Introduction

“To really learn about entrepreneurship, let’s study serial entrepreneurs” (MacMillan, 1986).

Defined as someone who has had established at least one other business prior to the start-up of their current new independent venture (Birley & Westhead, 1993; MacMillan & Lowe, 1986; Rosa, 1998; Westhead & Wright, 1998a), serial entrepreneurs should be more theoretically interesting than those who got lucky once—novice entrepreneurs (McGrath, 1996). It also stands to reason that their prior entrepreneurial experiences should differ them from novice ones regarding managerial skills and strategic decisions, and thus higher levels of performance are more likely to be expected from them. Interestingly, while a series of studies suggest that serial entrepreneurship is more common than previously expected (Birley & Westhead, 1993; Kolvereid & Bullvag, 1993; Schollhammer, 1991); data suggest that prior entrepreneurial experiences do not appear to contribute to better venture performance (Birley & Westhead, 1993; Kolvereid & Bullvag, 1993; Westhead & Wright, 1998a). But is this rather perplexing result only limited to the developed countries in which most research has been conducted (i.e., the US and the UK)? Or is it indicative of a general phenomenon, and hence requesting the need for new theory?

To probe these questions, we present an exploratory study of serial entrepreneurship in China. Drawing on the existing literature (Reuber & Fischer, 1999; Westhead, Ucbasararn, & Wright, 2005) as well as data and research about current economic and institutional conditions in China (Peng, 2002; Tan, 2002), we develop propositions concerning the nature of Chinese entrepreneurship and the advantages that we think should accrue with entrepreneurial experiences. As one of the first studies of serial entrepreneurship, our results are largely consistent with earlier studies but also indicate that networking skills are crucial in the Chinese context. This paper concludes with a detailed discussion regarding implications of our findings for theory, as well as for venturing in China.

Literature review and hypothesis development

Entrepreneurship research, like strategy research, suggests that venture performance is largely a function of industry environment, firm’s strategy, resources and capabilities, and entrepreneur attributes (Chrisman, Bauerschmidt, & Hofer, 1998; Sandberg & Hofer, 1987). Among entrepreneur attributes, entrepreneurial experience is often viewed as a critical, if not the most important, predictor of venture success (MacMillan, Siegel, & Narasimha, 1985; Westhead & Wright, 1999). It is because entrepreneurs’ prior business ownership experiences can contribute to the development of experientially-acquired skills or capabilities, which will lead in turn to more knowledgeable actions and decisions in the current venture (Osnabrugge, 1998; Reuber & Fischer, 1999).

While logic suggests that serial entrepreneurs should do better than novices due to their accumulated experiences, to date researchers have found little support for this proposition (Birley & Westhead, 1993; Kolvereid & Bullvag, 1993; Westhead & Wright, 1998a, b). For instance, although Westhead and Wright (1998a) found several differences between novice and serial entrepreneurs, such as personal attitudes to entrepreneurship and reasons leading to startups, they could not detect differences between novice and serial entrepreneurs regarding performance in a univariate test of 621 entrepreneurs in the UK. Similarly, Kolvereid and Bullvag (1993) showed that novice and serial entrepreneurs were heterogeneous in terms of characteristics and career motivations, but these two types of entrepreneurs were not different regarding performance.

Two reasons can help explain the inconsistency between the existing theory and reality. First, many of the above studies were descriptive in character and/or utilized research designs that limited the researchers’ ability to subject these outcomes to further scrutiny. Studies by Westhead and colleagues, for example, limited analysis to descriptive statistics and univariate statistical methods, while Kolvereid and Bullvag (1993) and Alsos and Kolvereid (1998) relied on qualitative methods. Studies that employ larger samples and more sophisticated methods are needed to examine and rule out alternative explanations.

Second, the empirical results may be confounded by the context of these studies. These above studies largely focused on the developed countries, such as the UK and the US, where the competitive environment is relatively mature and dynamic (Eisenhardt & Martin, 2000). Entrepreneurial opportunities in mature markets are scarce and entrepreneurial requirements, in terms of the skills and resources that the entrepreneur needs for venture success, may vary greatly from opportunity to opportunity. Environmental constraints may then reduce the benefits of serial entrepreneurship. This line of argument suggests that the serial entrepreneurship theory should be tested under different market conditions. In this paper, we test the serial entrepreneurship theory in a transition economy. Transition economies are significantly different from developed economies in institutional environments and economic structures, which implies that entrepreneurial firms in transition economies may act differently from their counterparts in developed economies (Peng, 2001; Zapalska & Edwards, 2001).

Finally, the inconsistency may be due to the flaws of the existing theoretical framework itself. In prior studies of serial entrepreneurship, scholars (Reuber & Fischer, 1999; Westhead et al., 2005) focused on a direct relationship between prior entrepreneurial experiences and venture performance. However, prior entrepreneurial experiences may indirectly affect venture performance. For instance, serial entrepreneurs may behave differently from novices in leveraging certain strategic factors to affect performance—some practices may indirectly improve the venture performance; while some may implicitly decrease the venture performance. These positive and negative forces may neutralize each other on the surface, and thus it is difficult to observe a direct relationship between prior entrepreneurial experiences and venture performance. Therefore, we need to revise the existing theoretical framework to better examine the effects of prior entrepreneurial experiences on venture performance.

Based on the above concerns, we propose a theoretical model as illustrated in Figure 1. This model extends the existing framework of entrepreneur experiences and performance raised by Westhead et al. (2005) and Reuber and Fischer (1999) by considering serial entrepreneurs’ prior experiences as a moderating variable. We posit that the entrepreneurs’ prior entrepreneurial experiences moderate the relationship between the following strategic factors—market opportunities, organizational capabilities, network capabilities, entrepreneurial posture and venture performance in a positive or negative way contingent upon the environment. We define market opportunities as the market conditions in which the entrepreneurial venture is embedded. Organizational capabilities refer to the expertise and ability to create and manage an effective organization. We define networking skills as the ability to create and leverage social capital and other relational resources. Entrepreneurial posture refers to the processes, practices, and decision-making activities that lead to the market introduction of new products or services. These strategic factors are considered critical to startup performance in prior entrepreneurship research (Chrisman et al., 1998; Sandberg & Hofer, 1987).

Figure 1
figure 1

A conceptual model of serial entrepreneurial experiences and entrepreneurial firm performance

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In the context of China, we suggest that serial entrepreneurs may have developed their management skills while running business under the unique economic environment associated with the current reform in China. Accordingly, we expect that Chinese serial entrepreneurs have a better understanding of the current business environment of China and are more aware of potential entrepreneurial opportunities than novice ones. Moreover, benefiting from prior management experiences, they may also illustrate higher organizational and social capabilities than novice entrepreneurs in organizing their current ventures in an effective and efficient way. Therefore, we posit that the skills and expertise accumulated from prior experiences will help Chinese serial entrepreneurs better leverage the above strategic factors to improve performance than novice entrepreneurs. We elaborate our argument below.

First, prior entrepreneurial experiences enhance Chinese serial entrepreneurs’ capabilities with respect to both managing their ventures and developing the network of exchange relationships needed for organizational success. One of the most important capabilities is to know how to enhance coordination and collaboration within an organization. Organizational skills are particularly crucial to Chinese entrepreneurs. China operated as a planned economy for decades before adopting economic reforms. Within planned economies, organization management skills and capabilities were largely ignored, because managers had few incentives to enhance the efficiency and effectiveness of an organization (Zapalska & Edwards, 2001; Zhou & Li, 2007). It is broadly noted that entrepreneurial activities in mainland China were kept at a minimum until economic reforms in the 1970s (Peng, 2001, 2002; Yang & Li, 2008). It implies that when China first allowed entrepreneurial activities, most entrepreneurs had to learn how to manage and run a business from scratch. Even today, entrepreneurs in China are referred to as the people who “plunge into the sea” (New York Times, 1998). Extending this metaphor we can infer that serial entrepreneurs, analogous to experienced swimmers, have accumulated essential skills to master organizational capabilities. These organizational capabilities in turn should enhance the performance of their new ventures.

Hypothesis 1

Chinese serial entrepreneurs are better in leveraging organizational capabilities to improve venture performance than novice entrepreneurs.

Moreover, serial entrepreneurs’ prior business ownership experiences help them develop guanxi (relationship) with stakeholders and give them access to business networks (Peng & Luo, 2000). In recent strategic management research, scholars have referred the ability to develop new networks as network capabilities (Kogut, 2000). Given the social collectivism of the Chinese culture (Tan, 2002) and the historical concerns of guanxi (Carney & Gedajlovic, 2003), network capabilities are critical to venture performance in China. However, to develop such capabilities, entrepreneurs need to have access to a business network in the first place (Gulati, 1998). The network access allows entrepreneurs to acquire new information. Moreover, being embedded in business networks enhances entrepreneurs’ ability to create the reputation needed to gain trust from potential clients and partners. Since serial entrepreneurs have been exploring the “sea” (i.e., the new market-oriented economic system of China), they may have a better understanding of how to handle guanxi with multiple stakeholders to build and expand their own business networks than novice entrepreneurs. In other words, we expect that serial entrepreneurs can better exploit their social capital accumulated in their prior business activities, and thus they will have greater network capabilities than novice entrepreneurs. Accordingly, they can better improve the relationship between network capabilities and performance.

Hypothesis 2

Chinese serial entrepreneurs are better in leveraging network capabilities to improve venture performance than novice entrepreneurs.

Second, serial entrepreneurs may have greater capabilities to grasp market opportunities and thus improving performance. We posit that prior business ownership experiences will sharpen Chinese serial entrepreneurs’ ability to identify new business opportunities. Prior entrepreneurial experiences help direct the opportunity identification process, so that serial entrepreneurs are in a better position to discover market demand for new products and services. Accordingly, serial entrepreneurs can search more effectively, and be more alert and prepared to grasp new business opportunities. However, given limited resources and experiences, novice entrepreneurs may tend to search opportunities in a narrower range, thereby less likely to recognize new opportunities. Interestingly, existing research provides mixed evidences for the above statement. For example, Cooper, Folta, and Woo (1995) found that novice entrepreneurs in the US were likely to scan more widely than experienced entrepreneurs, and might be more willing to pursue more radically new ideas than serial entrepreneurs. However, in a more recent study, Westhead et al. (2005) found that Scottish serial entrepreneurs tended to identify more market opportunities than novice ones.

Turning to the case at hand, we posit two reasons that Chinese serial entrepreneurs are better able to grasp market opportunities to improve performance than novice entrepreneurs. First, as noted above, the serial entrepreneurs have largely embedded themselves in business networks through their prior business activities. Their guanxi networks facilitate information transfer within and among business communities, thereby giving serial entrepreneurs access to needed valuable information. Second, intimate knowledge about the marketplace increases the likelihood that serial entrepreneurs are better able to find arbitrage opportunities in the existing marketplace. China is experiencing the transition from a planned economy to a market-oriented economy. Many new market niches have emerged in this transition process. As Peng (2001) noted, due to the sudden transition, many entrepreneurial activities cannot be fully organized in a systematic way. Accordingly, the “gray economic activities,” which are balanced between legal and illegal, have emerged to bridge economic gaps in transition. In another sense, Chinese serial entrepreneurs may have developed a better understanding of “the sea” to know where treasures lie in their second or third plunge.

Hypothesis 3

Chinese serial entrepreneurs are better in leveraging market opportunities to improve venture performance than novice entrepreneurs.

Third, we suggest that serial entrepreneurs are more likely to translate entrepreneurial posture into higher performance. As Westhead et al. (2005) noted, serial entrepreneurs tended to undertake or to engage in higher levels of innovation experiment than novice entrepreneurs. The goal of these activities is to combine existing resources and capabilities in a novel way to create value (Stevenson, 1983). We argue that Chinese serial entrepreneurs are more likely to understand the importance of taking proactive entrepreneurial posture of exploitation and exploration. It is because in China entrepreneurial ventures are facing a competitive environment, which is featured as cost-driven, and where market growth is often characterized by the entry of a (formerly) state-run entity into an emerging market. Thus, innovating new product is an important method of mitigating competitive pressure from firms who are better able to leverage scale-based advantage. Compared with serial entrepreneurs, novices may lack experiences of tuning innovation with market demands in the process. That is, even though novice entrepreneurs may be as innovative as serial ones, they may find it difficult to commercialize their innovations in the marketplace. On the contrary, due to prior business experiences, serial entrepreneurs may better evaluate market demands and be able to target their innovations to customer needs. Therefore, serial entrepreneurs may have better abilities to leverage entrepreneurial posture to improve venture performance.

Hypothesis 4

Chinese serial entrepreneurs are better in leveraging entrepreneurial posture to improve venture performance than novice entrepreneurs.

Sample and methods

Data collection

Since secondary information about entrepreneurial activity in China was simply not available, a survey of firm founders in China was undertaken in 2002–2003. It was first prepared in English and then translated into Chinese and then back into English to evaluate translation accuracy. A pilot study of the questionnaire was conducted with a holdout sample of about 30 business practitioners. Written and verbal comments from these business practitioners were used to refine the instrument and were tested on a different holdout sample prior to distributing the survey to 3,186 Chinese entrepreneurial firms located in Changjiang and Zhujiang Delta areas. These regions were chosen as they were the centers of new venture growth in China. One thousand eighty surveys were received, 602 of which were completed by entrepreneurial founders. Incomplete or missing data reduced the final sample to 440Footnote 1. The industries included retail/wholesales, manufacturing, professional services, construction, and guest services.

Variable measurement

Serial entrepreneurs were identified using a dummy variable which indicated whether the respondent had prior experiences of running a self-owned business. Following Gulati (1995) and Ahuja (2000), we measured network capabilities as the number of partners to the focal firm. The measures and sources of the following constructs—organization capabilities, market opportunitiesFootnote 2, entrepreneurial posture, and startup performance were illustrated in Table 1. The composite reliabilities (CR) for these constructs (0.85–0.87) exceeded the 0.70 benchmark. The Cronbach’s alphas for the constructs ranged from 0.78 for startup performance to 0.83 for organization capabilities. Thus, these measures demonstrated convergent validity and reliability (Fornell & Larcker, 1981).

Table 1 Measures and sources of organization capabilities, market opportunities, entrepreneurial posture, and startup performance.
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The covariates employed in the study included the entrepreneurial firms’ size (as indicated by the number of employees) and age of the venture. Regional effects (i.e. Changjiang or Zhujiang Delta areas) were controlled through the use of a dummy variable (1 = Changjiang Delta, 0 = Zhujiang Delta). Finally, as tests identified few differences across industries, a dummy variable was included to differentiate manufacturing firms from other types of industries. The purpose of controlling manufacturing industries was that given China’s global cost advantages in manufacturing, Chinese manufacturing companies are likely to compete on cost, which might suppress their profit margins and growth rates relative to Chinese firms located in other industries that compete using different strategies.

Results

Descriptive statistics and correlation statistics are reported in Table 2 and the results of a moderated regression analysis are presented in Table 3. Tests confirm that data are multivariate normal in distribution and no evidence of multicollinearity is observed.

Table 2 Correlations and descriptive statistics.
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Table 3 Summary of regression models
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Model 2 in Table 3 indicates that organization capabilities and entrepreneurial posture have a positive relationship with Chinese startup performance; while market opportunities have a negative impact on performance. Serial entrepreneur does not have a significant relationship with performance. However, as indicated in model 3 in Table 3, serial entrepreneur interacts with several strategic factors in affecting venture performance. The interaction effects lend support to H1 (organizational capabilities) and H2 (network capabilities), but not to H4 (entrepreneurial posture). While the interaction coefficient for H3 (market opportunities), is indeed significant, its sign is negative, and thus opposite to the hypothesized relationship.

Discussion

Theoretical and managerial implications

This paper has provided four major contributions to the current understanding of serial entrepreneurs in China. First, this study contributes to the theory development of Chinese entrepreneurship research. As Li and Peng (2008) noted, to effectively study and to appropriately theorize the uniqueness of Chinese context with the global economy, studies of Chinese firms should incorporate considerations of the three key elements of major forces impacting Chinese firms—cultural environment, institutional framework, and firms’ management mechanisms. Along this line, this study finds that given the unique interaction of cultural, institutional, and management capabilities in China, Chinese serial entrepreneurs can better leverage organization and network capabilities to improve performance. But prior entrepreneurial experiences cannot help increase the effects of entrepreneurial posture on performance, while even deteriorate the relationship between market opportunities and venture performance. The benefits of experience appear to affect different dimensions of firm conduct, in some cases enhancing performance, while in other cases suppressing their effects (i.e., market opportunities). This finding is intriguing, inasmuch as it is opposite to that found in other studies (Birley & Westhead, 1993; Westhead et al., 2005). The reason can be partially attributed to the overconfidence of Chinese serial entrepreneurs. As Cooper et al. (1995) noted, many US serial entrepreneurs tended to suffer from “entrepreneurial euphoria,” which caused them to fail in searching new opportunities. From the results we suggest that Chinese serial entrepreneurs may also have “entrepreneurial euphoria” with regard to their optimistic attitudes toward market opportunities. That is, Chinese serial entrepreneurs may be overconfident of their capabilities and skills in exploiting the market so that they have a greater tendency to treat even bad market opportunities as good ones. Following the metaphor of “plunging into the sea,” we suggest that unlike many US serial entrepreneurs who are too confident to bother to search far in the sea, Chinese entrepreneurs’ overconfidence may tempt them to go too far into the dangerous area of the sea.

Second, it is interesting to note that in model 3 in Table 3, although network capabilities have a negative relationship with startup performance, its interaction term with serial entrepreneur has a positive relationship with startup performance. This seemingly contradicting result can shed unique insights into the utility of network strategy for startups in the contemporary Chinese economy. As Peng (2003) noted in his two-phrase model of institutional transitions in emerging economies, during an early phase of institutional transitions, when market economy rules have not been formally established, firms can largely benefit from a network-centered strategy and strong personal ties, because this type of networks helps firms reduce transaction costs and access necessary resources. However, during a late stage of transitions, when more mature market economy rules are in place, the costs of maintaining a network-centered strategy may outweigh its benefits. Our result suggests that as China has evolved to a more mature market economy, a network-centered strategy can become a heavy burden for small startups to maintain, except for those serial entrepreneurs who have been through the early phase of Chinese economic transitions, and have accumulated enough knowledge and resources to master their guanxi networks in China.

Third, this paper also extends current research about serial entrepreneurship to the context of transition economy. The empirical results illustrate some unique attributes of Chinese serial entrepreneurs from their counterparts in developed countries. For instance, as noted above, Chinese serial entrepreneurs may differ from the others with respect to the pattern of their management of market opportunities. These differences signify the necessity of investigating serial entrepreneur in different institutional and economic contexts to gain a more comprehensive understanding of its nature.

Fourth, this study also informs Chinese policymakers on the question of how resources could be more effectively utilized if they were targeted toward serial entrepreneurs or novice entrepreneurs. As many scholars noted (Peng, 2001; Zapalska & Edwards, 2001), entrepreneurship can play an important role in correcting the price distortions caused by a centrally controlled economy. It has also promoted technological changes in transition economies. Therefore, to further encourage entrepreneurial activities, Chinese government should provide more network information to novice entrepreneurs and should offer some necessary management training for novice entrepreneurs; while the government should also give cautions to serial entrepreneurs before they take lemon opportunities in the market.

Limitation and future research direction

To our knowledge this paper is the first study on the issue of serial entrepreneurship in China (cf., Yang & Li, 2008). It has greatly contributed to our current understanding of Chinese serial entrepreneurship. But due to the newness of this topic, this paper is also subject to its limitations. For instance, our data concerning performance lend some support to our conjecture that the findings of earlier research may have been influenced by the research context. The fact that we observe some behavioral differences between serial and novice entrepreneurs in China is somewhat reassuring, although more and better designed research is clearly needed. The fact that the scope of this study is limited to selected geographic locations raises the prospects that its results may not generalize to the broader Chinese population. It is also possible that our findings for market opportunities are influenced by the relatively few questionnaire items on this construct. While this level of reliability (α = 0.82) satisfies Nunnelly (1978)’s criteria for broad constructs like “market opportunities,” it remains that better data and measures are needed.

Conclusion

This study examines various differences between Chinese serial and novice entrepreneurs, and explains how these differences affect the level of performance between these two types of entrepreneurs. Our findings suggest that entrepreneurs’ prior experiences can indirectly affect performance in both positive and negative ways. On the one hand, Chinese serial entrepreneurs can better leverage their capabilities in managing organizations and networks to improve performance than novice ones. On the other hand, serial entrepreneurs may be subject to “entrepreneurial euphoria.” They tend be over confident about their understanding of the dynamics of Chinese market, which negatively affects performance. Combing these factors together, we help explain why serial entrepreneurs may not be able to achieve superior performance relative to novice ones. Furthermore, our study is the first one to extend serial entrepreneurship research to the context of transition economy, shedding important managerial implications for Chinese entrepreneurs, and informing Chinese government of how to increase entrepreneurial activities to prompt economic development.