Biased Sampling of Early Users and the Direction of Startup Innovation

60 Pages Posted: 30 Nov 2020 Last revised: 25 May 2021

See all articles by Ruiqing Cao

Ruiqing Cao

Harvard Business School

Rembrand Koning

Harvard University - Business School (HBS)

Ramana Nanda

Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 25, 2021

Abstract

Using data from a prominent online platform for launching new digital products, we document that the composition of the platform's `beta testers' on the day a new product is launched has a systematic and persistent impact on the venture's success. Specifically, we use word embedding methods to classify products on this platform as more or less focused on the needs of female customers. We then show that female-focused products launched on a typical day -- when nine in ten users on the platform are men -- experience 45% less growth in the year after launch. By isolating exogenous variation in the composition of beta testers unrelated to the characteristics of launched products on that day, we find that on days when there are unexpectedly more women, this gender-product gap shrinks towards zero. Further, consistent with a sampling bias mechanism, we find that the composition of beta testers appears to impact VC decision making and the entrepreneur's subsequent product development efforts. Overall, our findings suggest that the composition of early users can induce systematic biases in the signals of startup potential, with consequential effects -- including a shortage of innovations aimed at consumers who are underrepresented among early users.

Suggested Citation

Cao, Ruiqing and Koning, Rembrand and Nanda, Ramana, Biased Sampling of Early Users and the Direction of Startup Innovation (May 25, 2021). Harvard Business School Entrepreneurial Management Working Paper No. 21-059, Harvard Business School Strategy Unit Working Paper No. 21-059, Available at SSRN: https://ssrn.com/abstract=3736119 or http://dx.doi.org/10.2139/ssrn.3736119

Ruiqing Cao

Harvard Business School ( email )

Cambridge, MA 02138
United States

Rembrand Koning (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

Ramana Nanda

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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