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The founder's dilemmas: Anticipating and avoiding the pitfalls that can sink a startup
Abstract
Often downplayed in the excitement of starting up a new business venture is one of the most important decisions entrepreneurs will face: should they go it alone, or bring in cofounders, hires, and investors to help build the business? More than just financial rewards are at stake. Friendships and relationships can suffer. Bad decisions at the inception of a promising venture lay the foundations for its eventual ruin. The Founder's Dilemmas is the first book to examine the early decisions by entrepreneurs that can make or break a startup and its team. Drawing on a decade of research, Noam Wasserman reveals the common pitfalls founders face and how to avoid them. He looks at whether it is a good idea to cofound with friends or relatives, how and when to split the equity within the founding team, and how to recognize when a successful founder-CEO should exit or be fired. Wasserman explains how to anticipate, avoid, or recover from disastrous mistakes that can splinter a founding team, strip founders of control, and leave founders without a financial payoff for their hard work and innovative ideas. He highlights the need at each step to strike a careful balance between controlling the startup and attracting the best resources to grow it, and demonstrates why the easy short-term choice is often the most perilous in the long term.
... Because of these hurdles, startup founders face a dilemma when hiring their first employees: to recruit from a wide, diverse labor pool that may contain a more ideal match or to conduct local search, hiring from familiar but smaller labor pools such as those sharing their former affiliations (Rocha et al., 2018;Stewart & Hoell, 2016;Wasserman, 2012). Because labor markets are wrought with high search costs and bilateral information asymmetries (e.g., match quality uncertainty for both the employee and the employer), founders often leverage their connections as channels for obtaining higher-quality information at lower costs (Aldrich & Kim, 2007). ...
... However, hiring from the wide market also presents greater search costs and information asymmetries, and therefore a higher risk of adverse selection (i.e., employees misrepresenting their qualifications), rendering the process time-consuming and uncertain (Brymer et al., 2014(Brymer et al., , 2019. Resource-constrained young firms may not be able to afford this approach (Wasserman, 2012). Alternatively, these firms can narrow labor market search to individuals from the same affiliation as incumbent members, namely their founders (e.g., Rocha et al., 2018). ...
... First, hiring the first employee(s) is a major milestone for most startup firms (Fairlie & Miranda, 2017), and tapping founders' ties may lessen the hiring hurdles that these firms face and, thereby, accelerate the mobilization of human resources (Aldrich & Kim, 2007; 2019) necessary to compete with both entrants and incumbent firms already in the market. As firms secure their first hires and some revenue streams, their liabilities of newness and smallness (Kor & Misangyi, 2008;Wasserman, 2012) dissipate, and they accumulate resources for wider, more distant searches in the labor market. ...
Multiple imperatives call for more diversity in organizations, yet we know surprisingly little about why some organizations become more diverse than others. We focus on the early stages of organizations—the composition of founding teams (FTs) and the evolution of subsequent hiring practices, namely the prominence of finding new employees via founders’ prior employer and educational affiliations. Drawing upon theories of entrepreneurial resource mobilization and attraction–selection–attrition (ASA), we argue that FTs with common professional ties imprint post‐founding hiring routines by making affiliation‐based hiring (ABH) a more prominent practice to select new personnel. We posit that, although ABH fades quickly after founding, using this hiring strategy in the early stages of an organization shapes its trajectory for diversity and contributes to workforce homogenization in several dimensions as new firms mature. Using a mixed‐methods approach combining large‐scale employer–employee linked data from Denmark and in‐depth surveys with founders from the US and UK, we find robust support for our theory and provide novel insights to the hiring processes in entrepreneurial firms. Our work advances our understanding of the enigmatic origins of within‐organization homogeneity progression and offers important contributions to both theory and practice.
... Despite these variations, however, research on academic ETs has paid less attention to the individual scientists who represent the "internal" drivers of team formation (Nikiforou et al., 2018). As a result, the academic ET formation literature remains somewhat disconnected from the broader literature on private sector ET formation, which has focused in depth on individual founders' formation strategies and networks (Lazar et al., 2019;Ruef, 2010;Wasserman, 2012). ...
... 1419). Wasserman (2012) identified ET formation issues among several core "dilemmas" founders face in launching ventures, including choices about whether and how they ought to divide with others the roles and rewards associated with venture creation. ...
... Second, studies of ET formation in nascent ventures have identified two main "formation strategies" by which entrepreneurs identify prospective ET members (Lazar et al., 2019): (1) an "interpersonal attraction" approach wherein entrepreneurs select team members based on interpersonal considerations, such as liking and trust; and (2) a "resource-seeking" approach wherein entrepreneurs select team members based on their capacity to bring to the ET needed resources, such as knowledge, skills, or financial assets (Forbes et al., 2006). For example, consistent with the "attraction" approach, entrepreneurs commonly form teams by approaching people whom they already know and trust (e.g., Ruef et al., 2003), including friends (Wasserman, 2012) and in some cases family members (Aldrich and Cliff, 2003;Discua-Cruz et al., 2013). Resource-seeking strategies, meanwhile, are also utilized (e.g., Shah et al., 2019), although Wasserman's (2012) findings led him to conclude that they were less common than attraction strategies. ...
... While conflict is obviously something all teams have the potential to experience, the entrepreneurial context offers unique conditions that emphasize conflict as the central (if nor primary) driver of performance outcomes (Wasserman, 2012). The uniqueness of the entrepreneurial context as compared to more traditional organizational settings is, to some extent, informed by the ICE literature-the absolute necessity of a team to resolve a conflict on their own (limited traditional governance structures) given ambiguous or often absent information conditions, operating in short time horizons (Alvarez, Barney, McBride, and Wuebker, 2017;Alvarez and Barney, 2005). ...
... The first input is a critical, and currently undertheorized, potential contextual stressor-the entrepreneurial team. And, to the extent that venturing itself is a team sport, as the literature documents to be most often the case (Klotz et al., 2014;Wasserman, 2012), team processes and emergent states take on even more salience in terms of their relationship to the well-being and subsequent functioning of the entrepreneur or early founding team members. Adding teams to the equation has empirical and practical implications for the prior work on individual well-being in entrepreneurial settings. ...
... Furthermore, the insight that individual regulatory capacity plays a role in how entrepreneurs cope with contextual demands suggests that entrepreneurial team stability is not Nathan SMITH, Jana THIEL, Robert WUEBKER Revue de l'Entrepreneuriat Review of Entrepreneurship merely a contracting problem, as some have emphasized (e.g., Blatt, 2009;Breugst et al., 2015;Wasserman, 2012). One of the implications of the model in this paper is that entrepreneurial team stability is, in addition to its potential relationship to individual incentives, perhaps also a property that emerges from the social integration of team members. ...
Why do some individuals thrive during the process of new venture creation, while others experience the dark side of the venturing process? This paper contributes to a growing literature on entrepreneurial well-being by connecting it to the literature on entrepreneurial teams. We begin with two persistent findings from the entrepreneurship literature: first, that individual well-being is critical to venturing outcomes; and second, that entrepreneurship is most often a team sport. Building on self-determination theory and recent research on extreme teams, we argue that the satisfaction and thwarting of an entrepreneur’s basic needs is, fundamentally, socially situated—and, consequently, team dynamics are a critical, but relatively undertheorized, input to individual well-being in entrepreneurial settings. We further argue that an individual’s regulatory strategies shape the relationship between entrepreneurial team dynamics and individual well-being. Our work contributes to an emerging literature on the well-being of entrepreneurs, illuminating the critical role team dynamics and individual coping strategies play in the well-being of entrepreneurs.
... It is essential because the short-term effect may provide implications for team evolution in the next stage. Distributing equity is a complicated and tension-filled decision (Wasserman, 2012). After experiencing the reformation of EFTs, the remaining members may reconsider the distribution of equity to prevent the team from future exits . ...
... Typically, EFT members hold partial or entire ownership of their new venture (Wasserman, 2003;Zhou & Rosini, 2015). Owning equity in a venture is an important motivation to commence entrepreneurial activities (Wasserman, 2012) and to contribute to the venture . Moreover, EFT members' ownership augments their willingness to work together productively (Rosen & Quarrey, 1987). ...
... The distribution of equity within a team can be a complicated and tension-filled decision for an entrepreneurial team (Wasserman, 2012), as ownership influences the power of entrepreneurs and groups in an organisation (Boeker & Wiltbank, 2005). An uneven ownership distribution can jeopardise the team's unity of purpose (Kroll et al., 2007). ...
Entrepreneurs contribute significantly to economic activities and job creation. Engaging in entrepreneurial activities requires entrepreneurs to face the high likelihood of failure, take risks, and bear a great deal of uncertainty. Hence, understanding and identifying factors that contribute to individuals starting a business, keeping engaging in and growing their entrepreneurial activities are crucial. This study explores 1) a novel factor that determines various levels of entrepreneurial propensity across countries and cultures and 2) how the entrepreneurs and entrepreneurial teams choose their development paths and evolvement.Chapter 1 illustrates and initiatively employs a linguistic feature of future tense, inflectional morphology (i.e., conjugation) for future tense (IF), to measure the perception of uncertainty, and explores its effect on a country's entrepreneurial propensity. Using inflectional morphology for future tense is argued to make speakers perceive uncertainty intensely. Therefore, their resident countries and regions experience fewer new ventures created. The empirical evidence supports the proposition by using the country-level data in 137 countries from 2010 to 2018. The finding implies that the linguistic feature of future tense can serve as the institutional factor of an individual's perception of uncertainty and contribute to the heterogeneity of nationwide and regional entrepreneurial propensity.Chapter 2 investigates whether the founding team composition of novice entrepreneurs help predict whether they become high-growth entrepreneurs. Unlike previous research, this study takes the entrepreneur's perspective by tracking 1000 novice entrepreneurs' entrepreneurial activity in their first ten years. The results show that team composition in the very first company matters for the likelihood that entrepreneurs ultimately experience high-growth status. The findings further indicate that non-family members participating as business partners in the very first company of the entrepreneurs help them become habitual. Moreover, high-growth entrepreneurs are more often habitual entrepreneurs. When running the analysis at the company level, different results appear, which highlights the need for choosing well the level of analysis when comparing the outcomes of entrepreneurial activity.Chapter 3 assesses the evolution of entrepreneurial founding teams (EFTs). EFTs are key drivers of new ventures' success, but they are not static over time. In this chapter, the temporality of EFT evolutionary events is highlighted and evidenced to make different consequences. This investigation was conducted by tracking 1,000 U.K. EFTs for the first ten years of their ventures. Based on the temporal sequence of founder departure and new member entry, founder crowd-out and replacement are two newly defined types of evolution. The results reveal different antecedents (equity ownership, alternative entrepreneurial opportunity and the disparity of ownership distribution) for founder departure and crowd-out, as well as for new member entry and replacement. Furthermore, the disparity of ownership after evolution is affected differently by evolutionary events in terms of magnitude. These findings shed light on the importance of the temporality of EFT evolutionary events.
... Larry Page and Sergey Brin created Google, Bill Gates and Paul Allen started Microsoft, and Steve Jobs and Steve Wozniak founded Apple, among many other examples. Wasserman (2012) highlighted that 85 percent of high-technology startups were created by entrepreneurial teams with at least two members. ...
... Previous research has studied many of these. Two are particularly relevant-the educational level of individuals and their intrapreneurial experience (Davidsson & Honig, 2003;Mindruta, 2013;Wasserman, 2012)-but the arguments have been inconsistent. As we have explained above, one way of advancing our understanding of this subject is to take into account the context in which individuals operate (Donaldson, 2021), and to examine whether their behavior is contingent on that context. ...
... We can confirm that entrepreneurs with higher levels of education have a more specific skillset because they are specialists in particular disciplines (for instance, management, law, science, or engineering). For this reason, they do not always possess all the specific abilities and capabilities needed to start a new venture on the basis of an idea (Kamm & Nurick, 1993;Wasserman, 2012), so they need to find people who have similar beliefs and interests, and particular abilities and competencies that complement their individual human capital (Aldrich & Kim, 2007;Mindruta, 2013). Moreover, previous research has indicated that individuals with higher levels of education are capable of identifying their own weaknesses and looking for partners who can compensate for these (Chowdhury, 2005). ...
A traditional stereotype of the entrepreneur is that of a lone hero. However, many entrepreneurs engage in new businesses as members of entrepreneurial teams. These teams usually perform better in terms of employment generation, innovation, and profits. Thus, a relevant question is why some individuals get involved in entrepreneurship through a team rather than alone. Our explanation is focused on two variables related to the entrepreneur’s human capital: their educational level and their intrapreneurial experience. There are conflicting arguments on how these variables lead an entrepreneur to join a team, and we argue that the degree of individualism of the society helps us understand the discrepancies. We use a sample of 66,716 early-stage entrepreneurs from 66 countries surveyed by the Global Entrepreneurship Monitor between 2014 and 2017. Our results show that entrepreneurs with higher levels of education and intrapreneurial experience are more likely to be involved in the entrepreneurship process as members of teams. However, the effect of educational level is less pronounced in individualist contexts. In addition, we find that the motivation to enter entrepreneurship partially mediates these relationships, as individuals endowed with higher human capital are likely to enter entrepreneurship driven by an opportunistic motivation, which in turns makes them likely to need or join teams to reach their goals.
... As new ventures navigate through uncertainties and unforeseen challenges, they need to learn and adapt to meet stakeholder needs for entrepreneurial success (Ott, Eisenhardt, & Bingham, 2017;Pillai, Goldfarb, & Kirsch, 2020). Rather than being helmed by solo foundersakin to a 'one-person show'most new ventures are created by teams (Wasserman, 2012). As such, new ventures operate more like an 'orchestra,' requiring an integrative system of specialized knowledge, skills, and capabilities coordinated and synthesized across multiple cofounders. ...
... We build on resource scarcity and bounded rationality to develop the Forming entrepreneurial teams 8 theoretical rationale for why founders may engage in a singular strategy. We begin by noting that team formation occurs within a highly uncertain setting that is fraught with resource scarcity even as resource needs and stakes are high (Wasserman, 2012). This context requires aspiring founders to access, interpret, and process information to recognize and realize an opportunity, even as they face network constraints and may be boundedly rational (Cohen et al., 2019). ...
... Teams with stronger transactive memory systems make fewer errors and better decisions, work faster, and find more creative solutions (Ren & Argote, 2011). These principles critically apply for the effects of transactive memory systems in new venture contexts, because founding teams are often synonymous with the new ventures and integral to their associated likelihood of success and failure (Wasserman, 2012). Indeed, entrepreneurship scholars have noted the importance of task position allocation and coordination among founders who possess complementary resources (Jung et al., 2017), and that sharing task perspectives among diverse founders advances entrepreneurial Forming entrepreneurial teams 15 performance (Beckman, 2006). ...
... Importantly, the guided preparation theory suggests that outside assistance is the key resource for aspiring entrepreneurs and small-business owners that can be regarded as valuable, rare, and hard to imitate and substitute (Chrisman and McMullan 2000;Chrisman and McMullan 2004;Kraus et al. 2019;Yusuf 2014). Furthermore, entrepreneurs lacking certain psychological resources may be able to compensate for such deficiencies by putting together a dedicated, cohesive founding team (Wasserman 2012). Working together as a team may allow the founders to advance their initial and imperfect cognitive representations of an opportunity that may gradually become more concrete and actionable (Wasserman 2012). ...
... Furthermore, entrepreneurs lacking certain psychological resources may be able to compensate for such deficiencies by putting together a dedicated, cohesive founding team (Wasserman 2012). Working together as a team may allow the founders to advance their initial and imperfect cognitive representations of an opportunity that may gradually become more concrete and actionable (Wasserman 2012). ...
... As new ventures grow, however, founders may find themselves out of their depth as their capabilities may not include the advanced managerial skills (Flamholtz and Randle 2012;Hellmann 1998;Wasserman 2012). This is why venture capitalists often replace founder-CEOs with professional managers (Khanin et al. 2009). ...
Entrepreneurship is a phenomenon associated with wealth generation and economic development in a region or country. However, despite significant advancement in our understanding of this complex concept our understanding of its heterogeneity in countries across the world is limited. In this paper, we utilize barriers to entrepreneurship to explain that heterogeneity. We define barriers to entrepreneurship as conditions that prevent opportunity recognition and/or opportunity pursuit. We propose that cognitive-psychological factors may lead to discovery- lifestyle and growth–well-being barriers; social-institutional factors may create access and legitimacy barriers; and economic-operational factors may erect location and magnitude barriers. Using an abduction method, we enrich this theory by analyzing the stories of entrepreneurs and the coping strategies they use to overcome barriers to entrepreneurship.
... As new ventures navigate through uncertainties and unforeseen challenges, they need to learn and adapt to meet stakeholder needs for entrepreneurial success (Ott, Eisenhardt, & Bingham, 2017;Pillai, Goldfarb, & Kirsch, 2020). Rather than being helmed by solo founders -akin to a 'one-person show' -most new ventures are created by teams (Wasserman, 2012). As such, new ventures operate more like an 'orchestra,' requiring an integrative system of specialized knowledge, skills, and capabilities coordinated and synthesized across multiple cofounders. ...
... We build on resource scarcity and bounded rationality to develop the Forming entrepreneurial teams 8 theoretical rationale for why founders may engage in a singular strategy. We begin by noting that team formation occurs within a highly uncertain setting that is fraught with resource scarcity even as resource needs and stakes are high (Wasserman, 2012). This context requires aspiring founders to access, interpret, and process information to recognize and realize an opportunity, even as they face network constraints and may be boundedly rational (Cohen et al., 2019). ...
... Teams with stronger transactive memory systems make fewer errors and better decisions, work faster, and find more creative solutions (Ren & Argote, 2011). These principles critically apply for the effects of transactive memory systems in new venture contexts, because founding teams are often synonymous with the new ventures and integral to their associated likelihood of success and failure (Wasserman, 2012). Indeed, entrepreneurship scholars have noted the importance of task position allocation and coordination among founders who possess complementary resources (Jung et al., 2017), and that sharing task perspectives among diverse founders advances entrepreneurial Forming entrepreneurial teams 15 performance (Beckman, 2006). ...
Successfully navigating through critical uncertainties during the incipient stages requires new ventures to develop learning systems, and building the right team may be key in this process.
Drawing on prior work indicating that entrepreneurial teams form using either an interpersonal attraction strategy (relationships with similar others in a close network) or a resource-seeking
strategy (instrumental focus on complementary skills), we theorize that a dual formation strategy, although challenging to execute, is critical for early performance. Using dual formation strategies
from the onset fosters the development of stronger transactive memory systems, because close relationships facilitate smooth coordination among founders specializing in complementary tasks.
Transactive memory systems thus mediate the relationship between formation strategies and early entrepreneurial success. Findings from two field observational studies and a field intervention
study support our theory: teams formed based on a dual strategy raised greater seed funding on Kickstarter – a leading crowdfunding platform (Study 1), were more successful in a prestigious entrepreneurial competition (Study 2), and gained more profits from selling their initial products (Study 3). Our research advances knowledge on entrepreneurial team formation and offers practical recommendations to facilitate this process at such nascent, but critical stages.
... How does the cultural context of an entrepreneurial team (e.g., individualism vs. collectivism; Laspita et al., 2012) impact these relationships and team members' justice perceptions of equity distribution? Further, given that recommendations from practice often involve time-or milestone-based vesting terms to specify dynamic equity distributions (Wasserman, 2012), how can these terms best be structured based on ventures' progress and industry? ...
... However, research outside the entrepreneurship context highlights the importance of team charters-that is, "codified plans for how the team will manage teamwork activities" (Mathieu & Rapp, 2009, p. 91)-for team performance (Courtright et al., 2017;Mathieu & Rapp, 2009). Given their high operational task load (Wasserman, 2012), entrepreneurial teams might feel that they do not have sufficient time to develop such a team charter or any cofounder agreement. Future research could explore how developing cofounder agreements competes with other entrepreneurial tasks and whether the associated investments of time and effort pay off in the long run for teams and their ventures. ...
... Moreover, a team also needs to decide who represents them as the CEO to the outside. Initial studies have indicated that the CEO role is often given to the person with the venture idea (Wasserman, 2012), but this role is also granted based on team members' status and expertise (Jung et al., 2017). While these insights are important, many task-related aspects around the entrepreneurial team setup are not sufficiently understood. ...
While research on entrepreneurial teams has flourished over the past two decades, it has mainly taken a static perspective, neglecting the developments both teams and their ventures undergo over time. To address this issue, we develop a “double life cycle framework” covering entrepreneurial teams’ formation, collaboration, and dissolution phases as well as potential nonlinear sequences of these phases. While this team life cycle is embedded in the venture life cycle, both life cycles can progress independently. We offer research suggestions on entrepreneurial team formation, collaboration, and dissolution in each venture phase, highlighting the role of entrepreneurial teams in advancing their ventures.
... When starting their businesses, entrepreneurs may do so either independently or by working together with partners. Accordingly, entrepreneurs are distinguished as solo or non-solo founders (Wasserman, 2012). Compared with solo founders, non-solo founders enjoy several benefits, as their partners may bring important resources, such as human, financial, and social capital as well as start-up and managerial experience (Barringer et al., 2005). ...
... Some scholars challenge this assumption and argue that solo-founded ventures perform better than, or at least as well as, those founded by teams, as the conflicts that often arise in a founding team is a vital cause of failure (Mallon & Fainshmidt, 2022). Some practitioner work finds that up to 65% of startup failures are tied to conflicts among founders (Wasserman, 2012). Greenberg and Mollick (2018), as far as we know, make the only empirical comparison of the performance of solo-founded and non-solofounded ventures. ...
Plain English Summary
This study reports that climate risk positively affects EGAs, which suggests that climate risk encourages entrepreneurs to scale up their ventures and generates opportunities for them to do so. Thus, entrepreneurs should proactively leverage climate risk to boost the growth of their ventures. This study also finds that the impact of climate risk on EGAs is stronger for female entrepreneurs. While female entrepreneurs have difficulties to grow their ventures, they can exploit climate risk to realize the objectives. Third, the study finds that the effect of climate risk on EGAs is stronger for non-solo founders than for solo founders, suggesting that entrepreneurs can more effectively respond to climate risk by partnering with others.
... Prior researchers have assumed that larger teams can marshal more assets, both tangible and intangible, required to start and scale a business relative to those ventures founded by individuals (Eisenhardt & Schoonhoven, 1990;Wasserman, 2012), an assumption that stems partly from the notion that startups require a portfolio of skills and resources that one individual is unlikely to possess. Having several founders is also assumed to be synergistic; a team of founders should thus scale a venture more quickly than a single founder (Greenberg & Mollick, 2018;Miloud, Aspelund, & Cabrol, 2012). ...
... Studies have shown that along with a venture's strategy, its growth trajectory, hiring decisions, and reduced exposure to principal-agent risk, relative investor control during funding rounds can influence valuation (Wasserman, 2012(Wasserman, , 2017, but the evidence is mixed. Hsu (2007) found that the percentage of a venture's equity investors in Series A rounds was positively correlated to the round's valuation, while investor control was associated with lower valuations, perhaps because such ventures indicate higher risk, requiring greater investor control. ...
Research Summary
Unicorns—private new venture firms with over a billion dollars in valuation—have garnered increased attention from the media, analysts, and the public. We first provide a descriptive assessment of unicorn ventures by examining heterogeneity within this unique population using a novel dataset. Then drawing on prior research on growth and valuation, we focus on the temporal dynamics of ventures within the unicorn population to assess variations in the speed at which they reach a billion dollars in valuation. We highlight some significant relationships by investigating associations between founder, investment, venture, and industry characteristics and the temporal dynamics of speed to reach unicorn status. We conclude by outlining a research agenda on the temporal dynamics of growth and scaling.
Managerial Summary
Unicorn ventures represent a small but high‐profile category of entrepreneurial ventures that have captured media attention and garnered broad interest while attracting significant private capital. As a global phenomenon, they have certainly left a significant mark on the business landscape as they exploit unique market and technological opportunities to exemplify new industries and market categories. Leveraging hand‐collected data from many sources, we provide a comprehensive descriptive assessment of this population by focusing on the founder, venture, investment, and industry characteristics. We also show how U.S.‐ and China‐based unicorn ventures differ on numerous factors. Given a great deal of interest in the speed to unicorn status within the practitioner community, we highlight some novel internal (founder and venture characteristics) and external (industry and investment) factors associated with the time it takes to attain unicorn status.
... entrepreneurial process can take a psychological toll on founders, as founding a new venture is an enormous task that requires countless hours of hard work, stress, ambiguity, and at times utter hopelessness (Patzelt and Shepherd, 2011;Wasserman, 2012 Drawback: Failing slow. When creating new ventures, many entrepreneurs follow the mantra "fail fast, fail cheap, and move on" (Saxenian, 2014). ...
... For employees, the job is often just that; a job. Founders, however, are often personally, financially, and emotionally invested in their ventures, which can lead to high levels of stress and anxiety (Wasserman, 2012). As such, it is likely that founders are more likely to seek out and rely on the community more than employees. ...
In the past decade, coworking spaces have emerged as a new and promising phenomenon within entrepreneurship. Due to its prevalence, popularity, and potential for disruptive change, coworking is increasingly relevant to theory, practice, and policy in entrepreneurship, yet its implications are largely unstudied given the rapid rise of the phenomenon. Overall, more research is needed to inform owners, policy makers, and entrepreneurs regarding the effects of this new organizational form. This study takes an exploratory empirical approach with the goal of shedding light on the current landscape of coworking. By so doing, I provide an initial foundation for research on the coworking movement in entrepreneurship and the various research streams it can enrich.
... Prior researchers have assumed that larger teams can marshal more assets, both tangible and intangible, required to start and scale a business relative to those ventures founded by individuals (Eisenhardt & Schoonhoven, 1990;Wasserman, 2012), an assumption that stems partly from the notion that startups require a portfolio of skills and resources that one individual is unlikely to possess. Having several founders is also assumed to be synergistic; a team of founders should thus scale a venture more quickly than a single founder (Greenberg & Mollick, 2018;Miloud, Aspelund, & Cabrol, 2012). ...
... Studies have shown that along with a venture's strategy, its growth trajectory, hiring decisions, and reduced exposure to principal-agent risk, relative investor control during funding rounds can influence valuation (Wasserman, 2012(Wasserman, , 2017, but the evidence is mixed. Hsu (2007) found that the percentage of a venture's equity investors in Series A rounds was positively correlated to the round's valuation, while investor control was associated with lower valuations, perhaps because such ventures indicate higher risk, requiring greater investor control. ...
... Despite the static approach of studying EM, researchers propose that the entrepreneur's motivation may change over the course of the venture process (Elfving, 2008;Carsrud, Brännback, Elfving & Brandt, 2009;Murnieks, Klotz & Shepherd, 2020 Allen (Chouinard, 2005;Rich, 2003;Wasserman, 2012). Although the dynamic character of EM is largely recognized by scholars and practitioners, it remains unexplored in academic literature. ...
... This thesis adopts the definition of high-potential startups proposed by Wasserman (2012) who delimits them through their "potential to become large and valuable" (p.6). As suggested by the author, the technology industry is one of the most central industries for high-potential startups (Wasserman, 2012). Although there are numerous approaches as to how technology startups can be defined, this thesis understands them as those focused on developing and marketing technology-intensive products or services with little resources (Klotins, Unterkalmsteiner, Chatzipetrou, Gorschek, Prikladnicki, Tripathi & Pompermaier, 2018). ...
Several scholars and practitioners recognize that entrepreneurial motivation (EM) changes over time. Yet, it remains unexplored to date how the dynamic character of EM unfolds throughout the entrepreneurial process. The purpose of this thesis is to explore how EM changes along the new venture process by investigating the impact of critical incidents within the entrepreneur’s context on the dynamic evolution of EM. In the scope of a multiple case study, six in-depth, semi- structured interviews were conducted with three entrepreneurs who initiated, grew, and exited high-potential technology startups. The cross-case analysis identified common themes of critical incidents and the associated motivations experienced by the three entrepreneurs throughout their entrepreneurial processes. The findings suggest that EM dynamically evolves in terms of its type, duration, and intensity along the new venture process to accommodate changing contexts. The findings further indicate a reciprocal interrelation between critical incidents and EM. Based on the empirical findings, a conceptual framework of the dynamics of EM and critical incidents within the entrepreneur’s context is proposed that future research is invited to test.
... Finally, assessing their proclivity to experience regret as well as the situation at stake could help entrepreneurs struggling with the so-called rich versus king dilemma (Wasserman, 2012). Although entrepreneurs who sacrifice their equity stake in a venture may experience intense regret (Khanin & Turel, 2015), this apparent sacrifice could make them richer because a smaller stake in a more successful business would result in financial gains and a possible fortune (Wasserman, 2012). ...
... Finally, assessing their proclivity to experience regret as well as the situation at stake could help entrepreneurs struggling with the so-called rich versus king dilemma (Wasserman, 2012). Although entrepreneurs who sacrifice their equity stake in a venture may experience intense regret (Khanin & Turel, 2015), this apparent sacrifice could make them richer because a smaller stake in a more successful business would result in financial gains and a possible fortune (Wasserman, 2012). However, entrepreneurs who want to retain their kingdom and take the risk of not taking their venture to the next level could anticipate their feelings of regret in the future and refuse to sacrifice their equity stake for an immediate financial windfall. ...
We examine opportunity regret, which entrepreneurs may feel as they compare their own new venture opportunities with superior opportunities others have realized. We conjecture opportunity regret will be associated negatively with entrepreneurs’ equity stake in the venture and work–life satisfaction. In addition, we predict entrepreneurs with high personal accountability and female entrepreneurs will be less likely to experience opportunity regret. Structural equations modeling analysis of data collected from entrepreneurs in the United States who have launched a new venture provided support for all hypotheses. In conclusion, we argue entrepreneurs must be aware of the Januslike nature of regret, which may encourage the reassessment and readjustment of identified opportunities but also may hinder the discovery of new opportunities.
... The limited number of studies about financial therapy as it relates to business partners, including copreneurs, is surprising since business partnerships are certainly not without interpersonal conflict (Wasserman, 2012). Wasserman (2012) found that 65% of start-ups fail due to co-founder conflict in terms of their money management styles, personality styles, and conflict resolution approaches. ...
... The limited number of studies about financial therapy as it relates to business partners, including copreneurs, is surprising since business partnerships are certainly not without interpersonal conflict (Wasserman, 2012). Wasserman (2012) found that 65% of start-ups fail due to co-founder conflict in terms of their money management styles, personality styles, and conflict resolution approaches. Zellweger et al. (2012) shed insight on this statistic as not being fully accurate because families often make positive contributions to businesses. ...
Broadly speaking, finances are often one of the most strenuous aspects of a relationship. One potential contributing factor to financial conflict experienced by couples is having different beliefs or attitudes towards money, coined previously as money scripts (Klontz, Kahler, & Klontz, 2008). Differing money scripts between partners can cause a breach in understanding of their partner's internal experience around money that may lead to misunderstanding and conflict. This may be magnified for copreneurs, or romantic partners, who integrate a personal and working relationship within a business’s ownership structure. In this unique arrangement of personal and professional relationships, the traditional lines separating work and home life are either nonexistent or blurred. This paper serves to explore the conflict through a hypothetical case study and provides detailed financial therapy interventions that may be used to help copreneurs who are experiencing money conflict. The outline of interventions serves to aid financial therapists in their work with clients who are part of a family-owned business by helping these clients better communicate through the unique dynamics of a copreneur relationship.
... Na busca do parceiro ou sócio fundador, é essencial que ambos compartilhem os mesmos valores pessoais e tenham uma visão de longo prazo para a empresa na mesma direção. Conflitos entre cofundadores representam 65% dos fracassos das startups (Wasserman, 2012). Recomenda-se que sejam alinhados esses pontos antes de iniciarem a sociedade, fazendo perguntas difíceis como aspectos práticos da operação da empresa, cargos, divisão da participação societária, prolabore e quaisquer outras questões que possam servir de atrito no futuro. ...
Esse trabalho tem como objetivo propor um modelo de desenvolvimento de femtechs, conciliando a habilidade de pesquisadoras acadêmicas com habilidades empreendedoras, dando ênfase a relevância do empreendedorismo feminino. Para chegar a esse objetivo, buscou-se (1) consolidar a definição do termo; (2) compreender as oportunidades e desafios; e (3) descrever um conjunto de boas práticas e diretrizes para a criação de femtechs. Utilizou-se o método de pesquisa Design Science para construir um artefato e prescrever soluções para aumentar a intenção empreendedora de pesquisadores da área das ciências biológicas. Os resultados são: (1) definição, femtech é uma startup de base tecnológica cujos produtos e serviços atendam às necessidades de saúde específicas das pessoas do sexo biológico feminino e tenha como ponto central de desenvolvimento das soluções a mulher. (2) desafios, questões culturais de tabu e desafios inerentes ao ato de empreender. (3) oportunidades, exploração de soluções sobre o tema e empreendedorismo feminino. O Framework proposto tem dez setores. No centro está a mulher, um indivíduo do sexo biológico feminino. O ciclo de vida da femtech é dividido em três níveis,"olhe para dentro", "olhe para fora" e "olhe para longe". E três momentos "ideação", "formação de equipe" e "crescimento".
... Three of these four core areas of entrepreneurship are well covered in research. Scholars have discussed processes of team formation (Hellmann & Wasserman, 2017;Wasserman, 2012Wasserman, , 2017 and the advantages and disadvantages of specific team constellations (McPherson, Smith-Lovin, & Cook, 2001;Ruef, Aldrich, & Carter, 2003). They have also explored the link between entrepreneurs and the entrepreneurial opportunities to be pursued, which has become one, if not the core area of entrepreneurship research (Shane, 2003;Shane & Venkataraman, 2000). ...
... To this, Breugst et al. (2015) add the perception of a fair distribution of capital as a motivation for the evolution and departure of the entrepreneurial team. The distribution of capital is one of the aspects that generates the most tension (Wasserman, 2012;Breugst et al., 2015). ...
While dyadic entrepreneurship is more and more common, academic research on entrepreneurship deals little with this type of entrepreneurship. This research aims to study the specificities of dyadic entrepreneurship. Using a qualitative comparative analysis of 11 companies created as a team, the results showed that dyadic entrepreneurship shares some characteristics with team entrepreneurship, but has a specific character both in terms of motivations, functioning and advantages or perceived risks. The results provided lead to the analysis and support of this particular form of entrepreneurship
... Schumpeter [42] pointed out that entrepreneurs play an important role in absorbing new knowledge and developing new products. Non-founder CEOs are different from founder CEOs in terms of personal skills, characteristics, firm strategy, and policy formulation and selection [38,43]. Compared with non-founder CEOs, founder CEOs are better at innovation [32] for two main reasons. ...
While it is widely known that founder Chief Executive Officers (CEOs) can influence firm innovation, few studies have comprehensively examined how the founder CEO affects the firm’s innovation input, innovation output, and input-to-output conversion rate, and how these effects depend on the founder CEO’s demographic, cognitive, and corporate positional characteristics. We analyze the nine-year panel data of China’s Growth Enterprise Market (GEM)-listed companies to empirically study the relationship between founder CEO (vs. non-founder CEO), CEO characteristics, and firm innovation efficiency. Our analysis produces four major findings. First, founder CEO firms have a lower innovation input and higher innovation output than non-founder CEO firms. Second, compared with male founder CEOs, female founder CEOs can further reduce innovation input without sacrificing innovation output. Third, founder CEOs with a higher education level can also further reduce innovation input without sacrificing innovation output. Finally, compared with founder CEOs that are not the chairman of the board, the founder CEOs that take dual positions (CEO and chairman) allocate higher innovation input, but the innovation output does not increase. These findings have implications for both research and practice in helping firms achieve sustainable development.
... Ventures are often started and led by teams (Wasserman, 2012;Beckman, 2006), making it imperative to understand "why some teams are more effective than others in launching and growing a venture" (Knight, Greer, & De Jong, 2020, p. 231). Researchers have therefore examined performance implications of team factors such as team formation strategies (Lazar et al., 2020), group dynamics (Lazar et al., 2020), team processes (Klotz, Hmieleski, Bradley, & Busenitz, 2014), and team characteristics (Jin et al., 2017). ...
Using fsQCA, this study explores how venture strategy, as well as founding team knowledge diversity and demographic diversity interact to explain revenue growth of new ventures. Based on a longitudinal dataset containing 210 new ventures, we find that the effects of team diversity are complex such that different diversity conditions explain short-term (i.e. one year) compared to sustained growth (i.e. over three years) and that their role is contingent on the venture’s strategy. We identify three recipes that explain revenue growth in the short-term and four recipes that explain revenue growth in the longer-term. One recipe is the same for both time periods pointing towards the potential role of imprinting of certain team diversity conditions in combination with an innovation strategy. Our findings provide a nuanced and in-depth picture of the relative relevance of an innovation strategy, knowledge diversity, and demographic diversity at distinct stages of venture founding.
... [12][13] During the start-up step, businesses are often highly vulnerable [14] since they must face various challenges such as selecting co-founders, selecting investors, determining capital contribution within the founding team. [15] They are also confronted by cultural barriers, barriers to market entry, barriers to access to financial support, barriers to experience. [16][17] The shortage of resources such as financial capital, human capital, and social capital [18][19] may also distrust a start-up's growth opportunities. ...
Despite being received increasing attention from academic scholars, there have yet any review study on the topic of start-up success. This work fulfills this research gap by investigating 1554 start-up success documents collected from Scopus dataset between 1981 and 2019. Using bibliometric analysis, we reveal that the topic of start-up success only receives more attention from academic scholars since 2011 onwards. Regarding geographical distribution, the US, Germany, and the UK are the three countries contributing the highest number of start-up success related documents. Besides, it’s revealed that 305 (or 19.6%) start-up success documents were published in the top 20 journals. The co-author analysis found that the research groups of start-up success are still small and dispersed and there was a lack of continuity in the research. The science mapping identified six main topics of start-up success, including: (1) Business in General, (2) Start-up Ecosystem, (iii) Academic Start-up, (iv) Drivers of Start-up Success, (v) Resources for start-up, and (vi) Start-up Model. The study’s findings provide implications for stakeholders, including academic scholars, policymakers, start-up owners, entrepreneurs, and practitioners.
... Twelve OI projects between the focal organisationthe YIC and their OI MNE partners (see Table 1 for case and project details) were studied due to the potential intrinsic value to the YIC (Stake, 1995). The YIC founders/CEOs were selected as research participants due to their key role as leaders, key decision makers and primary influencers within their organisation (Wasserman, 2012) but importantly, due to their de facto role as OI project managers/champions. ...
Our purpose is to clarify the microfoundations of open innovation (OI) in young innovative companies (YICs) in partnering with large multi-national enterprises (MNEs). Despite the progress in OI SME research, YICs remain understudied, and we know little about the nuances and complexity of how OI is managed. Through a qualitative research design, we explore four cases and twelve projects within the information communications technology (ICT) and medical device (MD) industries. Based on an analysis of primary and secondary data at the OI project level, we reveal five types of micro-foundations. These microfoundation types include YIC antecedent, YIC behaviour, MNE antecedent, MNE behaviour and joint action – which are found to influence the outcome of an OI project between an YIC and an MNE. These microfoundation types are deemed as either enabling (positive impact on the YIC OI project outcome) or limiting (negative impact on the YIC OI project outcome). The captured evidence asserts that is the lower-level activities both antecedents and behaviours that ultimately influence and shape the OI project and thus the innovation outcome. This study advances the OI literature and clarifies how the aggregation of this wide range of microfoundations – both antecedents and behaviours, shapes the OI project outcome. Our research illustrates that the deliberate management of microfoundations is a necessary constructive element in an OI project between an YIC and an MNE. Microfoundations provide a guiding rail for YICs to reflect, learn and create value.
... Searchers have very diverse professional backgrounds, predominantly from management consulting, investment banking or finance, private equity, general management, and engineering (Kelly & Heston, 2020;. Pohlmeyer and Rosenthal (2016) point out that following the path of an SF entrepreneur implies high opportunity costs in the face of attractive careers in management consulting, investment banking, finance, or private equity, which the entrepreneurs skip (Wasserman, 2013). Therefore, on top of the 'desire to own, manage, and build a company' (Stanford Business School, 2013) and the wish for realizing a high financial upside and higher risk aversion in comparison to founding a start-up (Ruback & Yudkoff, 2017), searchers need certain skills to succeed in ETA. ...
... VC influence is multifaceted and includes the adoption of certain practices (such as formalized human resource processes or stock option plans to incentivize key executives) as well as the formalization of key roles and the recruitment of executives of sufficient credentials to occupy these roles (Baron et al. 1999a, Hsu 2004, Maula et al. 2005. In the process, venture capitalists drive a process of gradual convergence wherein ventures move progressively closer to the idealized template of what it means to be a mature corporation as they scale (Wasserman 2012, Pahnke et al. 2015. Zhelyazkov: Divergent Professionalization in Young Ventures Organization Science, 2023, vol. ...
We explore how the initial market positioning of entrepreneurial ventures shapes how they professionalize over time, focusing specifically on the development of functional roles. In contrast to existing literature, which presumes a uniform march toward professionalization as ventures scale and complete developmental milestones, we advance a contingent perspective, distinguishing between the development of external interface functions (marketing & sales and customer development) and internal process functions (accounting, human resources, and finance). Specifically, we argue that positioning in an unconventional market space raises demand for external engagement that focuses ventures’ attention and resources toward developing external interface roles. At the same time, such unconventional ventures are less apt to elaborate their internal process roles relative to more conventional peers. We test these predictions using a novel longitudinal data set on the internal organizations of 3,748 U.S.-based entrepreneurial ventures. In contrast to common assumptions of convergent professionalization, our theory and findings advance the perspective that ventures pursue divergent professionalization paths based on their initial market positioning as they scale up.
Funding: This research was generously funded in part by a Ewing Marion Kauffman Foundation Dissertation Fellowship awarded to the first author.
Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2021.1561 .
... Hence, organizations choose a structure from a continuum between formal and informal. This distinction has been studied primarily in large organizations, but it also applies to nascent organizations (Wasserman, 2012). While new ventures certainly feature a lower degree of formalization than mature firms, they may still develop some degree of formal structure (Lawrence & Poliquin, 2019;Lee, 2021). ...
Research Summary
An important strategic choice for early-stage ventures is about how to learn about the market. This choice often translates into focusing on either experimentation or planning. These strategies are best supported by different structures. Hence, the fit between strategy and structure should be considered by stakeholders evaluating the venture. We hypothesize that communicating coherent combinations – experimentation and informal structure or planning and formal structure – is positively associated with evaluation and that evaluators with entrepreneurial experience are more sensitive to this coherent choice. We test this argument combining data from a university-based venture competition and an online experiment. We find a robust positive correlation between coherent choice and evaluation. We find no clear evidence that this pattern is driven by evaluators with entrepreneurial experience.
Managerial Summary
The Lean Startup suggests that entrepreneurs should rely on experimentation rather than the more traditional planning approach. However, the value of experimentation might depend on the structure the venture adopts. We ask whether the fit between strategy and structure plays a role for early-stage ventures. We examine this problem in the context of venture evaluation. We analyze data from a university-based venture competition and an online experiment. We find evidence that ventures communicating coherent choices – experimentation and informal structure or planning and formal structure – tend to be evaluated better than those communicating alternative choices. However, contrary to our expectation, this pattern does not appear to be driven by evaluators with entrepreneurial experience.
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... Startups are important to the growth of any economy, including driving force for economic development (Fuerlinger, Fandl, & Funke, 2015;Schumpeter, 1934). Although, Startups are most vulnerable (Aernoudt, 2004) and facing with challenges and pitfalls (Wasserman, 2012). As a result, some startups succeed, fast-growing and exit the startup phase while many others fail or languish are small firms (Berger & Udell, 2006 In the studies found, startups are mentioned as organizations in the broader theme of entrepreneurship. ...
The topic of startup success is receiving more and more attention from scholars, although there are still no comprehensive studies on this topic. This study contributes to this research gap by collecting the studies of scholars from the Southeast Asia (SEA) region from the Scopus dataset from 2001-2020. Research focuses on solving problems related to the topic: overall volume, growth pattern, geographical distribution, the most important source (journals or conferences), authors and research groups (through number of published documents and citations), documents (through number of citations and number of citations per year) and topics (through frequency of keywords. Excel and VOS viewer tools are used to process the data and extract the maps.
... Except for government and institutions' initiatives, other leading factors also important for the business included investors, performance, customer behavior, less knowledge competition, Business planning, strategies development, client behavior, decision-making in management, and demand in market or quality products. However, studies indicated that it is important to examine and analyze these factors and understand startups in the team development for business (Hamrouni & Akkari, 2012;Wasserman, 2012). ...
The main objective of a startup is to discover a suitable plan of action that can create value for growth in the economy. This research provides evidence and allied vision engrossed on three perspectives: business coaching, lean start-up approach, and innovative work behavior of women's context in solar energy entrepreneurial action. Moreover, the study is based on a quantitative method, and results indicated that it has a significant impact on the lean start-up approach on innovative work behavior and has a significant mediating effect on business coaching. This study helps researchers and practitioners cope with the entrepreneurial incubation programs for women entrepreneurs in the lean start-up approach. Moreover, this also contributes to the deep understanding of women's exploring, building, and implementing business ideas. Additionally, the study argues that guidance and directions are important for innovative entrepreneurial actions.
... Control over the board of directors also enables investors to replace entrepreneurs with professional CEOs (Dubocage and Galindo, 2014;Wasserman, 2003Wasserman, , 2012 as the board is commonly vested with the ultimate power of selecting and/or replacing officers Hisrich 1997, 2000). Hannan, Burton and Baron (1996) have found that in Silicon Valley, the likelihood that the founders would be replaced is approximately 10% within the first twenty months, 40% after a year and four months, and 80% after six years and six months. ...
This thesis examines the relationship between entrepreneurs and business angels or venture capitalists. The corner stone of our analysis is that the thoughts and behaviors that increase the benefits entrepreneurs derive from that relationshipalso increase their dependence on investors and place them in a vulnerable position. The aim of this Critical Realist study is threefold. First, we examine how the phenomenon of dependence manifests itself in the entrepreneurs’ thoughts and behaviors. Second, we examine how entrepreneurs regulate their dependence on investors. Third, we seek to explain the psychological mechanisms underlying the dependence regulation process.Data from nineteen semi-structured interviews with Vietnamese entrepreneurs are analyzed using flexible deductive analysis, followed by a process of abductive and retroductive reasoning.The data analysis reveals that entrepreneurs can depend on investors in two qualitatively different ways. A minimum viable dependence implies a narrow and shallow form of dependence, whereas a maximum viable dependence involves abroad and deep form of dependence. These two dependence patterns differ depending on how entrepreneurs approach the collaboration (i.e., harvesting versus cultivating), view the supporting ability of investors (i.e., as fixed versusmalleable), consider the collaboration process (i.e., as resource-transferring versus resource-transforming), assume responsibility in the success or failure of the collaboration, evaluate the relationship’s value (i.e., instrumental valueversus emotional value) and seek to promote or not a personal connection with investors.Underlying these two dependence patterns is the inner resolution of two conflicting goals: stress-minimization and benefit-maximization. While benefit-maximization drives entrepreneurs toward the rewarding aspects of the relationship, stress-minimization steers them away from the distressing aspects of the collaboration. Minimum viable dependence arises when founders focus on minimizing stress, whereas maximum possible dependence occurs when they give priority to maximizing the potential benefits of the relationship.Through abduction, we argue that underlying the dependence regulation are the three basic psychological needs for autonomy, competence and relatedness (Deci and Ryan, 1985). We develop a theoretical explanation model, in which the dependence regulation is jointly shaped by two generative mechanisms: on-the-spot reaction and global adaptation.The former seeks to optimize the immediate experience in an interaction episode while the latter generates a stable dependence pattern that optimizes the overall welfare of entrepreneurs.Through retroduction, we identify a psychological entity we call Basic Experiential Requirement. The Basic Experiential Requirement helps entrepreneurs to increase the probability of and benefits from need satisfaction. It also helps them toreduce the likelihood of and damage from need frustration in dealing with investors. Overall, this study advances our understanding of the psychological dynamics underlying the success or failure of the collaboration between entrepreneurs and investors. Based on these findings, it offers entrepreneurs and investorspractical implications for how to build and maintain a mutually beneficial relationship.
... Julia Kensbock, who emphasized the importance of considering diversity in entrepreneurial teams, conducted the first talk in the deep-level diversity session. In contrast to the popular image of the entrepreneur as a "lone wolf", at least two individuals who jointly pursue venture-creation activities start 85 percent of all ventures (Lazar et al., 2019;Wassermann, 2012). Generally, starting a new business in a team (rather than alone) can have great advantages. ...
... − short period of presence on the market -most definitions quote a period of up to three years [28], − creation of innovations, including disruptive innovations, which are characterized by hyperscalability, i.e. extremely fast growth in sales and/or the number of users leading ultimately to an increase in the company's value [30], − recognizing and seizing market opportunities regardless of the available resources [31], − operating in conditions of increased uncertainty and unpredictability of the environment in comparison to older enterprises [5]. Startups should look for ways to mitigate the effects of changes in the environment, to ensure stable operation and rapid growth in the market. ...
The article is of theoretical and empirical character. The main objective is to identify certain conditions related to the innovative ambidexterity of Polish startups. The objective implementation protocol of the study determined its structure. Its first part presents the most important theoretical concepts related to the presented issues. In particular, on the basis of the literature on the subject, analyses of the innovative ambidexterity. Moreover a start-up was equated with a company operating no longer than a year, which offers an innovative solution. Theoretical considerations provided the basis for the empirical presentation of the results of the author’s own research conducted in 2019 in Poland on startups. On the basis of the outcome it has been established the most important factors determining innovative ambidexterity in startups are: having access to external source of financing and to external infrastructure as well as the acquisition of a license/patent. Moreover it has been diagnosed that create innovation and simultaneously reduce in startups the tension between exploitation and exploration activities to a large extent rely on external sources when implementing their innovation processes. For the theory on management, the theoretical-empirical deliberations presented in the article may be a valuable source of information within the scope of the influence the particular elements of innovative ambidexterity have on startups. However, for entrepreneurs they may be an impulse in the field of effective use of the innovative ambidexterity in the process of building competitiveness of young companies in Poland.
PURPOSE: The main purpose of this qualitative study was to explore tech start-up failures in Sri Lanka to emerge themes that explain the critical factors that are impacting failures of Sri Lankan tech start-ups and also to identify recommendations that could help evade those factors. The paper also presents the finding to enrich tech entrepreneurs to build their strategies with an understanding of factors that leads to failure and to make well-educated decisions. METHODOLOGY: The study is based on a qualitative research approach that helps to present findings in a theoretical way. A phenomenological analysis has been used to identify, understand, and analyze the phenomena of tech start-up failures. Twelve start-up leaders participated in this study and shared their lived experiences of tech start-up failures in Sri Lanka. Interviews were conducted with them based on twelve interview questions and twelve core themes emerged based on the participants’ lived experiences. In analyzing data, the modified Van Kaam approach was used, utilizing a seven-step framework that considers the structural and textual aspects of experiences, as well as the perceptual characteristics of the phenomenon. FINDINGS: The themes answered the key research question of the study: What are the critical factors that are impacting on failures of tech start-ups in Sri Lanka? The cause of tech start-up failures according to the current study varied including, financial uncertainty, no market research, no product–market fit, paranoid behaviors of innovators, lack of timely response to changing conditions, and location of the venture. IMPLICATIONS: The paper concisely presents twelve critical reasons for tech start-up failures. The results of the research will enable Sri Lankan tech start-ups to identify key factors of failure for the growth of their surviving strategies. Identifying secret obstacles in the industry helps entrepreneurs prepare for pitfalls and provides guidelines for policymakers to make informed choices when implementing national policies. More importantly, it has been discovered that the major areas that require more attention are leadership, funding, marketing, and innovation. Finally, four groups of recommendations have been discussed under financing, market research, leadership, and inventors. ORIGINALITY AND VALUE: The comparison of the current study themes with the findings of related studies is inconclusive because the literature on tech start-up failures in other countries and in Sri Lanka is minimal. Some of the themes align with the findings of research conducted in other countries, although there were some themes that were explored uniquely.
This study contributes a novel perspective on how new venture teams navigate task re-allocation during the new venture development phase. It highlights the relevance of task re-allocation conflict, shows how “negative affect expectations” shape the unfolding of such conflicts, and demonstrates why acting out conflict and its associated negative affect can enable team members to make substantial task re-allocations instead of symbolic ones. The analysis has implications for two bodies of research, which have previously not been considered in tandem: (1) research on task (re-)allocation, professionalization, and structural imprinting in new ventures, and (2) research on team conflict.
Medical physics is an applied field of medicine. This paper will describe the experiences of the author (Rock Mackie) in applying physical and engineering principles for radiation oncology and radiology. As a graduate student Mackie was immersed in a culture of fast clinical application free of most regulation and with most intellectual property left in the public domain. With added regulation came the requirement to work with or start companies in order to formalize and document testing. The transition also required protecting the intellectual property (IP) because corporations must have IP rights to justify the required investments necessary to bring the product into clinical use. The paper will document two of Mackie's experiences as an academic entrepreneur and give tips for forming a business team, finding investment, managing conflicts and commitment that will almost always arise.
Although entrepreneurship‐related papers have had some representation in POM over the past thirty years, the topic still seems a bit like a poor stepchild in the research of operations management (OM) scholars. Yet entrepreneurship is important to the economy, and many schools are growing significantly their entrepreneurship programs and offerings, but often without reference to or inclusion of operations courses. This paper is motivated by the question as to the operations needs of new ventures and how they might differ from the needs of large, established firms. Toward that end, we review briefly the state of entrepreneurship scholarship in POM (and beyond), present our own (field‐based) research (and cases), and propose a framework for what we call “operations for entrepreneurs,” that we hope can be a basis for further productive research and curriculum development by the OM community. This article is protected by copyright. All rights reserved
This paper aims to elucidate how entrepreneurs generate partnerships in the early stages of their ventures as they struggle to realize their business concepts. For this purpose, this study describes entrepreneurs’ partnership development and suffering by tracing the reflection of serial entrepreneurs using a second-person approach in which the entrepreneur and the researcher are deeply engaged. The three findings of this paper are as follows: First, the multiple failures of the entrepreneurs’ businesses were used to contrast how they responded to the preemption of failure by their partners. Second, the entrepreneurs’ partnership generation and loss patterns were compared over numerous business failures. Third, entrepreneurs’interactions with partnerships differed at two points in the time immediately following the failure of their businesses. From these findings and discussion, we present a three-stage model of the process of entrepreneurial partnership development and suffering.
Research Summary
Does growth training help entrepreneurs scale‐up new ventures? Our field experiment answers this question using data from 181 Singapore‐based, early‐growth entrepreneurs drawn from a broad range of industry sectors. Treatment content focused on three growth‐catalyst tools relevant for formulating and executing innovation‐led growth: business‐model design, leveraging external networks, and building internal teams. Treatment format comprised interactive lecture sessions and workshops on these tools supplemented by personalized coaching in applying the tools to entrepreneurs' specific challenges. We find that ventures led by entrepreneurs that received training experienced sales growth of 72.5% compared to 30.3% for those in the control condition. Furthermore, ventures led by entrepreneurs with more ambitious growth expectations experienced sales growth of about 100% compared to 10% for those in the control condition.
Managerial Summary
We study how training in growth‐catalyst tools help entrepreneurs scale‐up new ventures. We focused on three tools relevant for formulating and executing innovation‐led growth: business‐model design, leveraging external networks, and building internal teams. The training format comprised lecture workshops and personalized coaching in applying the tools. Our quantitative findings confirm that entrepreneurs who attended the training increased their venture's sales revenue, and the more ambitious entrepreneurs increased their venture's sales revenue to a much greater degree. Illustrative interviews suggest these tools help entrepreneurs to reimagine their business, successfully access influential resource‐holders such as potential investors or customers, and persuade them by representing their business in a credible and succinct fashion. Our findings inform policymakers designing entrepreneurial training interventions on how participants' ambitions shapes intervention success.
For a dynamic partnership with adverse selection and moral hazard, we design a direct profit division mechanism that satisfies ϵ - efficiency , periodic Bayesian incentive compatibility , interim individual rationality , and ex-post budget balance . In addition, we design a voting mechanism that implements the profit division rule associated with this direct mechanism in perfect Bayesian equilibrium. For establishing these possibility results, we assume that the partnership exhibits intertemporal complementarities instead of contemporaneous complementarities; equivalently, an agent’s current effort affects other agents’ future optimal efforts instead of current optimal efforts. This modelling assumption fits a wide range of economic settings.
We examine whether textual attributes of founder-led firms’ regulatory filings reflect founder-CEO characteristics and whether investors consider this relation when assessing firm value. We build on prior research that shows founders have unique personality attributes, particularly overoptimism. Our results suggest that 10-K text for founder-led firms is characterized by “excess” optimism relative to current and future realized earnings and relative to non-founder-led firms. The effect is mitigated for firms with large auditors, high litigation risk and high analyst following. Based on stock price at the 10-K release, investors do not appear to appropriately discount the tone, resulting in predictable negative returns during the year subsequent to the 10-K release, particularly for the first two years after firms go public. Collectively, our findings contribute to the existing literature examining the effects of executives on firm disclosure by providing initial evidence about the conditions under which firms’ scripted narrative disclosures reflect CEO characteristics.
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Purpose
This paper investigates the importance of team formation in entrepreneurship education, and the authors ask: how do different team formation strategies influence teamwork in higher education experiential learning-based entrepreneurship courses?
Design/methodology/approach
Employing a multiple case study design, the authors examine 38 student teams from three different entrepreneurship courses with different team formation paths to uncover potential links between team formation and learning outcomes.
Findings
The authors find that team formation mode matters. Randomly assigned teams, while diverse, struggle with handling uncertainty and feedback from potential stakeholders. In contrast, student self-selected teams are less diverse but more robust in handling this pressure. Results suggest that in randomly assigned teams, the entrepreneurial project becomes the team's sole reference point for well-being. Seeking to protect the project, the team's ability to deal with uncertainty and external feedback is limited, stifling development. In student self-select teams, team well-being becomes a discrete reference point. This enables these teams to respond effectively to external project feedback while nurturing team well-being independently.
Originality/value
Education theories' implications about the benefit of team diversity may not apply to experiential learning-based entrepreneurship education's typical level of ambiguity and uncertainty. Therefore, educators may have to reconsider the unique dynamics of team formation strategies to ensure strong teamwork and teamwork outcomes.
Research summary
There has been an ongoing debate over whether start-ups should be “flat” with minimal hierarchical layers. To reconcile this debate, this paper distinguishes between creative and commercial success (i.e., novelty vs. profitability), and examines how these outcomes are variously influenced by a start-up's hierarchy. This study suggests that while a flatter hierarchy can improve ideation and creative success, it can result in haphazard execution and commercial failure by overwhelming managers with the burden of direction and causing subordinates to drift into power struggles and aimless idea explorations. I find empirical support for this trade-off using a large sample of game development start-ups. These findings offer one resolution to the debate by sorting out the conditions under which hierarchy can be conducive or detrimental to start-ups.
Managerial summary
Academics, management gurus, and popular media outlets have argued that “authoritarian,” tall hierarchies are outmoded and will be supplanted by “egalitarian,” flat structures. In recent years, this argument has been largely substantiated by a few “successful” flat start-ups, such as Valve, Zappos, Github, Medium, and Buffer. As these nascent firms constantly garner much attention for their egalitarian ideal—which itself is a signal of their rarity—the myth that start-up should be flat (often referred to as “flat organization,” “holacracy,” or “boss-less firm”) has become widespread among entrepreneurs. My study cautions against this myth, suggesting that adding a few hierarchical levels of managers can substantially help start-ups achieve commercial success and survive in their hostile environments, albeit at a potentially marginal cost of creativity.
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The article reveals the role of the process of attracting sources of funding for activities. Depending on the source of financing and the method of attracting them, three main financing mechanisms are identified: counterparty, credit and capital market. The peculiarities and advantages of some ways of attracting financing are identified and analyzed. Also, the mechanism of planning of attraction of financial resources considering a real financial position of the enterprise is formed. It is proved that in conditions of fierce competition the company's growth rate has a key impact on the factors of the company's continued existence in the market. The formation of a base for attracting investment in advance provides a stable and affordable source of funds for further expansion. An algorithm for forming the capital structure considering the current financial and economic condition of the enterprise has been developed. Opportunities for the company's growth are directly related to the availability of financial resources that can be obtained from various sources. The decision to use certain sources influences time and financial costs for obtaining and securing borrowed capital and for the diversification of government entities over the company, which to some extent pursue their own goals. Therefore, when building a financial strategy of the enterprise it is important to rationally and pragmatically approach the definition of ways to use financial resources and combine different sources of business financing. The effectiveness of the entire financial strategy of the enterprise largely depends on how correctly and in detail the choice of capital structure was worked out. Using the company's management of the proposed algorithm for the formation of capital structure optimization stage, as well as in the implementation phase of expansion with external sources funded, will allow the company to better attract and use the attracted financial resources without losing the investment attractiveness for future creditors and investors and not losing trust from other financially interested stakeholders.
Research Summary
We examine the effect of institutions on performance differences between founder and professional CEOs. We do so by integrating an institutional perspective with findings from the literatures on CEOs' managerial discretion and cognition. Specifically, we theorize that in informal institutional environments characterized by high power distance and individualism and in formal institutional contexts characterized by low regulatory and political quality, differences in cognitive styles lead founders to enjoy performance advantages over professional CEOs. The results of our meta-analysis of 117 studies across 22 countries conducted between 1987 and 2020 support our predictions. We conclude by discussing the implications for research and policy regarding institutional development and the governance of entrepreneurial firms.
Managerial Summary
We develop a framework to examine the influence of the institutional environment on performance differences between founder and professional CEOs. Our results show that founder CEOs experience performance advantages across high discretionary institutional settings when compared with professional CEOs. Boards may use this information to guide their recommendations or decisions related to founder CEO succession or retention. Moreover, firms pursuing international strategies such as joint ventures may also use this information as one of their search criteria while shortlisting their potential prospect partners.
Launching a startup company is like synthesizing a new molecule. There is a starting point and a general concept for how to achieve the desired end. Known steps may be taken, but a successful synthesis is rarely the result of the original plan and relies on perseverance and creativity. If done well, the starting molecule (idea) gives rise to a new final product (business). Having personally lived these journeys, the authors of this viewpoint distilled their combined experiences into relevant topics for scientific entrepreneurs. This viewpoint is not a how-to guide for launching a startup. Instead, relatable personal insights and potential best practices are shared to catalyze discussions around a topic of growing relevance to both the polymer community and workforce of the future.
Existenzgründer sind ein wichtiger Treiber der volkswirtschaftlichen Entwicklung. Deshalb Informiert der KfW-Gründungsmonitor regelmäßig über die Gründungstätigkeit in Deutschland. Die vorliegende Analyse legt erstmals den Fokus auf Merkmale der Gründungstätigkeit in den einzelnen Bundesländern. Dabei wird deutlich wie wichtig eine differenzierte Betrachtung der Gründungstätigkeit ist. Denn diese ist regional sehr unterschiedlich. Bereits die Gründerquoten weisen eine große Spanne auf: Die größte Gründerquote ist um den Faktor 2,4 höher als die niedrigste. Andere Merkmale wie die Branchenstruktur, die Frauenbeteiligung oder die Motivlage der Gründer sind ebenso
ungleich.
Benachbarte Bundesländer weisen dennoch Ähnlichkeiten in den Gründer- und Projektmerkmalen auf. Vier Ländergruppen lassen sich so typisieren: norddeutsche Flächenländer und Mitteldeutschland, süd- und westdeutsche Flächenländer, ostdeutsche Flächenländer sowie die Stadtstaaten als Spezialtyp außerhalb einer regionalen Verortung.
Trotz der großen Unterschiede ist eines in allen Bundesländern gleich: Die mangelnde Bereitschaft oder auch Fähigkeit, das finanzielle Risiko zu tragen, hält überall die meisten Gründungsplaner von der Umsetzung ihres Vorhabens ab. Die Bewältigung der Gründungsfinanzierung ist mit einer Ausnahme in den Bundesländern Hürde Nummer zwei. Bei der Umsetzung eines Gründungsprojekts beschäftigen Gründer also die finanziellen Aspekte am meisten, egal wo sie gründen (wollen).
Purpose
Drawing on the theory of planned behaviour, this research aims to investigate systemically if and how incumbents and successors share attitudes, social norms and perception of the feasibility of their business succession.
Design/methodology/approach
Qualitative research carried out on a group of small Italian family firms ( N = 10).
Findings
This study provides evidence of background mechanisms (attitudes, social norms and perception of feasibility) affecting the implementation of business succession planning in family SMEs. Moreover, this study provides further evidence supporting the role of social norms in strategic decision-making processes within family firms.
Research limitations/implications
Findings from this study contribute to current literature in multiple ways and have several research implications.
Practical implications
This study highlights that it is more appropriate to adopt a systemic rather than an individualistic approach in investigating/managing business succession.
Social implications
Family firms are the most widespread type of firms in the world; thus, a systematic failure in business transmission represents a prominent socioeconomical problem for policy-makers and institutions.
Originality/value
This study leads to further developments in exploring business succession from a psychological point of view. Findings also highlight the limits of how a theory applied in order to predict individual behaviour can provide insight into collective behaviour involving a family.
The timing of talent acquisition is a central decision for new ventures. On one hand, starting small and hiring after demand is proven minimizes losses in case of low demand. On the other hand, hiring before demand is proven allows new ventures to start developing unique capabilities. We resolve this tension by proposing that the extent to which ventures hire before demand depends on human resource redeployability. We further argue that resource redeployability affects the type of employees hired. We test our theory with the population of Finnish standalone and portfolio ventures showing that portfolio entrepreneurs hire more employees early on because they have the option to redeploy them and that they hire employees with more transferable skills in order to benefit from the redeployment.
This study investigates correlates of Chief Executive Officer (CEO) compensation, with particular emphasis on measures of firm performance. An analysis of data from 120 firms in 1977–81 shows that, contrary to the findings of some other studies, CEOs were not given an incentive through compensation to increase the size of the firm at the expense of profit. Rather, CEO compensation was positively related to profit as a percentage of sales. Also, CEOs recruited from outside the firm earned significantly more than internally promoted CEOs, and both of those groups earned significantly more than CEOs who were founders of the firm. The market equity value of the firm and the CEO's age and years of service as a CEO had little effect on compensation.
Institutional theories of organizations in sociology have focused on exteriority and constraint over the past three decades, in keeping with their roots in macrosocial theory (Parsons, 1956). These theories have mostly examined the macrocontext for organization- and field-level activities, rather than the microprocesses through which humans accomplish particular actions. However, with the widespread diffusion and adoption of neo-institutional theory (hereafter NIT) as the default framework within organizational sociology, some authors have been unable to resist extending it to encompass microlevel change processes. In particular, people studying entrepreneurship, broadly defined, have created a new category of actors, called institutional entrepreneurs (hereafter IEs), along with associated new concepts, such as embedded autonomy. Organization studies journals now routinely publish papers on the topic of institutional entrepreneurship (Leca & Naccache, 2006), and special sections of mainstream management journals also regularly feature such papers.
In recent years much research attention has focused on managers and entrepreneurs, but very few studies have compared the two. In the current exploratory study, 20 Israeli entrepreneurs (that are the focus of great curiosity but little research) were compared to 47 managers and to a control group of 33 aspiring entrepreneurs. They were interviewed regarding traits of their father, mother, and self. Findings revealed a number of similarities (a similar commitment) as well as differences (entrepreneurs' greater love of challenge) between the managers and the entrepreneurs. Entrepreneurs also described themselves as having a greater sense of significance in their work. The question why managers and entrepreneurs are who they are is answered within a psychoanalytic-existential framework that focuses on the managers' positive identification with their father and better relationship with both parents as compared to the entrepreneurs' negative identification with father and greater identification with work. Implications for treatment are suggested.
Purpose – Drawing from social psychology and economics, I propose several mechanisms that may affect ownership stakes among entrepreneurs, including norms of distributive justice, negotiation constraints, and network constraints. The processes are explored empirically for a representative dataset of entrepreneurial teams.Methodology/Approach – Between 1998 and 2000, entrepreneurial teams were sampled from the U.S. population for the Panel Study of Entrepreneurial Dynamics. I analyze the distribution of ownership stakes at both the individual and group levels.Findings – The results suggest that principles of macrojustice, affecting the distribution of resources in teams as a whole, deviate considerably from principles of microjustice, affecting the resources received by individual entrepreneurs. While aggregate inequality increases in teams that have a diverse set of members, the effect is not reducible to discrimination on the basis of individual status characteristics. Instead, the relational demography of teams – characterized in terms of the degree of closeness in network ties and homogeneity in demographic attributes – serves as a uniquely social predictor of between-group variation in economic inequality.Originality/Value of the paper – Empirical research on inequality has paid little attention to the process of group exchange in organizational start-ups, where entrepreneurs pool resources and skills in return for uncertain or indirect payoffs. This paper offers both theoretical frameworks and empirical analyses to shed light on economic inequality among entrepreneurs.
The strategy-structure-performance (SSP) paradigm has developed a central role within strategy research. However, recent critiques of the paradigm have called for research that uses more appropriate measures of strategy and structure, inductive methods that enable richer exploration of the paradigm, and extension of the paradigm to the expert-focused organizations that have grown in importance since the paradigm was first developed. This paper answers this call by integrating inductive methods with quantitative analysis of a unique panel data set of 317 professional services firms (PSFs) to find new measures of strategy and to understand their linkages to organizational structure within such firms. It shows how the core knowledge required for decision making and the coordination challenges in these firms drive their internal structures and that the degree of strategy-structure fit has important performance implications for those firms.
Recent surveys show that more than half of American entrepreneurs share ownership in their business startups rather than going it alone, and experts in international entrepreneurship have likewise noted the importance of groups in securing microcredit and advancing entrepreneurial initiatives in the developing world. Yet the media and many scholars continue to perpetuate the myth of the lone visionary who single-handedly revolutionizes the marketplace.The Entrepreneurial Groupshatters this myth, demonstrating that teams, not individuals, are the leading force behind entrepreneurial startups.This is the first book to provide an in-depth sociological analysis of entrepreneurial groups, and to put forward a theoretical framework--called relational demography--for understanding activities and outcomes within them. Martin Ruef looks at entrepreneurial teams in the United States during the boom years of the late 1990s and the recent recessionary bust. He identifies four mechanisms for explaining the dynamics of entrepreneurial groups: in-group biases on salient demographic dimensions; intimate relationships to spouses, cohabiting partners, and kin; a tendency to organize activities in residential or "virtual" spaces; and entrepreneurial goals that prioritize social and psychological fulfillment over material well-being. Ruef provides evidence showing when favorable outcomes--with respect to group formalization, equality, effort, innovation, and survival--follow from these mechanisms.The Entrepreneurial Groupreveals how studying the social structure of entrepreneurial action can shed light on the creation of new organizations.
Various competitive advantages normally ascribed to franchising have different relative values to franchisors; these differ over the life cycle of a franchise. Lillis, Narayana, and Gilman report research which measures the value of four major advantages at various positions in the life cycle of fast food franchises.
The authors use primary data to empirically test several hypotheses about business format franchising on the basis of the theoretical model presented in Lal (1990). They find support for the hypothesis that royalty rate balances the incentives to the franchisor to invest in brand name with those to the franchisees to invest in retail service. Also consistent with the mixed strategy equilibrium, the authors find that royalty rate positively affects monitoring frequency, and that monitoring costs negatively affect service level. However, contrary to the theory, the authors find that monitoring costs inversely affect monitoring frequency among franchisors. They analytically extend Lal's model to incorporate heterogeneity in monitoring costs among franchisees belonging to the same franchisor and find strong empirical support for the hypothesis that monitoring costs inversely affect monitoring frequency within a franchise system.
This paper examines organizational birth frequencies in 70 urban-metropolitan areas of the United States. Birth frequencies in three selected industries (plastics, telecommunication equipment, and electronic components) were related to attributes of the urban ecology and the abundance of socioeconomic resources. The results showed that occupational and industrial differentiation, the percentage of immigrants, the size of the relevant industry, the size of the urban area, and the availability of financial resources were most critical for predicting the creation of new organizations. The results are reported and interpreted within the framework of human ecology.
This paper examines the link between a firm's resources and its efficient organization form with a focus on entrepreneurial resources. Entrepreneurial resources are defined as the propensity of an individual to behave creatively, act with foresight, use intuition, and be alert to new opportunities. This paper assumes that these entrepreneurial resources can be distributed in two ways throughout the firm: they can be held by one or a few individuals- "individual entrepreneurial resources "-or they can be dispersed among a team of individuals- "team entrepreneurial resources. " Agency theory is used to consider how various organizational characteristics-such as the assignment of decision responsibilities, incentives and risk bearing, the number of hierarchical levels, horizontal linking structures, mutual monitoring and bonding devices, and information systems-will differ in the individual and team entrepreneurial forms. Generally, the individual entrepreneurial form resembles the"classic entrepreneurial firm " (Fama and Jensen 1983) in which various decision making roles and risk bearing are performed by a single entrepreneur. The team entrepreneurial form is similar to what Bartlett and Ghoshal (1993) call"beyond the m-form. " Responsibility for steps in the decision process is dispersed in the team form, and monitoring the decision process will occur at the organization's apex. The CEO will not make operational or strategic decisions; instead, he manages the internal market for managers and develops an organization's cultural context and information systems. Below the CEO level, team entrepreneurs are responsible for ratifying innovative decisions, and below this team entrepreneurs are responsible for initiating innovative decisions. After presenting these two entrepreneurial forms, this paper relates them to extant research on corporate entrepreneurship and organizational forms.
The progression from an entrepreneurial to a professionally managed firm often produces the situation where the company outgrows the founder CEO. This “executive limit scenario” is theoretically developed by integrating organizational life cycle theory, and Hambrick and Mason's Upper Echelon's Model. Preliminary findings from interviews with twenty-five high technology firms' CEOs indicate that the executive limit results because the qualities of the initial entrepreneur are often not the same qualities which are optimal in later stages of the company's development.
Individuals involved in a continuous relationship (college roommates) and strangers allocated rewards for a task under conditions of either high or low performance. It was predicted and found that roomates would overlook differences in merit and choose an equality distribution rule, whereas strangers would choose equality when they performed poorly and merit when they excelled. Results are interpreted in terms of the important situation-defining effect of type of relationship.
We examine the basic hypothesis that the market for managerial talent rewards managers from firms with superior stock price performance. We identify a set of outside CEO hires in a set of large publicly traded firms and investigate the stock price performance of the prior employers of these executives. Using 5-year buy-and-hold returns as our basic performance measure, we find that the prior employers of our sample executives did, on average, exhibit superior performance compared to a variety of benchmarks. A conditional logit analysis confirms that superior firm performance increases the likelihood that an executive will get an outside CEO job. Our results are most pronounced for executives who jump immediately from their prior employer to the new employer (raids) and for executives who were more highly ranked at their prior employer. We also examine compensation contracts and find that executives are typically awarded large initial hiring grants composed of stock options, restricted stock, and cash signing bonuses. These grants are highly correlated with the value of the unvested option and restricted stock position the executive leaves behind at his old employer. The evidence also suggests that these grants are positively related to prior firm performance, even after controlling for the forfeited position at the prior employer. We interpret our findings as providing substantial support for the basic hypothesis that superior stock price performance enhances an executive's external labor market opportunities. In our view this is an interesting and important finding, as it supports the basic assumption underlying a large class of models concerning executive decision making and contracting in the presence of career concerns.
This study further examines strategy and performance relationships between and within situations of varying strategic choice and environmental determinism. Contrary to Lawless and Finch's (1989) previous test of Hrebiniak and Joyce's (1985) dynamic, interactive view of organizational adaptation, the results are more in line with the theory. Some discrepancies are found, however, suggesting useful issues and hypotheses for future research.
This chapter presents a framework for predicting the behavior of persons who occupy the allocator's role. The framework takes account of other persons insofar as they influence the allocator's decisions about rewards and resources. Persons of higher rank, who are the allocator's superiors, may strongly influence his or her decisions, and so may the recipients who are subordinate to him or her. In addition, other parties who observe the allocator may influence his or her decisions. Allocation decisions are instrumental acts through which the allocator tries to achieve various goals. The chapter takes account of a wide range of goals and motives that affect his or her decisions. In any allocation situation there is considerable potential for conflict between the allocator and recipients, or between the recipients themselves.
Focuses on the current changes in the structureof firms in the venture capital (VC) industry. The early-stage VC industry wasdominated by small firms composed primarily of senior staff members and only afewjunior members. In this, they resembled many other professionalservices firms. In the late 1990s, a number of VC firms (following otherprofessional services firms) adopted pyramidal structures and new internalprocedures, relying on a larger number of junior staff, and becoming moreinstitutional and professional. This analysis examines the effects of the recent downturn in the VC industryon the structure of VC firms. The study was based on field research and datafrom a large-scale panel dataset of 327 VC firms covering the years 1997 to2002. A model is presented of the motivation for and obstacles to achievingtransformation to the pyramidal model. The paper discusses the reasons("trigger events") that cause firms to change as well as the problemsfirms that encounter in transitioning to the pyramidal form and the barriersthat might prevent a change from becoming widespread or permanent. It was found that, due to a VC market downturn beginning in 2000, some firmshave retreated from plans to adopt a pyramidal organization because of barriersand resistance. Hence, the VC industry is still in the midst of significantupheaval. Certain triggers (such as generational transition) will increase incoming years. Different philosophies about the value created by generalpartners in VC firms will affect ways that VC firms structure themselves. It ispossible the pyramid may become a powerful organizational model for theindustry. (TNM)
This case study discusses the five stages of growth of Steria, separated by four crises, and show how these crises were resolved through the creativity and statesmanship of the founder-CEO and his successor. It analyses the key factors that contributed to the success of Steria and conclude by showing that the continuing innovative family-like culture and creative leadership were the underlying forces that drove Steria's evolution.
This longitudinal study investigates changes in top management teams of a cohort of firms established in an emerging, high growth industry-the minicomputer industry. Given the turbulent conditions that organizations in this industry must contend with, top management teams do not remain stagnant. Most firms in the industry require a new set of executives to bring forth the organizational changes necessary to cope with major shifts in the environment.Little consensus exists in the literature on the impact of new executives on organizational performance. Studies have found that executive succession may be either positively, negatively, or unrelated to subsequent organizational effectiveness. The authors argue that a weakness of the existing research stream is a failure by scholars to adequately consider either the characteristics and skills of newly appointed executives or the patterns of change in management characteristics over time. The authors propose that organizational performance implications of executive succession events can be clarified by examining who the newly recruited executives are.When executive replacements are made, new successors often have characteristics which widely deviate from those of their predecessors. Such deviations in top management characterisics are shown to be pronounced where top management changes are made in response to crisis. In crises, successors are apparently recruited in an attempt to compensate for the shortcomings of their predecessors. However, while both high and low performing organizations make executive replacements as they evolve, the types of top management revisions they make differ. This study provides evidence that the types of senior management team changes made and the characterisics of newly recruited top management are related to organizational performance. High performing firms recruit new top management with new skills that are appropriate to the evolving environment. Lower performing firms somehow replace executives in response to crises, but seem to make the wrong executive recruitment decisions, apparently because the successors in the lower performing organizations do not match the changing competitive conditions in the industry. Low performing firms appear to recruit executives that entirely lack the types of top executive expertise are necessary for new environmental conditions.Although the majority of minicomputer firms required sizable changes in their executive teams over time, a small but significant subgroup of exceptional firms were identified that defy conventional wisdom. These extraordinary organizations were led by visionary CEOs—capable of maintaining management team stability as they successfully repositioned their firms' strategies to cope with continual environmental change. Among the conventional theories that these exceptional managers defy are: 1. Firms in high growth industries can be highly successful even if they retain their CEO/ Founders well beyond the embryonic stage. 2. Firms in high growth industries can retain a significant proportion of management ownership and still grow exponentially without financial crises. 3. Firms in high growth industries can maintain a high level of insider recruitment and still not become inbred.There appear to be two entirely distinct patterns of CEO/executive team success:Pattern 1 involves firms with no CEO change. This visionary CEO tends to be a founder who appears to be able to systematically recruit a limited number of external recruits in the top management team, selecting recruits who fit a changing environment yet also making maximum use of the existing team's longstanding experience and relationships. To maintain the necessary external perspective and avoid an inbred mindset, these firms a) tend not to allow the CEO to also be chairman, b) encourage a modest level of external ownership.Pattern 2 involves firms in which there is extensive turnover in both CEO and senior management teams, once again bringing in the kind of skills needed to match the changing environment. The CEO tends also to be chairman, and the external perspective is provided by having many external recruits plus low level of management ownership.
We argue that outsiders are handicapped (chosen only if markedly better than the best insider) in Chief Executive Officer (CEO) successions to strengthen the incentive that the contest to become CEO provides inside candidates. Handicapping implies are that a firm will be more likely to choose an insider to succeed to the CEO position where insiders are more comparable to each other, where outsiders are less comparable to insiders, and where there are more inside candidates. We assess these predictions using a data set containing more than 1,000 observations on CEO succession in large U.S. firms over the period 1974–1995 and a novel measure of the comparability of insiders that identifies those firms with a product or line of business organizational structure. Our evidence is consistent with each prediction. We also explore more carefully our organizational structure variable. We find that where firms switch to a product or line of business structure (making insiders more comparable) the likelihood of outsider succession falls. And we consider the possibility that managers from firms with a product or line of business structure may be more likely to be chosen CEO because their experience as divisional head better prepares them for a CEO's duties. Two tests suggest that this is not the source of our finding that these firms are more likely to promote insiders to be CEO. The first test finds that controlling for prior experience managing a business (a division or a firm) among inside candidates to be CEO, those firms organized along product lines remain more likely to promote from within. The second test finds that when outsiders are chosen CEO, these outsiders do not come disproportionately from firms with a product or line of business structure.
When product quality cannot be ascertained in advance of purchase, producers must convince relevant audiences that they are worthy of consideration as quality players. We propose that quality-oriented producers will selectively publicize information about their skilled employees in anticipation of signaling benefits, which include the accrual of visibility and the projection of quality-based identities. We validate our perspective on publicizing affiliation information by analyzing how a sample of Australian wine producers publicized specific career information about their skilled employees (i.e., their winemakers), including the names of certain former employers of these individuals. Copyright 2009 , Oxford University Press.
Decisions are the coin of the realm in business. But even in highly respected companies, decisions can get stuck inside the organization like loose change. As a result, the entire decision-making process can stall, usually at one of four bottlenecks: global versus local, center versus business unit, function versus function, and inside versus outside partners. Decision-making bottlenecks can occur whenever there is ambiguity or tension over who gets to decide what. For example, do marketers or product developers get to decide the features of a new product? Should a major capital investment depend on the approval of the business unit that will own it, or should headquarters make the final call? Which decisions can be delegated to an outsourcing partner, and which must be made internally? Bain consultants Paul Rogers and Marcia Blenko use an approach called RAPID (recommend, agree, perform, input, and decide) to help companies unclog their decision-making bottlenecks by explicitly defining roles and responsibilities. For example, British American Tobacco struck a new balance between global and local decision making to take advantage of the company's scale while maintaining its agility in local markets. At Wyeth Pharmaceuticals, a growth opportunity revealed the need to push more decisions down to the business units. And at the UK department-store chain John Lewis, buyers and sales staff clarified their decision roles in order to implement a new strategy for selling its salt and pepper mills. When revamping its decision-making process, a company must take some practical steps: Align decision roles with the most important sources of value, make sure that decisions are made by the right people at the right levels of the organization, and let the people who will live with the new process help design it.
An innovative business practice attributed to the information technology industry is the aggressive use of employee stock options to compensate executives and other employees. The pervasiveness of stock options among high-tech firms in Silicon Valley is often described as a phenomenon unique to the Valley's culture. In this study, we investigate whether the greater use of stock options in the information technology industry can be explained on the basis of general economic relationships that apply to firms in all industries. Our empirical model is a system of simultaneous equations that captures the interconnectedness between compensation, performance, and specific forms of compensation. We document the impact of the form of compensation on performance and total compensation. Based on previous literature, we also identify economic factors expected to influence the use of stock options and show that there are significant differences between information technology and other industries. While these factors explain much of the greater use of options in the information technology firms, a significant residual difference remains. Considering these factors, we also find that executives in the information technology industry are not compensated at a level higher than those in other industries. Keywords: Information technology industry; executive compensation; stock options; pay for performance 2 1.