How Does Feedback Affect Entrepreneurial Performance

Abstract

Does feedback affect start-up firm performance? Feedback can be beneficial and particularly actionable for early-stage firms — it may motivate firms to experiment and improve on their ideas, or help firms speed up the failure process for lower quality ideas. In this paper, I use a proprietary database of business plan competition participants and judges combined with text analysis of feedback to investigate whether firms incorporate feedback and improve over time. Specifically, I leverage the feedback sentiment of randomly assigned judges as an instrumental variable to estimate causal effects of feedback on short-term and long-term performance. The main results show that firms improve within-competition performance after receiving more negative feedback that is mapped to specific areas of improvement and received in the initial round. Interestingly, there are heterogeneous treatment effects based on firm quality for post-competition performance. Specifically, after receiving negative feedback, higher quality firms are more likely to remain operational, while lower quality firms are more likely to shut down.

Keywords: entrepreneurship, feedback, business plan competitions, performance