Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 210: Practice Makes Perfect: Entrepreneurial-Experience Curves and Venture Performance

Rasmus Toft-Kehler (), Karl Wennberg () and Phillip Kim ()
Additional contact information
Rasmus Toft-Kehler: Copenhagen Business School, Symbion Entrepreneurial Learning Lab, Postal: Copenhagen Business School, Kilevej 14a 3rd floor , 2000 Frederiksberg , Denmark , Symbion Entrepreneurial Learning Lab, Fruebjergvej 3, 2100 Copenhagen, Dennmark
Karl Wennberg: Ratio and Stockholm School of Economics, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden, Stockholm School of Economics, P.O. Box 6501, 11383 Stockholm, Sweden,
Phillip Kim: Wisconsin School of Business, Postal: Wisconsin School of Business, , University of Wisconsin-Madison, 975 University Ave, Madison WI 53706, USA

Abstract: This study tackles the puzzle of why increasing entrepreneurial experience does not always lead to improved financial performance of new ventures. We propose an alternate framework demonstrating how experience translates into expertise by arguing that the positive experience-performance relationship only appears to expert entrepreneurs, while novice entrepreneurs may actually perform increasingly worse because of their inability to generalize their experiential knowledge accurately into new ventures. These negative performance implications can be alleviated if the level of contextual similarity between prior and current ventures is high. Using matched employee-employer data of an entire population of Swedish founder-managers between 1990 and 2007, we find a non-linear relationship between entrepreneurial experience and financial performance consistent with our framework. Moreover, the level of industry, geographic, and temporal similarities between prior and current ventures positively moderates this relationship. Our work provides both theoretical and practical implications for entrepreneurial experience—people can learn entrepreneurship and pursue it with greater success as long as they have multiple opportunities to gain experience, overcome barriers to learning, and build an entrepreneurial-experience curve.

Keywords: Serial Entrepreneurship; Learning Curves; Experience; Similarity; Performance

JEL-codes: L26; M13

43 pages, July 17, 2013

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