Do emerging ecosystems and individual capitals matter in entrepreneurial re-entry’ quality and speed?

Entrepreneurship is a dynamic process that implies the conception, gestation, childhood, adolescence as well as the death of an entrepreneurial initiative (DeTienne 2010; Shepherd et al. 2019). Previous studies have recognised how individual, organisational, and contextual conditions determine the transition across all stages of the dynamic entrepreneurial process (McMullen and Shepherd 2006). An inadequate combination of these conditions will produce a business exit or failure (Kang and Uhlenbruck 2006; Khelil 2016; Mellahi and Wilkinson 2004). Although the business exit/failure literature continues to expand, the speed and the quality entrepreneurial re-entry after a business failure still requires conceptual and empirical debates (Fu et al. 2018; Hsu et al. 2017a; Ucbasaran et al. 2013) in both developing and emerging economies (Amankwah-Amoah 2018; Koçak et al. 2010; Ravindran and Baral 2014).

On the one hand, the first debate is about the role of context in entrepreneurial re-entries. Although entrepreneurship studies have recognised that context matters, a few studies have analysed how contextual conditions affect entrepreneurial re-entries (Fu et al. 2018, p. 466). As with any entrepreneurial activity, institutional conditions will determine the quality and quantity of new entrepreneurship re-entries, especially in emerging economies (Acs et al. 2017; Cardon et al. 2011; Mason and Brown 2013, 2014; Simmons et al. 2018; Guerrero and Peña-Legazkue 2019; Henrekson and Sanandaji 2019; Lin and Wang 2019). Entrepreneurship ecosystems have become a popular topic of discussion among scholars and policymakers (Guerrero and Urbano 2017).

On the other hand, the second debate is associated with the role of individual human and social capitals on entrepreneurial re-entries. Although prior studies have made significant contributions to the individual characteristics, few studies provide insights about a positive impact of learning after failure in entrepreneurial re-entries (Cope 2011; p. 605). Based on learning and error mastery orientation (Funken et al. 2018), business failure produces positive/negative learning outcomes that influence entrepreneurial preparedness for future re-entry (Neumeyer et al. 2019; Nielsen and Sarasvathy 2011; Shepherd et al. 2019; Surdu et al. 2018). Re-entrepreneurs gain entrepreneurial experience and build relationships with different agents in the ecosystem and intermediaries to reduce institutional voids (Lee et al. 2011; Mair et al. 2012).

Inspired by these academic debates, this study analyses the influence of environmental and individual conditions on the quality and the speed of entrepreneurial re-entries in emerging economies after a business failure. By adopting the foundations of the institutional economics approach (North 1990), we examine the role of entrepreneurial ecosystem pillars (formal conditions) and societal perceptions of entrepreneurship (informal conditions) on the speed/quality of an entrepreneurial re-entry trajectory after failure in emerging economies. By adopting the theoretical foundations of human capital (Becker 1993) and social capital (Baron and Markman 2000), we examine the role of the individuals’ skills, experience and knowledge (human capital) and the individuals’ relationships with close people or networks (social capital) on the speed/quality of an entrepreneurial re-entry trajectory after failure in emerging economies. Based on these approaches, we proposed a conceptual framework and several propositions that were analysed using a retrospective case study approach of twenty Chilean re-entrepreneurs.

After this introduction, we first present the theoretical background about the determinants of the entrepreneurial re-entry after failure and offer propositions about the quality and speed of re-entries. We later introduce our methodological design. We then describe and analyse our findings. Finally, we offer a concluding discussion focused on the implications of our model for future research and practice.

Table 2 summarises a narrow dissection of the entrepreneurial re-entry trajectory of Chileans after their business failure. We found the following four patterns.

The first pattern is the NHTG by necessity. This group is composed of four re-entrepreneurs with technical education distributed by gender and currently enrolled in their second business after at least ten years of entrepreneurial experience [A, F, G, and I]. This group is very critical of themselves and the societal reactions to business failure, as well as very constructive regarding the role of the entrepreneurial ecosystem. This group recognised that their business exit causes were a consequence of the lack of skills (specific human capital), family issues that provoked a fragile relationship with partners (social norms) and not paying attention to competitors and market conditions (entrepreneurial ecosystem). During their failure they preferred to face the consequences alone to avoid the criticism of their family (social norms). In the Khelil (2016, p. 86) typology, this group has certain similitudes with the megalomaniac entrepreneurs that focus on individual constraint instead of environmental constraint. After failure, this group decided to focus on two crucial challenges: improving managerial/leadership skills and understanding legal agreements to avoid fragile relationships with potential investors (family and friends). Their entrepreneurial re-entry impacted them demonstrating self-fulfilment, a reduction of personal barriers/traumas, a growth orientation supported by partners, and social commitments with minor groups of their localities (kids and students). This group gains optimism and works for legitimising the work of entrepreneurs in society (Cardon et al. 2011). However, their self-evaluation demands improvements in specific skills like the management of resources and fundraising that are important for achieving projects and generate more added value for their stakeholders. They perceive favourable attitudes from families, employees and clients. They evaluate the mentorship and governmental support received from the ecosystem very well but recognise that the financial sector and the educational system should be reinforced. Their exposure to their prior failure and financial needs have moderated their failure’s appraisal and griefs (Jenkins et al. 2014). After self-learning during a few months (see Cope 2011), they decided on an accelerated re-entry into the same markets motived by personal challenges, and looking for business goals, financial rewards, and social recognition. Although this group can scale up their business, they chose a low profile to maintain the managerial/financial control. The environmental conditions directly influenced an accelerated re-entry in this group.

The second pattern is HTG by necessity. This group is composed of five re-entrepreneurs with higher education distributed by gender and currently enrolled in their third venture after at least nine years of entrepreneurial experience [B, C, D, H, and J]. Their entrepreneurial initiatives are high-tech and high-growth oriented. This group recognises that their business failure was influenced by the lack of skills (specific human capital), lack of financial health and an unskilled team (organisational), as well as by the inappropriate regulations in labour, finance and the market (ecosystem conditions). In the Khelil (2016, p. 86) typology, this group has certain similitudes with the dissatisfied lord entrepreneurs that focus on individual-social constraints motivated by their ambitious goals, team weaknesses and environmental barriers. After failure experiences, most challenges were to find a balance between the family and the business, the establishment of metrics for client follow up to reinvent the quality of products/services and facing the market competitors. Therefore, this group decided to improve their specific human capital (skills and business language) that was very useful for building teams and managing available resources. After self, relational and management learning (see Cope 2011), the re-entry pushing factors were personal-family goals and social impact in their localities. This group created new technological business models into similar/different markets with the support of their families. The entrepreneurial re-entry produced very positive results such as their fulfilment, the reduction of personal barriers, excellent indicators (better performance, growth, consolidation, generation of employment), and impact on vulnerable social groups. The failure impacts were positively related to individuals, finances and access to capital (Cardon et al. 2011). In terms of self-evaluation, they evaluate their generic and specific human capital very well. In terms of the business, they very positively evaluate the entry into new sectors, the sustainability of the business model as well as the consolidation but they still demand capital and more employees. In terms of society, they still perceive that the population does not thoroughly understand failure and re-entry. In terms of the ecosystem, the only positive perception is the mentorship received from the support infrastructures, but the rest of conditions are not well perceived (lack of talent, education and financial system). Their experience and exposure to prior failures have moderated their personal/business appraisals and griefs (Jenkins et al. 2014). The quality-speed was a trade-off (Dencker et al. 2019). On the one hand, necessity motivates an accelerated re-entry without assuming any risk or taking advantage of innovation. These findings are similar to Henrekson & Sanandaji’s no-Schumpeterian classification of entrepreneurs. On the other hand, the negative consequences of business failure at the family level limited the aspirations, the self-efficacy, and the entry’ speed. It implies the direct and the moderated effect of family on the accelerated/retarded re-entry (Lin and Wang 2019).

The third pattern is the NHTG by opportunity. This group is composed of three re-entrepreneurs with higher education, mostly woman and currently enrolled in forth business after at least three years of entrepreneurial experience [M, T and U]. Their failure antecedents were associated with social pressures associated with gender (social norms) and the lack of skills for managing liquidity (specific human capital) influenced by the limitations of the financial market (ecosystem conditions). Although having the same non-high-tech and high-growth orientation, they are more critical than the first group. In the Khelil (2016, p. 86) typology, this group has certain similitudes with the confused entrepreneurs that focus on social and environmental constraints (absence of financial support) with the exception that their ventures are not driven by necessity (unemployment) and, as well as with the megalomaniac entrepreneurs, they tend to overestimate their expertise (mostly in the cases of woman re-entrepreneurs). During the failure stage, they received support from families, some governmental programs, and from business angels. After self-learning, the venture and relational learning (see Cope 2011), they have a profound transformation to be persistent with the business challenges such as learning how to convert ideas into actions and face entry barriers in new markets, as well as learning about the nature and management of relationships to avoid losing friendships by business liabilities. After this learning period, they decided to re-enter, motivated by personal challenges, family goals, financial rewards and social recognition. The impacts of their entrepreneurial re-entry after failure were self-fulfilment, better performance with growth orientation and the producing of some social actions in their localities. The business failure transformed individual perception and the individual’s role in reducing the social stigmatisation of failure (Cardon et al. 2011). According to their self-evaluations, they recognise having excellent technical and market knowledge required for improving the quality of products/services and contributing to their clients’ satisfaction. However, they also recognise that they still need to work on managing liabilities. Moreover, their entrepreneurial ecosystem provides support and skilled personnel with minimal options for accessing credits. Socially, they have received the solidarity of close people but still perceive the stigmatisation of failure and re-entry from the rest of society. Indistinctly from the context, the notion behind this group is that network connectivity and distribution of social capital are significantly different by gender (Ibáñez et al. 2020). Similarly, Neumeyer et al. (2019) found that female entrepreneurs engaged in high-growth ventures showed a lower degree of bridging social capital than male entrepreneurs. If we transfer this to female re-entrepreneurs, the complexity increased with social norms where a man represents more aggressive/managed growth, while the woman represents more lifestyle and survival. Maybe it is evidencing the ecosystem inefficiencies that arise from multiple interactions between entrepreneurs and institutions (Simmons et al. 2018). This group takes time for preparing their re-entrepreneurial process influenced by the support of their families and their human capital. Given the higher educational level, the retarded entry is influenced by choosing the labour market as a mechanism to gain/save money. Baù et al. (2017) found similar findings in their predictions in re-entrepreneurship speed.

The last pattern is the HTG by opportunity. Eight re-entrepreneurs compose this group with higher education involved in manufacture and services. The younger people created more business in a short period and elder people created less business with more years of entrepreneurial experience. Therefore, this group has the highest experience and the most critical view of their entrepreneurial ecosystem [K, L, N, O, P, Q, R, and S]. Their failure antecedents were associated with individual constraints (lack of vision), organisational constraints (unskilled team, the lack of liquidity), and environmental constraints (contractual laws, exchange rates, and culture). During their business failure, they received support from close people (family and friends) and specialised people (networks). In the Khelil (2016, p. 86) typology, this group has certain similitudes with the bigtime gambler entrepreneurs that focus on the persistence on the venture health although that is very confused and they are disappointed with their perceived environmental barriers/obstacles. After failure, their main challenges were the persistence for taking the decisions on time and the attraction of talent and capital. After self-learning, the venture and relationships (Cope 2011), they learn to determine an affordable loss, to separate friendships and business, and trust more in their partners/experts. They decided to re-enter motivated by personal challenges, by financial rewards, by looking for managing talent and resources, and by societal recognition. The rewards obtained from their re-entries have been personal (self-fulfilment and well-being), financial (business success and regional trademarks), social (supporting minor groups), and at the ecosystem level (creating entrepreneurial networks and associations). They evaluated their (general and specific) human capital very well and are very satisfied with their high impact venture and their rapid speed growth. This group tried to reduce the majority of the negative impacts associated with failure (Cardon et al. 2011). Based on their evaluations, this group is very critical of the entrepreneurship ecosystem mentioning that the majority of the conditions should be improved (e.g., venture capital, business angel networks, access to bank credits, and the lack of skilled people); notably, they recognised that are still facing the social consequences of failure stigma (social norms). This group is characterised by investing more time to re-enter through the influence of multiple elements: (a) the family support, (b) their social capital, (c) their higher educational level, and their perception of the ecosystem. Also, the higher level of innovation/technology of their initiatives demands time and multiple sources of funding. Therefore, they are usually looking for opportunities in combination with paid employment.

There is a direct relationship between the speed and the quality across the four patterns of re-entrepreneurs. An accelerated speed is encouraged by non-technological re-entrepreneurs (NHGT necessity and NHGT opportunity) with more than ten years of experience as entrepreneurs. Schumpeterian entrepreneurs (HGT Necessity and HGT Opportunity) adopted a retarded re-entry with less than four years of experience. Therefore, the entrepreneurial experience is the most critical determinant of the speed/quality of entrepreneurial re-entries (Amaral et al. 2011; Ucbasaran et al. 2009).

Contrasting our findings with the literature (Table 3), we find arguments to reinforce our initial propositions and to revise the proposed conceptual model incorporating mechanisms that link business failure and entrepreneurial re-entries in emerging economies (Fig. 1).

We confirmed that failure is provoked by several limitations of the individual, weaknesses of the business, and environmental constraints (Khelil 2016). The initial reaction is associated with negative emotions because of social pressures (Cardon et al. 2011) and loss of resources or personal motivations (Jenkins et al. 2014). After an introspective period, individuals evaluate the causes of failures, identify business strengths/weaknesses, and could be prepared to take actions about them (Cope 2011). However, a learning process will be observed in individuals that adopted a failure mastery orientation that is a proactive and positive perspective for handling failure (Funken et al. 2018). This perspective explains why individuals are more likely to identify business opportunities than those that only adopt a negative and reactive perspective to handling failure (Mair et al. 2007). Nevertheless, in the context of emerging economies, the transformation of failure learning into an entrepreneurial re-entry action is moderated by institutional voids and supporting ecosystems (Simmons et al. 2018; Fu et al. 2018; Guerrero and Espinoza-Benavides 2020; Guerrero et al. 2020), by the prior social capital captured from the ecosystem (Neumeyer et al. 2019), and by the improved skills, knowledge, and experience gained after failure (Hsu et al. 2017b). The speed from business learning to re-entry (accelerated or retarded) and the quality of entrepreneurial re-entries (opportunity or necessity) will be moderated by the institutional conditions detected in the economy, as well as by the human and social capital that the re-entrepreneur possesses. As a result, our study contributes to the entrepreneurship literature with the revised conceptual model to explore the role of individual and environmental determinants in the trajectory from business failure to entrepreneurial re-entry in the context of emerging economies.

Our study has several limitations. First, a retrospective methodology has advantages and disadvantages. This strategy provides detailed information about the re-entry trajectory in a Latin-American emerging economy. Despite these insights, their generalisation demands the confirmation and the saturation of these findings in multiple cases in different emerging economies. A natural extension of this study could be replicated in multiple research settings, as well as extending the collection for testing our propositions. Second, aligned to the first limitation, we asked re-entrepreneurs about past events with an emotional impact. Emotions should be also considered in this type of study for multiple reasons (Cardon et al. 2011). Third, the complexity for accessing information conditioned some elements included in the theory development. We adopted similar metrics to previous studies to understand the re-entry’ speed and quality (Audretsch 2012; Dencker et al. 2019; Guerrero and Peña-Legazkue 2019; Henrekson and Sanandaji 2019). However, time and space may be influenced by multiple agents (re-entrepreneurs, families, institutions, networks, venture capital, society). This limitation demands re-conceptualizing re-entry speed/quality by using mixed conceptual/methodological approaches (Shaw et al. 2018). We also could explore other research techniques for improving the reliably of the data collection process such as triangulation (Yin 2003), longitudinal studies, ethnography studies, as well as collecting quantitative data. However, the challenge will be the stigmatisation of failure that made people unwilling to share their experiences.

One main implication emerges from our finding. For policymakers involved in the design of policies and that also orchestrate entrepreneurship ecosystems (Table 3), there is a general assumption that entrepreneurship ecosystems in emerging economies help to reduce the effects of institutional voids. Although the policymakers’ efforts for configuring an entrepreneurial ecosystem, the Chilean ecosystem is evidencing weaknesses regarding the social stigmatisation of failure and inefficiencies in the interaction between re-entrepreneurs and institutions (see Simmons et al. 2018; Guerrero andd Espinoza-Benavides 2020). The legitimation starts with a re-definition of the rules of the game in the access to credits or capital (Guerrero et al. 2020). Actors should change the taboo of business failure and re-consider it as an experience instead of a sanction. For entrepreneurial mentors, it is essential to understand the trade-off between quality and speed of re-entry (Dencker et al. 2019). Our findings show that policymakers do not understand how to support entrepreneurs who faced a business failure and decide to create a new venture. By taking the opinion of the HTG by opportunity re-entrepreneurs, entrepreneurial mentors may create scenarios where entrepreneurs share their failure experiences. Mentors, re-entrepreneurs and policymakers may co-design initiatives to support and influence the quality/speed of re-entrepreneurs. For re-entrepreneurs, the trajectory from failure to re-entry should be considered as an individual and collective journey. Sharing experiences allows for changing the negative perception of failure and becoming role models for others that are facing similar situations. Indeed, this type of study also contributes to legitimise the socio-economic contributions of re-entrepreneurs who re-enter after a business failure.