NOTE
5. Processes at the fi rm level: phases and models of development 1
6.3 FINDINGS
6.3.2 Structure of the Founding Team Experiential heterogeneity
Core founding teams of spin-offs appear to be unbalanced in terms of experience. Their experience is highly concentrated in research and devel- opment, while sectoral experience in commercial functions such as product management or business development is completely lacking. This might turn out to be one of the major weaknesses for later success. Figure 6.2 shows the structural differences between the core founding teams of the 20 top growers and those of the 20 bottom growers. It is clear that those found- ing teams in which the experience is highly technical are not the top growers. Moreover, those core founding teams in which the commercial, sector-relevant experience is lacking appear to be the worst-performing teams. Heirman and Clarysse (2006) have shown that the degree of com- mercial experience in a founding team is the single most important predic- tor, after controlling for venture capital availability, of growth during the first five years after start-up.
Table 6.1 Team characteristics
Team variable Spin-off High-tech start-ups
No. of founders 2.56 (1.57) 1.82 (1.13)
No. of members enlarged team 3.16 (1.47) 2.60 (1.07) No. of average years R&D 6.95 (5.80) 4.22 (5.62)
experience
No. of average years 0.61 (1.34) 3.01 (5.13)
commercial experience
Functional heterogeneity 0.86 (0.22) 0.81 (0.24) Experiential heterogeneity 0.62 (0.34) 0.41 (0.45)
Note: N 188.
Source: Own calculations.
The lack of commercial experience in the core founding team is often resolved by including surrogate entrepreneurs in the founding team.
However, it does not seem to be so straightforward that these artificially created teams will actually be successful. In the literature, we find two common ways of attracting new team members. A first decision crite- rion for attracting new team members is the use of instrumental or eco- nomic arguments. This means that new team formation is a rational process driven by economic, instrumental considerations. A second way is the use of non-instrumentalor affective contacts (Forbes et al., 2006). Using non- instrumental contacts, team formation is a process driven by interpersonal attraction and social networks. This is what Francis and Sandberg (2000) refer to as gemeinschaft.
It is never the case that new team members are onlyattracted using non- instrumental or instrumental contacts. In other words, there is always a combination of both. However, in most of the spin-offteams we studied, there is some prevalence in one way or the other. When we simplify the rela- tions into a two by two matrix, we observe four kinds of teams (Figure 6.3).
The first kind of team is called the ‘kinship team’, in the upper left corner of the quadrant (strong non-instrumental and weak instrumental rela- tions). In this team, newcomers are attracted as founders, mainly based upon non-instrumental relations. This means that co-founders are recruited within family or friendship circles. When this is the case, social network theory predicts that those recruited will have a very similar opinion to themselves. This means that the newcomers will not bring about a lot of Figure 6.2 Differences in experience between high and low growers
0 2 4 6 8 10 12 14
Top 20 Low 20
Average R&D experience Average commercial experience
cognitive diversity nor challenge the original founder about the strategy to follow.
The second quadrant includes ‘solo entrepreneurs’ who did not want to attract newcomers due to weak instrumental and weak non-instrumental contacts (lower left quadrant). These solo entrepreneurs do not like to have others in the founding team who challenge them and who are different from them. Hence, they develop both weak non-instrumental and weak instru- mental contacts, and stay alone.
The third quadrant is situated in the lower right part of Figure 6.3 and consists of the ‘matched teams’. As mentioned before, matched teams imply that an outsider such as a privileged witness attracts potential new team members based on instrumental contacts. This witness might conclude that the team is unbalanced and needs commercial skills to match the technical skills of the researchers. In this case, extra team members are attracted to the team to develop the business. Usually, these extra team members are surro- gate entrepreneurs who themselves liaise with the TTOs in order to promote the extra skills they can contribute to the team. These kind of matched teams have lots of cognitive diversity, but lack affective relationships.
Finally, we distinguish ‘organic teams’ in the upper right quadrant of Figure 6.3. These teams are formed based upon non-instrumental and Figure 6.3 Different team structures
Instrumental relationship
Non-instrumental relationship
Weak Strong
Weak Strong
Solo entrepreneur Matched team Organic team Kinship team
instrumental contacts. In other words, the team members are bringing com- plementary skills and cognitive diversity to the team, but already have some shared history as well.
In a second step, we matched the growing and non-growing companies on Figure 6.3. First, we came to the conclusion that not all of our growing companies were so-called sustainable growers. Seven of the growing com- panies were non-sustainable. This means that they were growing at a fast rate, on average, but at a certain point in time they either went bankrupt or had to restructure their venture. So, eventually we had three groups left: the non-growers, the not-sustainable growers and the sustainable growers.
The results in Figure 6.4 are intriguing. First, wefind that 70 per cent of the solo entrepreneurs are non-growers. This means that most of the solo entrepreneurs who are not able to build a team because of weak instrumen- tal and equally weak non-instrumental relations do not grow at all. Second, one could only identify one team that had weak instrumental but very strong non-instrumental relations. Apparently, most of these teams are not even able to start up and fail before founding. The one team that we could identify that was able to start did have access to family money with which they started their business. Third, 75 per cent of all the non-sustainable growers were
Figure 6.4 Teams related to growth Instrumental
relationship
Non-instrumental relationship
Weak Strong
Weak Strong
40% are non-growers, 26%
of the non-growers are in this category
40% are non-sustainable growers, 75% of all non- sustainable growers are in this category
70% of these companies here are non growers and 50% of the non growers are solo entrepreneurs
One non-grower
73.43% of these are sustained growers, 73.34%
of all sustained growers
started with strong instrumental but very weak non-instrumental relations.
Their growth proved to be non-sustainable because the cognitive diversity in the team led quickly to affective conflict about the strategy to be pursued.
Affective conflict in turn was detrimental for the organization. Finally, we found that 75 per cent of the businesses that were sustainable growers were founded by teams that were organically grown through instrumental and non-instrumental contacts. The non-instrumental contacts implied that there was enough affective appreciation among the members to counterbalance the arguments arising from the cognitive diversity in the team.
Entrepreneurial experience heterogeneity
Teams in the first phase of the spin-off process, who are still deciding how to commercialize their knowledge, show a lack of entrepreneurial experience. Once the decision is taken to create a spin-off, team members with a high degree of entrepreneurial experience are attracted to the team.
After the legal establishment of the firm, no clear finding on the nature of entrepreneurial experience was identified. Both extreme situations, of highly experienced and complete novice teams, were found. It is perhaps counter-intuitive that complete novice teams do not attract entrepreneuri- ally experienced people. Fully experienced start-ups teams more often make the choice to attract a manager, who does not necessarily have entre- preneurial experience. However, the results remain inconclusive.
Cognitive heterogeneity
We assumed that the further along the spin-off process a firm is, the larger would be cognitive heterogeneity of the team in terms of the perceived necessary strategic orientation.1Our assumption was that start-up teams would be homogeneous, but new members would introduce another per- spective on how to do business. For instance, researchers tend to be sup- portive and innovation orientated, often lacking goal orientation and avoiding bureaucracy (rules orientation). We supposed, therefore, that when teams were formed further along in the process, the newly attracted members would bring in these different values. We did not, however,find that the team became more heterogeneous. Instead, post-start-up teams seem to show significantly less cognitive heterogeneity than pre-start-up teams, in contrast to what might be expected.
Looking at the individual orientation of the new members in the team after the legal start-up of the new venture, we observe that the newcomers are also significantly innovation orientated and therefore reinforce the cog- nitive homogeneity of the team. This might be related to the fact that researchers usually prefer to recruit those people whose way of looking at a business is very close to theirs. As they are often leading people in their own
domains, they may find it difficult to appreciate the values of people looking at the business in a totally different way. Another explanation for the rein- forcement of the cognitive homogeneity of the team might be found in the involvement of the TTO in the attraction of new members to the team.
These newcomers are often recruited from the TTO’s personal network of people whose way of looking at a business is likely very close to his own.
When looking in detail at the strategic orientation of the additions to the team at the different stages of the spin-off process, we expected that these people, who were mostly business developers, would show a more pronounced goals orientation for their strategic orientation than the other team members.
This was not supported by our cases. In most cases their goals orientation was similar to that of the other team members. Indeed, in one case the business developed had even less goals orientation. Wefind that it is visionary people in particular who are attracted that get along well with the researchers at a cognitive and strategic level. However, cognitive conflict is assumed to have a positive effect on strategic decisions and performance (Amason and Sapienza, 1997; Ensley et al., 2002). The lack of cognitive conflict in spin-off teams might explain their long incubation time and the difficulties experienced in changing their business model to obtain sustainable growth levels.
To conclude, our cases show that people attracted to the teams had different experience from the original team members, but they showed a comparable strategic orientation, leading to more cognitive homogeneity in the team.
Drivers of team turnover
Our research shows that, irrespective of the specific phase considered, there is a clear distinction between the drivers leading to team exit and entry. The reasons why people leave the team are related to conflict. A distinction can be made between intrapersonal and interpersonal conflict as drivers leading to team exit. Intrapersonal conflict concerns one individual person.
Interpersonal conflict implies different persons, in our cases the different team members. A team exit caused by the fact that the personal ambition of a team member cannot be reconciled with the ambition of the venture is an example of an intrapersonal conflict. Conversely, a team exit caused by conflict over the strategy regarding how the firm should realize its ambi- tion and the implementation of the strategy, is an example of interpersonal conflict. Interpersonal conflict in its turn comprises cognitive and affective conflict. Although previous research (Amason and Sapienza, 1997; Ensley et al., 2002) found cognitive and affective conflict to be positively related to one another, our case analysis suggests that affective conflict outweighed cognitive conflict and led to the decision to leave the team. Moreover, our case analysis indicated that when people left the team, negative aspects of conflict were a common denominator. However, we do not suggest that the
people remaining in the teams are free of any kind of conflict. Moreover, as indicated by Eisenhardt et al. (1997), conflict can be beneficial if effectively handled. For instance, in a particular example, beneficial conflict in the team, expressed in several discussion rounds and disagreements as a result of differences in perspectives, has led to a major change in the firm’s strategy. The original product was the delivery of tools that facilitate the research process in the pharmaceutical and biotechnology industries.
However, the entrepreneurs learned that some pharmaceutical companies do not want to outsource their screening so they decided to also sell the tool thereby enabling companies to design their own experimental designs.
Currently, the firm has adjusted its business plan, since it became clear that the food industry and the chemical market also can use their tool. A detailed analysis of conflict in entrepreneurial teams is an interesting research path; however, it lies beyond the scope of this study.
The drivers leading to team entry have a need for resources in common.
Team entry can be the result of the attraction of additional human, tech- nological or financial resources. The ambition to reach the next step in a firm’s life cycle might call for a reallocation of existing resources. However, the need to attract supplementary resources is far more common. For instance, when technological know-how is brought into the firm through a patent owned by the university, the technology transfer officer can become part of the team. The attraction of specific human resources, for instance a surrogate entrepreneur, will lead to addition to the team. Additional financial resources might be found internally in the firm. However, mostly they call upon external financing. This is often found by attracting venture capital. Attracting venture capital has implications for the team, since the venture capitalist takes a seat on the board of directors and often appoints a new member of the management team, for instance a CEO.
Changes in the composition of the team have an impact on the different roles performed by the team members. When people are added to the team, existing roles can be split up, refined and performed by more people or new roles can be identified and filled in by the additional team member. On the other hand, when people leave the team their role is transferred to one or more of the remaining team members.