Women developing products for women, ethnic minorities creating services for their own communities, video game enthusiasts designing for gamers. These are examples of entrepreneurs who confine their market to a narrowly defined, kindred audience, believing they understand “their people” better and can fully satisfy their needs.
But a study conducted with Elena Novelli suggests that these individuals often fall victim to a cognitive bias that binds them to their personal experience, leading them to overly limit their target audience. Instead, they might benefit from thinking bigger, exploring opportunities to serve a broader audience, and maximizing their chances of success.
Data shows that entrepreneurs from underrepresented groups in a broader population tend to develop ideas aimed at niche markets that mirror their own personal characteristics. This phenomenon is known in the literature as user entrepreneurship.
When pitching their ideas to potential investors like venture capitalists, these entrepreneurs face higher rejection rates and often report poorer performance once they launch startups. These dynamics of user entrepreneurship help explain this apparent discrimination by highlighting how these business people decide on their target market.
The decision to narrow down their audience may stem from a deeper knowledge of a certain segment and a perceived ability to serve it better. Alternatively, this tactic could result from a cognitive bias prompting these entrepreneurs to focus on areas where they have direct experience — their so-called “domain.”
To investigate what drives entrepreneurs to target customers resembling themselves, we began with a simple intuition. If user entrepreneurship stems from greater market knowledge, an intervention encouraging entrepreneurs to analyze their value proposition in depth should reinforce the decision to narrow down their target. If, instead, it arises from cognitive bias, the same intervention should prompt them to reconsider.
For our study, we conducted three randomized control trials (RCTs) across Italy and the UK, involving 196 female entrepreneurs divided into treatment and control groups. The first thing we observed was that women are more likely to develop business ideas targeting female customers.
Next, participants in the treatment group received training in scientific decision-making methods, encouraging them to formulate and test hypotheses about their business ideas and market fit. Meanwhile, the control group was taught standard business tools without applying a structured scientific approach. The entrepreneurs were interviewed monthly, and we collected data on their decision-making processes and any radical changes they made to their business ideas (pivoting).
Women in the treatment group who had developed a value proposition targeting women showed a higher rate of strategic reorientation than those in the control group. The latter targeted market segments that were not necessarily defined by gender.
The higher tendency toward strategic reorientation among entrepreneurs with gendered business ideas confirms that the original target limitations were driven by cognitive bias. Moreover, analyzing subsequent startup performance reveals that those who broadened their target audience achieved better results than those who did not.
Our findings extend this analysis to other types of user entrepreneurs, such as business people from ethnic minorities and those with significant industry experience. These entrepreneurs often continue to operate within their familiar contexts, even when their ideas hold broader potential.
From the study, we derive several recommendations for entrepreneurs, policymakers, and venture capitalists:
Luisa Gagliardi, Elena Novelli. “Female Entrepreneurs Targeting Women: Strategic Redirection Under Scientific Decision-Making.” Organization Science, Articles in Advance. DOI: https://doi.org/10.1287/orsc.2022.17235.
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