Founding Teams

by

David Hsu

• LAST REVIEWED: 22 August 2023
• LAST MODIFIED: 22 August 2023
• DOI: 10.1093/obo/9780199846740-0218

Introduction

In the field of entrepreneurship, founding teams have received attention because such individuals comprise the early (intangible) assets of the enterprise. Not only do such teams shape the trajectory of the venture, their choices, skills, and experience likely impact intermediate and long-term outcomes of the enterprise. The founding team is distinguished from production teams in that the former is responsible for setting higher-order formal and informal policies that likely have organization-wide implications. While the management and organizations literatures have a longer tradition of examining top management teams (TMTs), founding teams are distinguished in that they are often the first TMT of the organization. Often, founding teams are responsible for a general set of responsibilities, which are only narrowed once specialist job roles are created (often at the executive officer level) and filled. This transition process of the initial founder or founding team has also been an object of study in the literature. Another distinguishing feature of founding teams from the general TMT literature is that the imprint of the founding has been theorized and found to have long-lived effects on a variety of organizational trajectories. As a consequence, founding teams and the informal and formal policies they enact can have very long-lived consequences for the trajectory of organizational development. Founding team composition reflects individuals’ human and social capital. As a result, it is important to consider the literature relating to such capital and organizational outcomes. In general, the literature on individual training, education, and experience and new venture outcomes is much older and long-standing as compared to that of founding teams. The current state of the literature is moving beyond the individual level of human and social capital development to extend into the realm of founding team assets.

Nature and Domain

Founding teams are an interesting and important object of study, as it represents the initial assets of a venture. Some estimates have suggested that about 80 percent of ventures are founded by teams rather than by solo founders (Beckman 2006), and so there are a host of questions relating to how team composition, which reflects human and social capital of the enterprise, affects the trajectory of venture behavior, development, and ultimately performance (e.g., Beckman and Burton 2008). One obstacle, however, is the lack of conceptual and measurement standardization of the start-up team construct (Knight, et al. 2020). The rise of teams is not just confined to venture formation; across many areas of creative production, there has been a steady secular trend toward team production (Wuchty, et al. 2007). While research suggests that team diversity of skills and backgrounds can enhance organizational performance because it ensures that the TMT has a broader spectrum of experience and capabilities (e.g., Bantel and Jackson 1989), more uniform teams might speed execution (e.g., Beckman 2006, Eisenhardt and Schoonhoven 1990). Regardless of these team design goals, a fact of social processes, including venture team formation, is that such teams are typically much more homogenous (by age, gender, experience, functional backgrounds, etc.) than would be expected by chance (Ruef, et al. 2003), which suggests that the question of what is lost at the team and organizational level as a result of this tendency of founding teams to be uniform along a number of dimensions. Since founders and early venture development leave an imprint on ventures’ subsequent development (Stinchcombe 1965, Nelson 2003), founding team composition and, by extension, choices in a range of domains, have been hypothesized to have long-term effects. This imprinting process has been conceptualized to extend beyond the often-significant ownership stakes held by the founding team and, instead, emphasizes organizational culture and, more generally, the “way things are done” at the venture. For example, the ability to add managerial expertise over the venture lifecycle may be somewhat hampered (Beckman and Burton 2008), which stands in contrast with the lifecycle view of top management team evolution, in which an organization can switch out TMTs as the venture progresses through stages of organizational development (Greiner 1972).

• Bantel, K. A., and S. E. Jackson. “Top Management and Innovations in Banking: Does the Composition of the Top Team Make a Difference?” Strategic Management Journal 10.S1 (1989): 107–124.

  DOI: 10.1002/smj.4250100709

  This paper investigates the relationship between top management team (TMT) composition and innovation adoption in a sample of 199 banks. The main finding is that more innovative banks tend to be managed by more functionally diverse TMTs.

• Beckman C. “The Influence of Founding Team Company Affiliations on Firm Behavior.” Academy of Management Journal 49.4 (2006): 741–758.

  DOI: 10.5465/amj.2006.22083030

  This paper argues and shows that founding team composition based on members’ prior organizational affiliations shapes new enterprise behavior in that working at the same prior firm facilitates exploitative conduct.

• Beckman, C. M., and M. D. Burton. “Founding the Future: Path Dependence in the Evolution of Top Management Teams from Founding to IPO.” Organization Science 19.1 (2008): 3–24.

  DOI: 10.1287/orsc.1070.0311

  This paper investigates how initial founding team conditions shape subsequent enterprise functional structures and resource-based outcomes (receiving venture capital and attaining an initial public offering). Initially narrow founding teams have trouble adding functional expertise over time. Firms beginning with a limited set of functional positions have trouble rounding out their executive teams, to the detriment of attaining organizational milestones.

• Eisenhardt, K. M., and C. B. Schoonhoven. ”Organizational Growth: Linking Founding Team, Strategy, Environment, and Growth among U.S. Semiconductor Ventures, 1978–1988.” Administrative Science Quarterly 35.3 (1990): 504–529.

  DOI: 10.2307/2393315

  The authors study the relation between founding top management team (TMT), among other factors, to the sales growth of newly founded US semiconductor firms. They find that team size, members past common experience, and their heterogeneity of industry experience were all positively associated with ventures’ growth rates.

• Greiner, L. E. “Evolution and Revolution as Organizations Grow.” Harvard Business Review 50.4 (1972): 37–46.

  Examines phases of organizational growth. After the early phases, which stress creating products and/or markets, organizations often face crises of leadership and autonomy, which may lead them to alter their management structures.

• Knight, A. P., L. L. Greer, and B. De Jong. “Start-Up Teams: A Multidimensional Conceptualization, Integrative Review of Past Research, and Future Research Agenda.” Academy of Management Annals 14.1 (2020): 231–266.

  DOI: 10.5465/annals.2018.0061

  Reviews the recent literature of start-up teams and proposes a multidimensional conceptualization of the construct as the basis for future research in the domain.

• Nelson, T. “The Persistence of Founder Influence: Management, Ownership, and Performance Effects at Initial Public Offering.” Strategic Management Journal 24.8 (2003): 707–724.

  DOI: 10.1002/smj.328

  Examines how, why, and when founders participate in the firms they establish. It does so by empirically comparing ventures with founder chief executive officers (CEOs) with non-founder CEOs. Results suggest founder influence persists in governance and ownership, and the stock market reacts positively to founder CEOs.

• Ruef, M., H. E. Aldrich, and N. M. Carter. “The Structure of Founding Teams: Homophily, Strong Ties, and Isolation among US entrepreneurs.” American Sociological Review 68.2 (2003):195–222.

  DOI: 10.2307/1519766

  Analyzing a representative sample of US founding teams, as well as the distribution of all possible team configurations, the authors find that actual founding teams are much more homogenous than would be expected.

• Stinchcombe, A. L. “Organizations and Social Structure.” Handbook of Organizations 44.2 (1965): 142–193.

  Introduced the concept of imprinting, the notion that prior work experience and organizational environment have lasting influences on organizations. Also introduced organizational “liability of newness” in the early stages of the venture lifecycle.

• Wuchty, S., B. F. Jones, and B. Uzzi. “The Increasing Dominance of Teams in Production of Knowledge.” Science 316.5827 (2007): 1036–1039.

  DOI: 10.1126/science.1136099

  Analyzing millions of published academic papers and commercial patents, the authors find that teams (rather than solo authors or inventors) increasingly produce knowledge across nearly all fields.