. Thus, learning from business failure does not automatically take place but is affected by the entrepreneur’s willingness and ability to reflect on past experiences and further conditions that are beyond the entrepreneur’s scope of influence. Therefore, the thesis enhances existing literature on failure-based learning as it highlights that failure-based learning does not happen automatically, but requires certain cognitive capabilities that depict a precondition for successful transfer of learning outcomes to an operational level. Overall, the thesis emphasizes a difference between business closure and serial entrepreneurship on the one hand and business failure and restart entrepreneurship on the other hand. This distinction is of particular importance for entrepreneurship research, as the behavior of serial entrepreneurs seems to follow a different logic compared to restart entrepreneurs. This important finding calls for future research that may rely on the thesis as groundwork and contributes to a deeper understanding of restart entrepreneurship. Managers or entrepreneur on the other hand shall use the findings as a guide. The thesis highlights the importance of the business model and its benefits for the real-world as a tool to objectively consider value creation and capture. In particular, the entrepreneur or manager shall check and critically analyze his or her business in terms of the internal and external fit the business model design. Furthermore, in the case of an approaching or already existent business failure, entrepreneurs should take time for reflection and learning; consider external advice and accept responsibilities and deal with costs of failure openly.

Keywords: Business Failure, Learning, Restart Entrepreneurship, Business Model