Learning from Errors in Entrepreneurship

58 Pages Posted: 26 Oct 2021 Last revised: 26 Dec 2023

See all articles by Camille Hebert

Camille Hebert

University of Toronto - Rotman School of Management

Date Written: October 21, 2021

Abstract

Using a large sample of entrepreneurs' expectations about the future of their company matched to administrative data, I study the relationship between forecast errors, subsequent updates, and startups' survival to determine whether and how entrepreneurs learn from their past errors. I find evidence of two types of learning: Some entrepreneurs become better at entrepreneurship over time, while others exit after realizing that their ability is poor. A substantial part of overall learning from errors is explained by optimistic entrepreneurs who exit. Entrepreneurs continue to revise their forecasts, adjust their business plans, and make fewer errors over time. Entrepreneurs often cite funding challenges and product market competition as the primary reasons for not meeting their initial objectives. Understanding these learning dynamics sheds light on the motivations behind starting new businesses despite high chances of failure and low returns.

Keywords: Entrepreneurs, Optimism, Learning, Experimentation, Business Plan

JEL Classification: D83, D84, E37, G02, G41

Suggested Citation

Hebert, Camille, Learning from Errors in Entrepreneurship (October 21, 2021). Available at SSRN: https://ssrn.com/abstract=3947926 or http://dx.doi.org/10.2139/ssrn.3947926

Camille Hebert (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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