Biased Sampling of Early Users and the Direction of Startup Innovation

61 Pages Posted: 7 Jun 2021 Last revised: 2 Dec 2021

See all articles by Ruiqing Cao

Ruiqing Cao

Harvard Business School

Rembrand Koning

Harvard University - Business School (HBS)

Ramana Nanda

Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2021

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 on this platform as more or less focused on the needs of female customers. We then show that female-focused products launched on a typical day – when nine in ten users on the platform are men – experience 45% less growth in the year after launch. By isolating exogenous variation in the composition of beta testers unrelated to the characteristics of launched products on that day, we find that on days when there are unexpectedly more women, this gender-product gap shrinks towards zero. Further, consistent with a sampling bias mechanism, we find that the composition of beta testers appears to impact VC decision making and the entrepreneur's subsequent product development efforts. Overall, our findings suggest that the composition of early users can induce systematic biases in the signals of startup potential, with consequential effects – including a shortage of innovations aimed at consumers who are underrepresented among early users.

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Suggested Citation

Cao, Ruiqing and Koning, Rembrand and Nanda, Ramana, Biased Sampling of Early Users and the Direction of Startup Innovation (June 2021). NBER Working Paper No. w28882, Available at SSRN: https://ssrn.com/abstract=3861411

Ruiqing Cao (Contact Author)

Harvard Business School ( email )

Cambridge, MA 02138
United States

Rembrand Koning

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

Ramana Nanda

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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