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Flying high or crashing down: Pre-entry knowledge, post-entry learning, and the distribution of startup performance
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DOI：10.1002/smj.70101.png)
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Abstract
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We examine variation in high-technology startups' performance based on founders' pre-entry experiences by developing a formal model and using confidential employee-employer linked microdata from the United States to examine the empirical consistency of the model propositions. The model posits that relative to insiders, a lack of industry-specific experience creates greater epistemic uncertainty regarding optimal business models at time of entry for outsiders and thus, higher post-entry adjustment costs associated with necessary pivots. Consequently, outsiders have a higher selection threshold for the value-creation potential of the underlying technical ideas. Together, these mechanisms yield propositions that relative to insiders, outsiders have lower odds of survival on average, but higher growth and probability of being acquired. The empirical results indicate strong and robust support for these propositions.
Keywords:
entrepreneurship
formal theory
growth
strategic pivots
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