For Elon Musk, the transition between digital payments, electric cars, and deep space has always seemed so seamless and easy, as he's piled on successes across industries in far-flung ventures including PayPal, Tesla Motors, and SpaceX.
But Musk and other extraordinarily gifted serial entrepreneurs like Richard Branson are the exception, not the rule, according to a new study from J.P. Eggers, an associate professor of management and organizations at New York University. And if you're like most serial entrepreneurs, you might do well to heed the findings of the very academic-sounding paper "Dealing With Failure: Serial Entrepreneurs and the Costs of Changing Industries Between Ventures." It will be published later this spring in the Academy of Management Journal.
Failure is certainly harder than always being a success, but it may have more valuable lessons, according Eggers. And it turns out that it's probably better for you to stick within your industry, even if you've failed, than to change industries and start all over again.
That runs counter to popular entrepreneurial myths in the U.S. that it's all about taking risks and just doing it, regardless of the sector you choose.
"Any time you change industries, you give up valuable knowledge," Eggers says, which includes insight into why you failed, as well as an understanding of your business's industry.
Eggers and his co-author, Lin Song of Beijing's Central University of Finance and Economics, studied two groups---serial entrepreneurs in Beijing and venture capital-funded companies in the U.S. They found that the entrepreneurs who failed but who stuck to the same industry had outcomes with subsequent businesses that were as good or better than those of cohorts who changed industries.
One reason is that entrepreneurs who fail tend to blame external circumstances such as competitive forces, market changes, high costs, and high expectations, rather than internal factors like bad management or team disagreements.
"When things go right, the tendency is to say, 'I am brilliant,' and when they go wrong, it's because it's someone else's fault," Eggers says.
The study noted the differences in entrepreneurial cultures between the U.S. and China, such as the greater tendency of U.S. entrepreneurs to launch startups with teams, versus the solo entrepreneurship culture of China. The former can lead to having more business experience as a whole, while the latter necessarily suggests the limits of one person's knowledge. But the outcomes were consistent, the researchers found, suggesting in both cases that serial entrepreneurs who tough it out in the same industry might be making the smarter choice.
Entrepreneurs like Musk and Richard Branson, who seem to have the Midas touch whatever business they enter, are outliers who tend to have exceptionally strong leadership skills and are gifted with brilliant ideas, Eggers says.
Meanwhile, there are lessons for venture capitalists who tend to look for superstar entrepreneurs rather than serial entrepreneurs who may have some failures under their belts.
"Failing and staying in the same industry is likely an outcome of doing the due diligence on why something failed," Eggers says. "The knowledge is still useful and can be helpful for the second venture."