NOTE
5. Processes at the fi rm level: phases and models of development 1
6.2 THEORETICAL PERSPECTIVES
6.2.1 Defining Entrepreneurial Teams in Spin-offs
There has been considerable debate as to what exactly is meant by an ‘entre- preneurial team’. Kamm et al. define entrepreneurial teams as ‘two or more individuals who jointly establish a firm in which they have a financial inter- est’ (Kamm et al., 1990, p. 7). Gartner et al. (1994) broadened this definition to cover those individuals who have direct influence on strategic choice. Ensley et al. (1998) combine both delineations by stating that an individual has to fulfil three criteria in order to be considered a member of the entrepreneurial team: (1) jointly establish a firm, (2) have a financial interest and (3) have a direct influence on the strategic choice of the firm.
Other researchers have made the equity stake condition stricter and impose a minimum equity stake before someone can be considered a member of the entrepreneurial team (Ucbasaran et al., 2003a).
A definitionalflaw in the aforementioned studies is based upon the fact that entrepreneurial teams are conceptualized as a homogeneous group of indi- viduals at the moment of start-up. They therefore often implicitly neglect the evolutionary aspects of entrepreneurial team formation and the hierarchical nature of the relations. Recent research has attempted to tackle this problem and has studied team entry and exit (Ucbasaran et al., 2003a; Vanaelst et al., 2006). Vanaelst et al. (2006) show that entrepreneurial teams in spin-offs are quite dynamic and subject to many changes in thefirst years before and after formal legislation. In addition to the researchers, Vanaelst et al. (2006) argue that representatives of the parent institute are involved in the creation of the spin-off. In most cases, this role is performed by the technology transfer officers, who act as ‘privileged witnesses’ and, during a certain period of time, also belong to the ‘extended’ founding team. Privileged witnesses are often the driving forces behind new team formation in spin-offs and actively look for new team members such as ‘surrogate entrepreneurs’ (Franklin et al., 2001;
Lockett et al., 2003b). According to these authors, a surrogate entrepreneur is an outsider with commercial experience, who might be attracted to work together with the researchers to develop the venture.
Drawing on the literature, we introduce in this chapter the notion of ‘core founding team’ and ‘extended founding team’. The core team involves the members of the entrepreneurial team consistent with the definition intro-
duced by Ensley et al. (1998): they played an active role in the founding of the start-up, have afinancial interest and are involved in the strategic decision- making. The extended team consists of those persons who do not match the three criteria, but only one of the three. For instance, the TTO officers defined as privileged witnesses by Vanaelst et al. (2006) are actively involved in the founding of the spin-off, but do not have afinancial interest nor are they nec- essarily involved in the strategic decision-making after start-up. Their role of privileged witness might be fulfilled by neutral directors in the board of direc- tors afterwards.
6.2.2 Structure of the Founding Team
The structure of teams and the impact of team structure on performance has been extensively studied by a stream of researchers, which is called the upper echelon perspective. Researchers in this tradition assume that top management team characteristics such as psychological characteristics, cognitive base, and observable characteristics such as age and functional expertise, determine strategic choices. The environmental factors sur- rounding the firm, upper echelon characteristics and the strategic choices made by the top management team interact to determine organizational performance levels (Hambrick and Mason, 1984). Translated to entrepre- neurial teams, these findings suggest that changes in the composition, and hence characteristics, of the team may have an impact on the strategic choices made by the entrepreneurial team and ultimately on the venture performance. As mentioned previously, the upper echelon theory posits that entrepreneurial team characteristics significantly influence the new venture performance. The team characteristics that are studied by the upper echelon theory are reviewed in the next paragraphs.
Cognitive diversity
Cognitive diversity means the existence of multiple and different styles among the team members of a new venture (Zahra and Wiklund, 2000). This diver- sity arises from the founding team members’ (1) individual characteristics, (2) varied educational backgrounds and (3) different business experiences (Hambrick and Mason, 1984). The main underlying hypothesis put forward by the upper echelon perspective is that cognitive diversity has a positive effect on team performance and, therefore, on the performance of the venture.
Individual characteristics Vanaelst et al. (2005) used the framework devel- oped by Van Muijen et al. (1999) to distinguish between four extreme types of individual job orientation (Figure 6.1). The sum of each team member’s individual orientation can be seen as the ‘team culture’, which is in itself
a predictor of team performance. The four different extremes are based upon two underlying dimensions: the opposite poles of flexibility versus control form the first dimension. The second dimension represents the inter- nal versus external focus of the team members (Van Muijen et al., 1999).
A combination of these two dimensions results in four different types of orientation. Team members who are internal orientated but very flexible are identified as mainly support orientated. They find concepts such as partici- pation, cooperation, being people based, mutual trust, team spirit and individual growth very important. Communication is often verbal and informal. Employees are encouraged to bring ideas about their work and feelings about each other forward. Decisions are often made through informal contacts. Team loyalty is very much appreciated by these team members. On the other hand, team members who are internal orientated, but tend to focus on control, are rules orientated. They find respect for authority, rationality of procedures and division of work important.
Communication is often written and top down. The structure is hierarchical and power is based on formal authority. Team members who tend to focus on control, but are external orientated are mainly goals orientated. They find concepts as rationality, performance indicators, accomplishment,
Source: Van Muijen et al. (1999).
Figure 6.1 Individual cognitive differences
Flexible
Internal External
Control
Rigidness Indifference
Country club (support)
Sweatshop (goals) Anarchy (innovation)
Frozen bureaucracy (rules)
Hostility Chaos
vague
accountability and contingent reward very important. Team members who are external orientated but flexible are considered to be mainly innovation orientated. Searching for new information in the environment, creativity, openness to change, experimentation and anticipation are much appreciated by these team members. Control from above is neither possible nor required, and management expects commitment and involvement of employees.
Functional and experiential heterogeneity The upper echelon perspective assumes that functional and experiential heterogeneity introduce comple- mentary skills into top management teams. These complementary skills allow teams to recognize a more diverse set of opportunities and to fulfil a diverse set of tasks in a more efficient way than they would if they did not have this background.
Behavioural integration
Cognitive diversity, as discussed in the previous section, leads into a task- orientated disagreement arising from differences in perspective and is sup- posed to have a positive impact on venture performance. However, affective conflict is individual-orientated disagreement arising from personal disaffection and may be detrimental to the development of the venture.
Ensley and Pearce (2001) examine cognitive conflict and introduce the term
‘affective conflict’ in entrepreneurial teams. According to these authors, both cognitive and affective conflict are very predictive in explaining venture performance. The underlying hypothesis is that cognitive conflict is positive as long as it does not lead to affective conflict.
Zahra and Wiklund (2000) introduce the term ‘behavioural integration’ into the entrepreneurship literature as an intermediating concept which is useful to explain the chances that cognitive conflict results into affective conflict.
Behavioural integration is defined as the ability of the venture team to work in unison in order to build a collective outlook among its members and benefit from their different skills. Venture teams that are behaviourally integrated deal in a much better way with the cognitive conflicts that emerge because of func- tional and experiential heterogeneity and differences in the individual charac- teristics as explained above. According to Zahra and Wiklund (forthcoming), behaviourally integrated venture teams usually interact, share information and discuss strategic issues. This creates a culture that rapidly integrates different decision-making styles, transcending individual differences.
6.2.3 Founding Team Dynamics
Recent research underlined that founding teams can not be considered as a static concept (Ucbasaran et al., 2003a; Vanaelst et al., 2006). Over the life
of the organization the team’s composition is likely to change: some members are added to the team while others leave the team. Boeker (1989) posits that changes in the composition of the team are the result of chal- lenges that teams face in the different stages of the venture’s life cycle. The stage of development of the new venture creates different demands of the team in terms of capabilities and competences, and often are translated in changes to the team. But the causality goes in both ways. Team turnover of a new venture team in its turn influences strategic direction and perform- ance. According to Chandler et al. (2005), even in the initial stages of a team, adding members can be disruptive. The disruptive effect of adding a team member increases as the team and organization develops.
Chandler et al. (2005) argue that the dynamism and uncertainty of the task environment is likely to influence teams. Spin-offs operate in unstable and unpredictable task environments. Therefore, we expect that they will try to address unforeseen and unforeseeable contingencies by adding members to the team.