In the arena of entrepreneurial finance, crowdfunding platforms like Kickstarter often adhere to a brutal “all-or-nothing” rule. For the entrepreneur, falling short of a funding goal is typically viewed as a binary endgame: success or failure. However, we must scrutinize this phenomenon through a more nuanced lens: are all failures truly identical?
Is the psychological state of an entrepreneur who falls just 5% short of their goal distinct from one who only raises 5% of the total? Onochie Fan-Osuala’s research delves deeply into this question, utilizing the “near-miss effect”—a psychological mechanism often used to explain gambling behavior—to unveil behavioral patterns following crowdfunding failures.
The psychological difference of failure: From “lost” to “almost won”
In the psychology of gambling, if slot machine symbols are just one position away from aligning, this “near-miss” often incites a stronger desire to continue betting than a complete mismatch. The brain processes this marginal failure as “almost winning,” thereby generating an illusion of control over the outcome.
By analyzing data from over 63,000 first-time failed entrepreneurs on Kickstarter, this study reveals that this mechanism applies equally to entrepreneurial contexts. The findings indicate that the degree of failure significantly impacts subsequent actions. Entrepreneurs who experience “marginal failure” (i.e., funding came close to the target) are not only more likely to launch subsequent campaigns, but the speed at which they regroup and return is significantly faster.
This behavior suggests that for entrepreneurs, failure is not merely a financial result, but a form of information feedback. A marginal failure transmits a signal: “You are close; with minor strategic tweaks, success is imminent.” This psychological cue drastically shortens their recovery time, transforming frustration into an urgent drive to try again.
The Size Paradox: Why are the ambitious more resilient?
The research presents a counter-intuitive finding. Conventional wisdom suggests that if a funding goal is small (e.g., $1,000), a failure implies a minor gap that seems easier to bridge in a subsequent attempt. Conversely, a massive funding gap (e.g., $100,000) should theoretically serve as a deterrent.
However, the data reveals the opposite reality: entrepreneurs with larger funding goals are actually more likely to launch subsequent campaigns following failure. This finding challenges simple cost-benefit analyses. From an academic perspective, this may imply an “escalation of commitment” driven by sunk costs.
Consider the contrast between two hypothetical projects:
- The Hobbyist: An entrepreneur seeking $500 for a small art project likely has low overhead. If the campaign fails, the cost of abandonment is minimal; they can simply walk away.
- The Innovator: An entrepreneur seeking $100,000 for a complex hardware device has likely invested months in R&D, prototype manufacturing, and intellectual property filings.
For the latter, who harbor grand visions and high upfront investment, the cost of abandonment is prohibitively high. Consequently, even in the face of failure, they demonstrate greater resilience than small-scale testers because they are too invested to quit.
Implications for entrepreneurial practice and platform design
This study offers a new dimension for understanding entrepreneurial resilience:
- For Entrepreneurs: Failure is not a terminus, but a data point. By quantifying the degree of failure, one can more objectively assess market feedback. If you “almost succeeded,” the market is essentially validating your potential rather than negating your value. This shift in perspective is crucial for sustaining entrepreneurial momentum.
- For Platform Designers: Crowdfunding interfaces should recognize that marginal failures represent an undervalued asset pool. Because the “all-or-nothing” model currently discards these “almost-winners,” platforms lose potential revenue and innovation. Mechanisms such as resurrection rounds (simplified re-launch processes for near-misses) or specialized data analytics tools should be designed to encourage these entrepreneurs to attempt a second act, thereby maintaining the platform’s ecological vitality.
Conclusion
In the world of crowdfunding, failure is not a monolithic grey zone, but a spectrum. Fan-Osuala’s research reminds entrepreneurs to evaluate risk not just by the outcome, but by the gap in the process. It is precisely this regret of “almost” that often becomes the most potent fuel driving the next wave of entrepreneurship. For those hovering on the edge, the moment closest to failure may well be the moment closest to future success.
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