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    Biased Sampling of Early Users and the Direction of Startup Innovation
    15 Dec 2020Working Paper Summaries

    Biased Sampling of Early Users and the Direction of Startup Innovation

    by Ruiqing Cao, Rembrand Koning, and Ramana Nanda
    New ventures catering to female customers should be aware that the underrepresentation of women among early users on digital platforms can reduce the venture’s growth and chances of survival. As a result of gaining fewer early users, these ventures reduce future product development and are less likely to raise VC funding.
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    Author Abstract

    Using data from a prominent online platform for launching new digital products, we document that the composition of the platform's ‘beta testers’ on the day a new product is launched has a systematic and persistent impact on the venture's success. Specifically, we use word embedding methods to classify products launched on this platform as more or less focused on the needs of female customers, and show that female-focused products launched on a typical day—when nine-in-ten users on the platform are men—experience up to 40% less growth a year after launch. By isolating variation in the composition of beta testers that is unrelated to the characteristics of launched products, we further show that a startup's user growth and success with VC financing can be traced to variation in the number of female beta-testers on the platform the day its product is launched. Overall, our findings suggest that the composition of early users can create systematic bias in signals of a startup's market potential, with consequential real effects—including a dearth of innovations aimed at consumers who are underrepresented among early users.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: November 2020
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    • Faculty Unit(s): Entrepreneurial Management; Strategy
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    Rembrand M. Koning
    Rembrand M. Koning
    Assistant Professor of Business Administration
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    Ramana Nanda
    Ramana Nanda
    Visiting Scholar
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