The Promise–Risk Balance: Recalibrating Design Choices and Strategic Framing Following Catastrophic Innovation Failure *

Internal Response: Threat Rigidity

Following catastrophic innovation failure, firms must focus their efforts internally on understanding the root causes of the failure and on ensuring that it does not recur (March, 1991; Perrow, 1984). Research on threat rigidity suggests that, if the failure threatens firm survival, it can narrow the firm’s attention and lead to the adoption of restrictive control mechanisms, including increased centralization and formalization (D’Aveni & MacMillan, 1990; Shi et al., 2018; Shimizu, 2007; Staw et al., 1981). A threat-rigidity response can focus the firm’s attention and resources on diagnosing the underlying causes of failure (Park et al., 2023; Rerup, 2009) and on understanding how its internal activities and design choices may have contributed (Beck & Plowman, 2009; Haunschild & Sullivan, 2002; Madsen, 2009). This focus can lead the firm to make new design choices that prevent subsequent failures (Beck & Plowman, 2009; Haunschild & Rhee, 2004; Haunschild & Sullivan, 2002; Madsen, 2009; Park et al., 2023) and improve future performance (Madsen & Desai, 2010).

However, a threat-rigidity response can also shape the type of innovation that follows failure. Threat rigidity increases a firm’s risk aversion, leading the firm to prioritize known solutions and familiar routines (Shi et al., 2018; Shimizu, 2007). The firm’s concentrated attention can trigger problemistic search, leading the firm to seek and adopt incremental solutions rather than engage in broad exploration (Cyert & March, 1963; Levinthal & March, 1993). And increasingly centralized systems typically prioritize exploitative learning, leading the firm to enact refined procedures and tighter decision rules that trade off long-term innovation for immediate reliability (March, 1991). Together, these mechanisms can orient the firm toward immediate, demonstrably safe remedies but away from the experimentation required to pursue innovation that pushes the technological frontier (Thomke, 2003). Because the firm’s internal response to failure may reshape its innovation trajectory, the firm must also adjust how it communicates that trajectory to external stakeholders.

External Response: Strategic Framing

Specifically, following catastrophic innovation failure, firms must frame their efforts in ways that rebuild confidence and support among external stakeholders, including customers, the press, analysts and investors, and other industry experts (Bundy & Pfarrer, 2015; Chai et al., 2022; Iqbal et al., 2024; Raffaelli et al., 2025). Strategic framing helps actors interpret and give meaning to actions in settings of high complexity and uncertainty (Christianson et al., 2009; Kaplan, 2008; Lounsbury & Glynn, 2001; Raffaelli et al., 2025). Through framing, firms position their innovation within “webs of meaning” that stakeholders use to assess value (Rindova et al., 2009, p. 485). Framing allows a firm to set expectations about what it will achieve, how its products will perform, and, in the case of radical innovation, how this innovation will shape the future (Rindova & Martins, 2021). Framing can thus capture the promise of the firm on its quest for innovation (Garud et al., 2014).

In particular, strategic framing can help make a firm’s innovations intelligible, credible, and attractive to key stakeholders (Falchetti et al., 2022; Hiatt & Carlos, 2019; Kahl & Grodal, 2016; Kaplan & Tripsas, 2008). By drawing on assertions, images, metaphors, and other rhetorical devices, firms can educate stakeholders on why their innovations are worth pursuing (Bartel & Garud, 2009; Cornelissen & Clarke, 2010). The firm can portray itself as a capable and credible innovator in order to acquire enough goodwill from stakeholders to thrive, either in the form of implicit support (e.g., a sense of appreciation for the firm’s innovative projects) or explicit backing (e.g., the provision of resources) (Lounsbury & Glynn, 2001, 2019). For example, firms can catalyze adoption of their innovations by framing them as both new and familiar (Hargadon & Douglas, 2001; Kahl & Grodal, 2016; Navis & Glynn, 2011). This framing can crystallize in stakeholders’ minds a future in which the innovation exists as a commercially viable product and as a socially valuable endeavor (Hargadon & Douglas, 2001; Lounsbury & Glynn, 2019; Weber et al., 2008). In this way, effective framing can “reduc[e] audience members’ perception of the risk associated with the exploitation of novel entrepreneurial opportunities, and . . . motivate[e] them to commit” material and symbolic resources (Falchetti et al., 2022, p. 134).

Because catastrophic innovation failure can challenge stakeholders’ expectations and beliefs about a firm and even its industry (Chai et al., 2022), it may require the firm to recraft its strategic framing to sustain stakeholders’ support (Garud et al., 2014; Raffaelli et al., 2025). Separately, crisis management research suggests that firms can benefit from strategic responses that balance accountability (how much responsibility the firm accepts for the failure) and attention (how much the firm focuses stakeholders’ awareness on the crisis and its remedies). Taken together, these studies show that firms that balance accountability with focused attention—owning the failure and keeping stakeholders apprised of their responses—sustain less reputational damage than do firms that deny or deflect (Bundy et al., 2017; Bundy & Pfarrer, 2015; Iqbal et al., 2024; Zavyalova et al., 2012). In short, firms can overcome crises by tailoring framing to address stakeholders’ concerns (Raffaelli et al., 2025) and by rebuilding trust and legitimacy (Iqbal et al., 2024).

But while studies have suggested that reframing is an integral part of strategic change (Barr, 1998; Barr et al., 1992; Raffaelli et al., 2025) and crisis response (Bundy & Pfarrer, 2015; Iqbal et al., 2024), few have examined whether and how a firm’s external framing relates to its internal design choices following catastrophic innovation failure. We therefore lack a holistic understanding of how firms simultaneously correct course and reframe their quest after such failure.

Empirical Setting

Founded in 2004, VG operates in the commercial space industry and develops radical innovations to deliver space tourism, research in space, and other services. VG was founded by Sir Richard Branson as part of the Virgin Group, which operates in diverse industries including travel, telecommunications, and finance. At the time of the crash, other firms in the commercial space industry included SpaceX and Blue Origin.

To set up VG, Branson and his team partnered with Burt Rutan, the engineer who designed SpaceShipOne, a two-seater vehicle that was awarded the prestigious Ansari X Prize (USD 10 million) in 2004. SpaceShipOne was the first privately developed spacecraft launched beyond the Kármán line (at an altitude of 100 km) twice within a period of two weeks; it thus had the potential to transport passengers repeatedly into suborbital space. In 2005, VG partnered with Rutan’s company, Scaled Composites (hereafter Scaled) to set up The Spaceship Company (TSC), a joint effort to further develop and enlarge the reusable spacecraft to accommodate at least six space tourists and two pilots. The partners worked on Enterprise, a next-generation, enlarged reusable spacecraft, and its carrier, WhiteKnightTwo. In parallel, VG set up operations in the Mojave Desert and built a spaceport in New Mexico.

By the time of the crash in 2014, VG had sold more than 700 flight tickets, priced between USD 200,000 and USD 250,000, and had conducted 54 successful tests of Enterprise and 172 successful tests of WhiteKnightTwo. Branson and some early customers had already begun astronaut training in preparation for VG’s maiden passenger flight. If successful, VG would allow customers to experience a unique view of the Earth as well as several minutes of weightlessness, previously experienced only by professional astronauts.

Data Collection

We collected a rich set of archival data that included contemporaneous accounts of events from multiple perspectives, complemented by 15 in-depth primary interviews conducted with stakeholders who had intimate knowledge of different aspects of VG’s operations. Table 1 summarizes our data sources. In Online Appendix 1, we share a detailed list of the traditional media, digital media, and video sources cited throughout the paper.

OPEN IN VIEWER

Table 1.

Data Sources

Data Source	Data Collection Criteria	Quantity
Archival data
Social media (Twitter)	Considered tweets only by active accounts, including @virgingalactic and @richardbranson (most top-level executives did not tweet or did so sporadically)	∼4,000 tweets
VG corporate website, https://www.virgin.com/	Sourced website content using Wayback Machine Considered three versions:  Pre-crash website: collected snapshot days before the crash  Post-crash website: collected days immediately after the crash; black page with only press releases displayed  Post-crash website: collected snapshot three weeks after the crash of new full website, displaying new sections and a new look and feel; collected selected updates between the aftermath of the crash and the end of our period of analysis in December 2018	3 main website versions throughout our sampling period, plus selected updates
Richard Branson’s blog	Published on Virgin’s corporate website, https://www.virgingalactic.com/ Considered only VG-related posts published during our period of analysis	10 blog posts
VG press releases	Considered all press releases published during our period of analysis	81 press releases
Traditional media sources	Lexis Nexis search complemented by a manual search of space- and science-related publications	∼1,400 media articles
Videos	Gathered videos from VG’s official YouTube account; corporate presentations at technology events and conferences; corporate press conferences; executive interviews in the media	18 videos; 366 minutes of footage
Accident report and briefings from government agencies	Gathered videos of the NTSB’s initial investigation briefings, its final accident report (published on July 28, 2015) and a transcript of the corresponding press conference	6 videos; 1 final report and press conference transcript
Primary data
Interviews (14 conducted between November 2023 and March 2024, 1 conducted in October 2024)	Former VG executives (Executive #1, 2, and 3)	3 individuals 5 interviews
	Former VG / Scaled test pilots (Test pilot #1 and 2)	2 individuals 3 interviews
	VG customers (Customer #1, 2, 3, 4, and 5)	5 individuals (2 flown on VG missions; 2 on flight list; 1 voluntarily withdrawn) 4 interviews •
	Space experts and academics (Space expert #1, 2, and 3)	3 individuals 3 interviews
	Total individuals	13
	Total interviews	15

•

Two customers on flight list were jointly interviewed.

Data Analysis

We began our data analysis by constructing a historical timeline. Triangulating across archival sources, we built a timeline of VG’s key milestones from its inception until 2018, considering not only the crash but also major changes in strategy, personnel, partnerships, internal development, and technology. We show critical milestones in Figure 1.

OPEN IN VIEWER

Figure 1.

VG Timeline

Our initial intent was to understand, by coding the archival data, whether and how VG’s external strategic framing shifted following the crash. We began with open coding (Charmaz, 2006) and then organized categories, using axial coding logics (Corbin & Strauss, 1990) to examine relationships among codes over time. Due to the volume of data, we first examined day-to-day changes in all sources one month before and one month after the crash. Two of the authors open-coded separately to look for themes in how VG described its efforts. They frequently came together to compare the codes to build a common repository, including “inspirational stories” VG told about milestones reached, “positive attributes” VG attached to its technology, “ecosystem features” VG emphasized, and “potential challenges” VG faced in its innovation process. In discussions among the entire author team, we looked for shifts across codes over time and noticed that two themes seemed to shift in patterned ways: “promises” made about the innovation and “risks” inherent in its development.

Intrigued by this shift, we compiled all statements relating to promise and risk in the entire set of archival data spanning our period of interest. Alternating between working separately and together, we refined our initial coding scheme by developing another level of axial codes within “promise” and “risk” statements. Risk statements varied in (1) who was described as having “control over the development process”: Some statements referred to the firm’s “reliance on partner’s capabilities” to attenuate risk; other statements emphasized VG’s “reliance on its own capabilities” to manage risk. In addition, some risk statements described (2) the firm’s “development philosophy” as a “focus on simplicity and skill,” while others emphasized a “focus on robustness,” which implied the presence of redundancies, to manage risk. Promise statements varied in how they described the (1) “nature of the experience,” or the essential attributes and meanings attached to the firm’s offering: Some promises were “participant-centric,” or focused on how the experience of spaceflight would serve customers and the firm; others presented a “planet-centric” framing emphasizing the benefits of enabling space access for all humanity. Promise statements also varied in (2) the “basis of credibility,” or the central elements that made the firm’s promise viable: Some statements framed “technology as core” by stressing the uniqueness and superiority of the firm’s innovation, while others referred to “people as core,” focusing on employees’ efforts to bring the innovation to life; some statements highlighted “what is known,” anchoring credibility in prior success, while others emphasized “what remains unknown,” casting learning and exploration of the future as the engine of innovation. Finally, promise statements varied in their stated (3) “ambition”: While some emphasized VG’s “commitment to its goal” of attaining the Kármán line, others emphasized the lower FAA definition of space in a “compromise with the firm’s actual capabilities.”

Comparing the axial codes over time, we recognized clear shifts following VG’s test flight crash. We then considered whether and how these shifts clustered together and related to VG’s historical timeline. To do this, we drew on our interviews in which subjects spoke at length about the internal changes VG made, as well as how its external communications evolved following the crash. We coded all statements relating to promise and risk in the interviews, using the axial codes from our archival data analysis. This coding allowed us to triangulate the shifts that emerged from the archival data. We relied on the complementarity of our data sources: While the archival data provided a robust record of what happened, our interviews provided insight into why these changes occurred and how they affected promise and risk.

Specifically, our interviews with VG’s test pilots and technical executives sensitized us to the important effects of certain internal design choices that VG made to lower risk following the crash. For example, interviewees spoke about VG’s increased risk aversion in the aftermath of the crash and described how this led to choices like increasing the amount of thermal protection on the spacecraft. They also described how thermal protection impacted the vehicle’s safety and altitude. We corroborated our coding through the archival data, relying in particular on work by journalists embedded within VG after the crash (for example, quotations of employees’ accounts that compared VG’s pre- and post-crash levels of thermal protection) and interviews with aerospace experts (who, for example, mentioned the impact of these levels of thermal protection on both risk and altitude). The interviews also revealed other important design choices that we triangulated through the archival data and later catalogued and detailed. Table 2 provides selected examples of these choices.

OPEN IN VIEWER

Table 2.

Selected List of Post-Crash Design Changes Considered for SpaceShipTwo VSS Unity

Proposed Design Change Post-Crash	Rationale	Status	Source
Crash remediation changes
Incorporating a fail-safe to prevent subsonic deployment of the feathering mechanism	The absence of a fail-safe enabled the catastrophic innovation failure.	Performed	Interviews, archival data
General changes
Increasing the amount of instrumentation (to monitor and control altitude, speed, and other critical flight parameters) on the spacecraft	Unity was more heavily instrumented than Enterprise to gather more comprehensive data on each test flight.	Performed	Interviews
Increasing the amount of thermal protection on the spacecraft	Because Enterprise was lost before it could exit the atmosphere and re-enter from suborbital space, thermal protection had not yet been tested. By the time testing on Unity occurred, VG engineers felt a large amount of thermal protection was needed.	Performed	Interviews, archival data
Adding redundancies to flight critical systems such as electrical systems	VG intended to eliminate as many potential single points of failure as it could identify on Unity. Adding redundancies to flight critical systems aimed to prevent the occurrence of such failures.	Performed	Interviews
Changes to specific components
Adding a color-coded indicator to the flight path marker on the spacecraft’s display, to alert pilots of the quality of the pitch rate on ascent	Enterprise’s flight path marker was not color coded. A test pilot had the idea to color code it on Unity for easier reference (green for proper pitch rate; yellow when insufficient; red when excessive), so pilots could more seamlessly realize the need to adjust the pitch.	Performed	Interviews
Redesigning the vehicle’s horizontal stabilizers	The redesign effort sought to make these stabilizers both sturdier and lighter.	Performed	Interviews
Reprogramming the altitude and airspeed dials to turn blue when the spaceship went supersonic	As part of the flight path on ascent, Unity performs a gamma turn where the vehicle turns sharply nose up. Pilots must adjust control surfaces of the spacecraft to maintain the desired flight path as they enter the gamma turn, and the vehicle must be supersonic. During simulation, several test pilots began trimming while the vehicle was subsonic, which could lead to an accident. One of them suggested adding a color prompt to the dials when Unity was supersonic to indicate that it was safe to begin trimming.	Performed	Archival data
Adding a stability augmentation system to help keep the wings level around Mach 2	The spaceship had experienced instability during test flights, when approaching twice the speed of sound.	Performed	Archival data
Replacing actuator cables	A cable snapped during ground testing, under conditions it would likely never experience in space (an engineer purposefully torqued a wrench on it), but engineers felt the cable needed to be sturdier.	Performed	Archival data
Redesigning the landing gear	Engineers argued that the existing landing gear was within close margins of FAA standards. Test pilots retrieved Enterprise’s landing gear from the crash wreckage warehouse and showed it was still in perfect condition.	Not performed	Archival data

Comparing across our analysis, we considered the effect of these internal design choices on the innovation’s risk; at the same time, we recognized that VG used its external strategic framing to redefine promise. Before the crash, VG’s external strategic framing conveyed the goal the firm would achieve through its revolutionary technology. In contrast, after the crash, VG’s external framing conveyed the pursuit the firm was undertaking, abstracting from technical specifics to present a broader narrative about the worthiness and meaning of the firm’s innovation. Our interviews with VG’s former communication executives revealed the reasons behind VG’s framing shift; our interviews with customers and space experts, coupled with direct quotes from archival data, helped us to understand how stakeholders responded to the framing.

We folded these observations into a single empirical model that illustrates how VG altered its design choices and redefined its strategic framing after the crash. Finally, we abstracted away from our research context to offer a generalizable theoretical model. As is typical in inductive qualitative research, we iterated among data analysis and re-analysis, theory development, and literature review (Locke, 2001) until we felt the theory and data converged (Rouse et al., 2025).

Pre-Failure: Calibrating Risk Through Internal Design Choices

Prior to the crash, VG calibrated risk through two critical design choices: relying on its partner’s capabilities to control the development process and focusing on simplicity and skill as the cornerstone of its development philosophy.

Pre-Failure: Calibrating Promise Through External Strategic Framing

Before the crash, VG calibrated risk with a promise framed around three components of the firm’s goal. Its external communications cast the experience of spaceflight as participant-centric, grounded credibility in technology and known aspects of the innovation (prior demonstrations, proven materials and methods, established design features), and set ambition explicitly at attaining the Kármán line.

Experiencing Catastrophic Innovation Failure

On the morning of October 31, 2014, Enterprise was poised to complete its fourth powered test flight. Instead, only seconds after being released by its carrier, the vehicle broke apart in midair, killing a pilot and severely injuring another. A preliminary investigation highlighted a fault in the engineering of Enterprise’s feathering mechanism, meant to stabilize and facilitate its descent back to Earth after reaching peak altitude. This feature was originally designed to be deployed at Mach 1.4 (i.e., 1.4 times the speed of sound), safely beyond the transonic region. In the doomed flight, the co-pilot prematurely unlocked the feathering lever, and the mechanism deployed with the vehicle moving between Mach 0.8 and 0.92. Because Enterprise had no redundancies to keep the feathers from moving, the strong forces acting on the vehicle at that slower speed compromised its structural integrity, leading it to break apart.

The technical cause of the crash was understood at VG almost immediately. In an interview, an individual present in the control room during the crash recalled listening to the pilot and co-pilot running over the post-launch procedures, and realizing the co-pilot had prematurely unlocked the feathering lever:

He said, “0.8, unlocking,” . . . I looked up to make sure I hadn’t missed it—[maybe they] were already supersonic. And they weren’t. I was just reaching for the button [to contact them] and the telemetry froze and I knew what happened . . . it was obvious that there was no longer a spaceship. . . . [Another employee] looked up at me, [like], “What’s going on?” I said, “They unlocked the feather trans-sonically. They’re gone.” (Test pilot #2)

Similarly, an interviewee recalled, “We had video, we had telemetry and onboard data from the vehicle. . . . In this case, it led to a very clear picture of what transpired” (Executive #1). Another interviewee confirmed, “The blame quickly went to the feather unlock system” (Test pilot #1). Following an investigation, the National Transportation Safety Board released its report in July 2015, confirming the root cause of the accident: The co-pilot unlocked the lever too early, the pilot did not have time to react, and lack of redundancies meant there was no technological stop.

From an organizational perspective, the catastrophe had a profound impact on VG. Employees described the event in vivid and emotional terms that underscored its significance and the tragic loss of life. Internally, the company faced the challenge of adjusting its design choices to prevent similar accidents in the future. An executive said in an interview,

It was surreal . . . everyone at the company should have known days like that were possible. You’re dealing with experimental vehicles that move really fast, that have never been flown before. It’s the reason you have test programs. It’s the reason you have test pilots. So we all knew it was a possibility, but of course, you never think it’s going to happen. . . . You prepare for it, you train for it, and you hope to never use that training. . . . [After the crash] we had everyone trying to learn very, very quickly. (Executive #3)

Externally, stakeholders wondered whether VG’s promise was tenable. While many stakeholders supported VG, others directly questioned whether the firm should continue its efforts. For example, a space analyst said, “It’s really a crisis of confidence. . . . [T]he public has to have confidence that this is a safe thing to go do. And I think, psychologically, restoring that confidence is going to be a real challenge” (CBS newscast, Nov. 1, 2014). In an interview, an aerospace expert recalled his thoughts following the crash:

What does that mean for Virgin Galactic? . . . if I had a ticket for Virgin Galactic, would I still want to go? I felt quite guilty for thinking this, but I thought it validates my belief that they’re playing around with things that are really dangerous. And this shows that they are really dangerous. This should be a splash of cold water for every commercial operator looking to try and do this, because it’s a reminder that . . . human spaceflight in particular is such an unforgiving occupation and pastime. (Space expert #2)

As a result, after the crash, VG was faced with the need to revisit its internal design choices to address newly acknowledged, salient risk, and with the need to alter its external strategic framing to account for the occurrence of failure and to sustain stakeholder support.

Post-Failure: Recalibrating Risk Through Internal Design Choices

In response to the crash, the increasingly risk-averse VG recalibrated risk by making design choices to de-risk its technology. This involved taking control of the development process and shifting its development philosophy to favor robustness, aiming to avoid similar failures. However, although these design choices resulted in a safer spacecraft, they also negatively affected its technological capabilities.

Design Choices Negatively Affect Technological Capabilities

While VG’s post-crash design choices succeeded in de-risking the spacecraft, Unity’s technological capabilities, especially its expected altitude, were constrained as a result. Specifically, the added redundancies and automated components that VG introduced to Unity rendered it substantially heavier than Enterprise. The weight was further increased by the inclusion of an attractive new cabin where future astronauts would sit. A former test pilot explained the impact of cascading design choices on weight:

Unity . . . was more heavily instrumented than they had planned for it to be. . . . They were adding weight to make it stronger . . . such as the landing gear. . . . It’s unbelievable how you can make one part stronger and slightly heavier and then you got to beef up that supporting structure and it just keeps on going up. . . . It just escalates out of control really quick. (Test pilot #2)

Unity’s added weight affected the performance of the spacecraft, leading a key executive to worry “that [VG’s] risk-aversion would compel them into building a tank with wings” (Schmidle, 2021, p. 158). Given Unity’s fuel capacity and propulsion capability, increased weight reduced the maximum altitude the spacecraft could reach. According to the same test pilot, “Each few 100 pounds impacts [altitude] by 1,000 feet of apogee or more” (Test pilot #2). The journalist embedded in the company after the crash described the reasoning behind and consequence of these decisions: “Every pound would cost them in performance. These were more than engineering decisions. They were philosophical ones, statements of their [VG’s] tolerance for risk” (Schmidle, 2021, p. 157). During development and testing, it became clear that Unity would reach an altitude of only about 80 km. While this was the U.S. definition of space as recognized by the FAA, it fell short of the 100 km Kármán line. It therefore became debatable whether VG’s vehicle would reach “space.”

Thus, in the wake of the crash, the increasingly risk-averse VG recalibrated risk in its internal design choices. VG took full control of development, prioritizing robustness over the ambitious goals that had previously defined its spacecraft. This trade-off constrained Unity’s technological capabilities: Unity would deliver an inferior customer experience, compared to Enterprise.

Post-Failure: Recalibrating Promise Through External Strategic Framing

Both in immediate response to the crash and later, VG’s post-failure strategic framing revealed a renewed sense of promise. VG’s promise was now framed around the firm’s pursuit rather than its goal. The nature of the experience shifted from participant- to planet-centric. The basis of credibility moved from technology and known aspects of the innovation process to people and disciplined exploration of the unknown. And ambition was re-anchored at 80 km—rather than the 100 km Kármán line—consistent with revised capabilities.

Stakeholder Responses to VG’s Recalibration of Risk and Promise

While we do not aim to explain success or failure, our analyses indicated that most key stakeholders, including customers, investors, alliance partners, analysts, and space experts, responded positively to VG’s recalibration of risk and promise after its catastrophic innovation failure. In contrast, a small number still expressed skepticism. Table 5 presents stakeholders’ reactions to VG’s recalibration of risk and promise, both in favor of and against VG.

OPEN IN VIEWER

Table 5.

Stakeholder Reactions to VG’s Recalibration of the Promise–Risk Balance Following Catastrophic Innovation Failure*

	Stakeholders Supporting VG	Stakeholders Condemning VG	Outcome
VG customers on the flight list	“This program got so many people excited. And you know what? When there is excitement and there is hope people stick to it. We have a lot of future astronauts: 700, 800 [on the flight list]. It’s gonna be years before they go. And they’re not pulling their money. We stuck around. . . . All those people are still here. Nothing stopped us from believing in it. Nothing stopped us from supporting it. Not an accident. Not another accident. Because people who signed up, they understand what happens with aviation.” (Customer #1, interview)	“I want out. I subscribed seven years ago at 63, am still an active private pilot and in good health but who knows how long it will now [i.e., after the crash] take. I have already informed VG of my wish.” (Peter Ulrich von May, former customer on the flight list, Messier, Nov. 3, 2014)	Only a handful of customers on the flight list requested refunds, and new ones signed up following the crash
VG investor	“Without the support of Aabar Investments, this programme would not be where it is today. We are on the precipice of achieving our first goal—our first flight to space—which is expected to take place later this year.” (George Whitesides, VG CEO, Cornwell, Sept. 15, 2018)	None	Aabar Investments, VG’s only external investor at the time of the crash, remained committed to VG
VG partners	“As an official partner of Virgin Galactic, we extend our sympathy to the Virgin Galactic community, as well as the families of the crew at this difficult time. We remain committed to our partnership and offer Virgin Galactic our full support.” (Grey Goose press release, Nov. 2, 2014)	None	All VG official partners maintained their partnerships with VG
Space experts	“These things are to be expected. Flying in space is a difficult thing to do . . . You would have to expect that there would be accidents. I don’t think it should discourage anybody for the future of this industry. Virgin Galactic, with this accident, they’re going to have to regroup . . . they [VG] have great expertise there. They have the right people involved, but like I said earlier, this stuff is not easy.” (Mark Kelly, former NASA astronaut, CNN newscast transcript, Nov. 1, 2014)	“Launch a few, blow up a few, learn, whatever. But you don’t want to do that on a passenger ship and particularly on one that you think is gonna be in commercial service.” (Space expert #1, interview)	Opinions mostly supported VG
Space analysts in the media	“As with the pioneering days of air travel, so with space tourism today. Flying high is haunted by tragedy, and the aerospace industry was built on the wreckage of machines and lives. Ultimately, though, space tourism will become routine, safe and amazing.” (Calder, Nov. 3, 2014)	“Virgin Galactic’s approach was meant to be the safe and simple solution. But as last week’s tragic event showed, there is no safe or simple solution to reaching space.” (Walker & Merrill, Nov. 1, 2014)	Opinions mostly supported VG, but skepticism remained among some analysts

*

Media sources cited in this table are listed in Online Appendix A.

In an interview, a customer described how, following the crash, “A tiny number of people did decide not to proceed, but the vast majority . . . held in” (Customer #4). Attenborough stated in the media that, of over 700 people on the flight list, VG had lost only “a handful” (Culliford, April 12, 2019). Some people made a point of signing up after the crash. Branson noted, “We have had inquiries about purchasing Virgin Galactic tickets this week, including many new Future Astronauts either signing up or in the process of signing up to show solidarity with the team and the project” (Branson blog post, Nov. 6, 2014). Numerous customers made public their support. Some tweeted in the aftermath of the crash and throughout Unity’s development. Customer Ron Rosano, who flew on Unity’s fourth commercial mission, wrote, “I’m Moving Forward Together with Virgin Galactic and Scaled Composites. Get the badge and sport your support” (customer tweet, Nov. 4, 2014). He also started an outreach program, educating high school students about the future of space travel and the opportunities it presents to young generations. Others offered visible shows of support: Customer Gisli Gislason tattooed the VG “evolution of flight” logo on his arm and tweeted a photograph (customer tweet, Dec. 23, 2014). Aabar Investments, VG’s only investor outside of the Virgin Group at the time of the crash, maintained its stake in VG, as confirmed by Whitesides in a speech stating that VG’s “team and investors remain committed to the goal of opening space for all” (Boucher, Jan. 9, 2015). Likewise, VG alliance partners (such as Grey Goose, Land Rover, and The Sierra Nevada Corporation) and other members of the space community, such as NASA, publicly expressed their support. In an interview, a customer summarized the effects in these terms:

I remember the day when that happened [i.e., the crash], and [Branson] sent us all a video. He was crying . . . he said, we’ll overcome this. Just hang in there with us, kind of like the phoenix out of the ashes. And people stayed, customers stayed, employees stayed. It shows the dedication to the company. (Customer #1)

A former VG executive directly attributed the continued stakeholder support to the company’s efforts to recalibrate risk and promise. Describing VG’s work in the media to communicate its renewed ambition and commitment to safety, the executive said,

[The response to the crash in the media] was . . . neutral and it was all we could expect. . . . Of course, a devastating catastrophe happened, it was terrible to everybody. . . . But we were able to recruit people . . . we brought in amazing key pilots. So in that way, I think you can see that the credibility was restored and not negatively impacted. (Executive #2)

Reflecting on the crash in an interview, a customer echoed VG’s framing of failure as an inevitable part of space exploration: “Do you think the Wright brothers didn’t have a few crashes? I mean, look at NASA . . . look at Challenger. . . . Human loss is always a terrible thing. . . . But, in experimental aviation . . . [sometimes] somebody crashes, somebody dies” (Customer #1).

Notably, debates about whether VG could truly reach the boundary of space continued. For example, an analyst summarized,

[U]pgrades and additional safety mechanisms make Unity heavier but more robust than Enterprise. As a result, Unity will fly up to a maximum altitude of just above 80 km, while Enterprise was designed to fly above 100 km. . . . Unity will therefore not technically fly to space, though it will fly . . . where the curvature of the Earth is clearly visible. (Bennett, April 5, 2018)

More directly, another analyst told reporters, “If I were about to spend $250,000 on a Virgin Galactic ticket to space, I’d sure as hell want to go to ‘space’ [100 km]” (Tangermann, Dec. 13, 2018). VG, however, continued to promise its customers that they would reach space. One customer who would eventually fly on a Unity commercial mission noted in an interview that he was initially “disappointed” to hear the spaceflight would likely not reach 100 km altitude. “People were saying, ‘that doesn’t count’” (Customer #3). He noted that he and other customers spoke with scientists and educated themselves on the debate about where the boundary of space lies. After taking part in his VG mission, he stated, “Some people might not call it space. But we rode a rocket, we were weightless, we were in a vacuum where there is no air. . . . I think it’s a little petty to say ‘You weren’t really going to space’. . . . But if you want to be that particular, I can’t fight against that” (Customer #3).

VG’s recalibration of risk and promise after the crash supported the firm’s innovation journey. The program continued, and in 2018, when Unity reached a maximum altitude of 82.7 km above the Earth during its fourth powered test flight, Branson celebrated by stating, “Today, for the first time in history, a crewed spaceship built to carry private passengers reached space. . . . Today we showed that Virgin Galactic really can open space to change the world for good” (Foust, Dec. 13, 2018). In February 2019, the FAA awarded commercial astronaut wings to the two pilots, Mark “Forger” Stucky and Frederick “CJ” Sturckow. “Like the early days of aviation, these commercial space flights take grit and innovation—the very attributes it takes to blaze a trail for generations to follow. . . . It’s that grit and innovation we want to recognize,” said an FAA official (Dwyer, Dec. 13, 2018). Similarly, NASA, which had loaded a set of four microgravity experiments onto Unity, tweeted, “Congrats to @VirginGalactic on SpaceShipTwo successfully flying to suborbital space.”

Baseline Calibration (3a)

Initially, a firm explicitly or implicitly selects a combination of internal design choices and external strategic framing that yields an initial promise–risk balance. Risk emerges from technical and design choices about the innovation and from the firm’s internal development philosophy. Promise emerges from the firm’s external framing about the worthiness of its innovation: how it portrays the experience, what grounds credibility, and what ambition it declares. Risk and promise are balanced when they yield a generative tension that supports the firm’s innovative efforts: They provide internal clarity and alignment in terms of how to address risk and foster external stakeholder support.

Catastrophic Innovation Failure (3b)

Catastrophic innovation failure can disrupt a firm’s initial promise–risk balance in two ways. First, failure makes the risks associated with the innovation salient to the firm and stakeholders. Some of these risks may, until then, have remained latent or unknown. Employees may come to understand that success is not certain. Development teams may also directly and viscerally observe the consequences that arise from design flaws or shortcomings. External stakeholders may question whether the innovation is feasible or whether the firm possesses the capabilities and know-how to complete the innovation. Second, the failure dampens the firm’s promise by rendering declared performance targets more remote and by casting doubt on prior bases of credibility. And seeing the high costs involved in catastrophic innovation failure (costs that may far exceed financial or programmatic considerations), stakeholders may also doubt the worthiness of the firm’s endeavor. The firm thus moves to an intermediate state characterized by heightened risk salience and dampened perceived promise.

Post-Failure Recalibration (3c)

To recalibrate both risk and promise, the firm can deploy two levers. First, the firm can make design choices that address the risks made salient by the catastrophic innovation failure. However, in some cases, those design choices may reduce the capabilities of the innovation, casting further doubt on the firm’s promise. The firm can address this by drawing on a second lever: strategic framing. By redefining the experience, shifting the basis of credibility, and re-anchoring ambition, the firm can raise the perceived worthiness of its endeavor. We propose that the two levers are jointly necessary for the firm to achieve a new promise–risk balance. Design-only responses may yield a safer but less compelling innovation, while framing-only responses risk a credibility gap if promise exceeds what design can plausibly deliver. By recognizing interdependencies and adjusting both, the firm can recalibrate toward a new promise–risk balance and continue on its innovation journey despite the setbacks caused by catastrophic innovation failure.

Implications for Innovation

Our findings suggest that when failure is unexpected, large-scale, costly, and public—and when it occurs during a firm’s non-routine research and development activities—post-failure innovation requires aligned internal and external action. Much of the innovation literature treats post-failure response as largely internal: The firm must diagnose what went wrong, learn, adjust designs and development, and keep moving forward (Edmondson, 2023; Haunschild & Sullivan, 2002; Madsen & Desai, 2010; Sitkin, 1992). But we show that internal design choices geared toward reducing risk may come at the expense of technical capabilities, unsettling the promise that anchored stakeholder support. At the same time, strategic framing efforts can set expectations that narrow the firm’s internal degrees of freedom and constrain its feasible design space (Karp & O’Mahony, 2025; Zuzul & Edmondson, 2017). Therefore, post-failure innovation requires aligning what is re-engineered with what is reframed. This perspective extends innovation research by theorizing strategic framing as a critical, rather than ancillary, part of post-failure innovation. We propose that, after catastrophic innovation failure, innovation entails not only identifying and remedying technical causes but also re-establishing a credible promise–risk balance that rebuilds meaning in line with revised capabilities (Garud et al., 2014; Rindova et al., 2009).

Our findings also have more-general implications for all innovating firms seeking to establish an initial promise–risk balance. In competitive (Camerer & Lovallo, 1999) or nascent (Zuzul & Tripsas, 2020) markets, innovative firms are often founded or led by overconfident (Busenitz & Barney, 1997) or visionary (e.g., Zuzul & Edmondson, 2017; Zuzul & Tripsas, 2020) founders whose optimism about the future may lead to ambitious—perhaps even seemingly arrogant—external promises (Dushnitsky, 2010; Gans, 2022). Internally, these leaders may expect and even welcome small failures as part of experimentation (e.g., Cannon & Edmondson, 2005; Sitkin, 1992), but they may underestimate the likelihood of catastrophic innovation failures. The result may be an initial promise–risk balance that emphasizes promise and downplays risk—a proposition that could be examined on a larger sample of firms.

Our analysis of VG’s evolution suggests that a firm’s initial, pre-failure promise–risk balance may shape both stakeholders’ reactions and the firm’s own external and internal responses to catastrophic innovation failure. We found that VG was able to maintain stakeholders’ support following catastrophic innovation failure, but only with extensive recalibration to both de-risk the technology and rebuild promise. This outcome may be partly explained by the firm’s early framing of ambitious promise, which resulted in an outsized stakeholder reaction to failure. Ambitious or overconfident pre-failure framing can raise the benchmark against which the failure and any post-failure redesign are judged, requiring more extensive reframing with a humbler tone to restore credibility. This extends Garud and colleagues’ (2014) and McDonald and Gao’s (2019) argument that stories and aims can create expectations that later become liabilities: Early promise that is over-calibrated may sustain momentum in the absence of setbacks but amplifies legitimacy challenges when a large public failure occurs. We propose that re-establishing the promise–risk balance in the aftermath of catastrophic innovation failure depends on the firm’s balance before the failure and is therefore neither formulaic nor deterministic. This finding extends research on innovation by adding an antecedent to an effective response to failure: A firm’s pre-failure promise–risk balance conditions what is needed and what is possible following failure. Research on a larger sample of firms could test this idea by examining whether firms’ pre-failure balances are associated with distinct stakeholder responses and effective responses.

Implications for Managing Failure

We also contribute to research on managing failure. This research has largely evolved through two separate streams: one examining internal responses to failure (including threat rigidity) and the other examining external responses to failure (or crisis more broadly). Threat-rigidity research predicts narrowing of attention, greater formalization, and a preference for known solutions following threatening events (D’Aveni & MacMillan, 1990; Shi et al., 2018; Shimizu, 2007; Staw et al., 1981). Internally, narrowing attention and tightening controls can be adaptive for diagnosing causes and preventing recurrence of failure (Haunschild & Sullivan, 2002; Park et al., 2023; Rerup, 2009). Indeed, we found that VG’s internal responses to failure were consistent with expectations from threat-rigidity research. At the same time, this internal narrowing had external consequences that are not typically considered by this research. We propose that the same design and governance changes that reduce risk can lower capabilities and unsettle previously articulated promises, inviting audience skepticism unless firms proactively reframe following failure. In short, the effects of a threat-rigidity response are not contained within the boundaries of the firm: They can alter the basis of stakeholders’ expectations and their relationship to the firm. Externally, VG responded not by narrowing but, rather, by broadening its frame (Raffaelli et al., 2025), extending its promise from being goal- and participant-centric to being pursuit- and planet-centric. Our findings therefore suggest that, following failure, firms may need to pair internal narrowing of design choices with external broadening of strategic framing.

This finding also contributes to our understanding of how firms respond externally to failure or crisis (Bundy & Pfarrer, 2015; Iqbal et al., 2024). Most empirical research in this area has focused on how firms frame the crisis event itself or its immediate causes (Chai et al., 2022; Elsbach, 1994; Williams et al., 2017), rather than examining how firms adapt both their internal responses and their external communications over time. By analyzing these two dimensions simultaneously and over an extended period, our study reveals dynamics that differ from what existing literature might predict. Research on crisis management suggests that organizations can overcome crises by accepting responsibility and by providing granular and transparent details about their internal adjustments (e.g., Bundy & Pfarrer, 2015; Iqbal et al., 2024; Lamin & Zaheer, 2012). Indeed, following the crash, VG could have developed a narrow framing that emphasized how its control over development and its technical improvements led to a safer spacecraft. Instead, VG did the opposite, broadening to develop a new, planet-centric framing. This suggests that, when catastrophic innovation failure may call into question a firm’s entire innovation journey, firms may need to move beyond the framing strategies explored in prior research toward a more expansive reframing that highlights their mission. In doing so, they can recontextualize failure as part of a larger, meaningful endeavor.

Implications for Strategic Framing

We advance research in strategic framing (e.g., Falchetti et al., 2022; Fiss & Zajac, 2006; Hargadon & Douglas, 2001; Kahl & Grodal, 2016) by decomposing promise into three components and proposing how firms can reframe each component after catastrophic innovation failure. VG’s pre- and post-crash framing of promise narrated the nature of the experience (participant-centric vs. planet-centric), the basis of credibility (technology/knowns vs. people/learning amid unknowns), and the firm’s ambition (goal-anchored vs. capability-consistent). Decomposing promise in this way clarifies the levers available to managers as they consider how to reframe in response to internal or external changes (Raffaelli et al., 2025). First, firms can reorient the nature of the experience they aim to offer stakeholders. That experience can fall on different spectra: from practical to aspirational, concrete to abstract, or local to global, to name a few. Second, the firm can reorient its basis of credibility, which establishes the firm’s ability to deliver on its promise in the eyes of stakeholders. The basis of credibility can point to different resources, knowledge, or capabilities, such as superior technology, proprietary processes or IP, or unique talent. Third, the firm can reorient its overall ambition, which sets the bar against which the firm wishes to be measured and assessed. Importantly, while we analytically distinguish these components, VG shifted all three during our period of analysis. Future research can examine whether and to what extent the components can be decoupled or adjusted independently as firms reframe their promises.

We note that taken together, these three dimensions aggregate into two broad ways of framing an innovative effort: framing around a goal that highlights a desired end result and framing around the pursuit by narrating the journey. Strategic frames centered around a goal vividly illustrate a future in which the innovation exists as a technical achievement and an economically successful product (Rindova & Martins, 2021). Frames centered around a pursuit narrate the vicissitudes of the innovation journey. These frames invite stakeholders to partake in the uncertain, innovative pursuit and to be a part of its developments and revelations.

This finding extends the distinction between outcome frames and process frames. In a study of the FBI’s evolution over 12 years following the 9/11 terrorist attacks on the United States, Raffaelli et al. (2025) theorized that leaders can build support for long-term change after an external catastrophic shock by sequencing the two types of frames: Goal-oriented framing galvanizes stakeholders toward rapid and dramatic shifts, while process-oriented framing sustains long-term change. Similarly, our findings suggest that frames centered around a pursuit can elicit lasting stakeholder support. Both typologies reflect a broader distinction of framing around ends versus means. Our findings further suggest the mechanisms through which framing around means generates stakeholder support: Emphasizing means can realign external expectations with internal capabilities, confer firms expanded degrees of freedom regarding the ends they pursue, and normalize uncertainty to help create tolerance for failure. The similarities between these findings despite their radically different contexts—an established government agency facing a dramatic environmental shock; an innovating firm experiencing catastrophic innovation failure—suggest the broader generalizability of this distinction. We see significant potential for future research to further probe whether, when, and why firms should frame around ends versus means.

We also note that VG’s reframing involved redefining promise in a way that implicated its industry, not just the firm. To anchor its ambition on its post-failure capabilities, VG shifted its definition of space from the Kármán line at 100 km to the FAA’s 80 km. In a nascent industry, in which there are few regulatory standards (Aldrich & Fiol, 1994; McDonald & Gao, 2019) or prior benchmarks indicating what constitutes success (Zuzul, 2019), firms can select among distinct definitions to find one that aligns with their capabilities (Granqvist et al., 2013; Santos & Eisenhardt, 2009). By shifting the reference point of what counts as space, VG may have helped to turn a post-failure constraint into a legitimate target. As a leading player in its industry, VG may have contributed to normalizing 80 km as a meaningful accomplishment. While examining this possibility is outside the scope of this study, we see potential for future research to explore how firms’ framings can shape the standards and benchmarks that emerge in nascent industries (Garud et al., 2002; Kahl & Grodal, 2016; Navis & Glynn, 2011).

Future Research Opportunities

Our findings provide opportunities for future research that further develops the relationship between internal design choices and external strategic framing, the promise–risk balance, and the process of responding to failure. In-depth, inductive qualitative case studies can provide rich description but are limited by reduced generalizability to other settings, which may be even more true in the context of idiosyncratic rare events such as catastrophic innovation failure. Our case was extreme by design. However, we believe that our findings can apply to firms in less-extreme settings: Many innovating firms and entrepreneurs implicitly establish a promise–risk balance. Failures or setbacks (even when not catastrophic) unsettle the balance and require some recalibration. Factors such as the nature of the failure (and its potential to threaten firm survival), the nature of the innovation (and its potential to expand the technological frontier), and the nature of the industry (from emergent, to rapidly developing, to mature or declining) may affect the way recalibration is performed.

We hope that future research will simultaneously examine firms’ internal and external responses to diverse changes, including technological shifts or other types of crises and disasters, to assess whether firms’ framing of promise and risk shifts in a similar manner and to evaluate the effects of these changes on performance or survival. Our study also reflects the challenge of studying failure via archival and interview data without the researchers being ethnographically embedded in the firm to capture the details of changes and actions following events. While ethnographic studies of an anticipated failure (particularly a catastrophic failure) may be difficult to plan, future research could examine in detail whether and how risk and promise are recalibrated after different types of changes, such as planned technological shifts.

There are also several promising avenues for future research to further develop the concept of the promise–risk balance. For example, researchers might explore how different initial promise–risk balances among entrepreneurial ventures shape distinct outcomes in the development of radical innovations. Do distinct audiences—for example, regulators versus investors—respond differently to the same promise–risk balance? If so, how can firms calibrate risk and promise in a way that appeals to their entire audience set? Does an optimal calibration depend on the balances set by other firms in the industry?

Future research may also explore the degree to which a promise–risk balance confers the robustness we theorize in this paper. For example, a longitudinal study observing multiple failures may reveal nuances that our case study of a single catastrophic event could not capture. How is the promise–risk balance recalibrated in the face of multiple failures? When does repeated failure begin to undermine stakeholders’ support and enthusiasm, and how can firms continue to maintain the balance? Alternatively, a comparison of firms with different promise–risk balances that experience similar failures might illustrate how such balances might offer more or less of a buffer against adverse stakeholder or market responses.

Conclusion

Our study of Virgin Galactic illuminates how firms recalibrate their internal design choices and external strategic framing in response to catastrophic innovation failure. We propose that after such failure, the promise–risk balance is disrupted, yet promise and risk can be jointly recalibrated to achieve a new balance that enables the organization to continue its innovative endeavor and attain its commercial goals. These insights contribute to deeper understanding of how firms not only recover and learn from failure but also reshape the meaning of their innovation efforts to sustain stakeholder support and continue their pursuit of radical change.