Failed but validated?
Research Paper Title:
“Failed but validated? The effect of market validation on persistence and performance after a crowdfunding failure”
Authors:
Regan Stevenson (Indiana University, Kelley School of Business)
Jared Allen (Texas Tech University)
Tang Wang (University of Central Florida)
Background:
Crowdfunding is a powerful tool for nascent entrepreneurs seeking to raise money for their ventures. Many entrepreneurs don't realize that popular crowdfunding platforms such as Kickstarter might also provide valuable feedback on their product offering before the product is commercialized. Such feedback could be especially valuable for entrepreneurs that experienced a failed crowdfunding campaign, and as a result are wondering if the failure is a reflection of the market potential of their product.
Methodology:
Sample: Student entrepreneurs (study 1); Kickstarter dataset (study 2)
Sample Size: 125 (study 1); 1595 (study 2)
Analytical Approach: hierarchical linear modeling and moderated serial mediation (study 1); relative weights analysis and loglinear regression (study 2)
Hypothesis:
There is a positive relationship between positive market validation information and persistence after a crowdfunding failure (supported)
Affective activation and cognition-based action intentions mediate (in a sequential fashion) the relationship between positive market validation information and persistence (supported)
Expert validation will moderate the sequential indirect effect of affective activation and cognition-based action intentions on persistence, such that at high levels of expert validation, the indirect effect through affective activation and cognition-based action intentions will be stronger than at low levels of expert validation (supported)
Positive market validation information will be a stronger predictor of post-failure performance relative to expert validation (supported)
Results:
The researchers leverage a mixed methods design, employing a controlled lab experiment with entrepreneurs (Study 1) and a four-year lagged longitudinal field study which combines two archival databases (Study 2). In their experiment, the authors find that market validation encourages entrepreneur persistence through affective activation and cognition-based action intentions (specifically search and knowledge integration).
The researchers also find that another form of validation, expert validation, strengthens this relationship. In their field study, market validation is shown to be a stronger predictor of performance after a crowdfunding failure in comparison to expert validation.
Conclusion:
Leveraging social proof theory and the collective wisdom perspective, the researchers demonstrate how market validation functions as an indicator of social proof for entrepreneurs who experience a crowdfunding failure. Market validation during a crowdfunding failure influences entrepreneur persistence decisions through affective activation and cognition-based actions (search and knowledge integration). Expert validation strengthens this relationship. Extending their theorized model with a longitudinal field study of failed crowdfunding campaigns, the authors found that market validation was a stronger predictor of post-failure commercialization performance when compared with expert validation. Taken together, these findings reveal novel insights into the value of crowdfunding campaigns beyond financial rewards and extend our understanding of the mechanisms through which market validation can influence entrepreneur persistence.