By Shannon Gazze
When I introduce the idea of startup teams to business undergraduates, I enlist their help to construct a four-person basketball team. Why four players instead of the traditional five? This constraint allows us to focus first on fundamental skills and attributes that are necessary for success in a competitive environment and then on characteristics of individuals who could conceivably contribute as many of the essentials as possible. The same technique is then used to brainstorm the skills and personal characteristics best suited for a team of Entrepreneurs. Any group can complete this exercise at the introductory level. However, from an academic perspective, the ultimate goal of studying team building is to synthesize existing frameworks, contingency factors and theoretical findings into practical models for successful Entrepreneurial team building and organization. Such models can be very useful in promoting social justice by breaking barriers to Entrepreneurship, particularly for underrepresented groups in the business community. This literature review and analysis attempts to bring to light the many factors that must be considered as a precursor to model synthesis.
Current research looks at Entrepreneurial organization in a variety of manners, some of which focus on applied management and practice-based theories while others use social- and natural science-based exploratory theories to govern research (Moroz & Hindle, 2012, p. 783). Some, such as Total Quality Management (TQM), encompass both. Many researchers agree that Entrepreneurship, which is defined as a process of economic and often social value creation through consciously gathering, organizing and utilizing personal and human capital along with alienable resources such as networks and processes (Chell, 2007 p. 16), is a process that occurs over time, and thus includes many elements of sociological process theory and even human developmental theory. It is also clear from the research that Entrepreneurship involves the interplay of personal and organizational systems.
With a large variance in the field of Entrepreneurial study in terms of focus, scope, and theory in mind, our aim is to apply a pragmatic approach to Entrepreneurial research by adapting extant knowledge in the field to construct basic frameworks, which can then be researched and tested both theoretically and empirically. This approach involves relevant theories in the fields of process theory, systems theory, contingency theory and various systematic theories of change, the latter of which can be grouped into systematic change methods (such as TQM and Process Engineering) and change management methods (such as Participative Management). The primary hypothesis to explore is that diverse teams with a variety of skills and experiences, are correlated with high-performance and lower failure rates in nascent Entrepreneurial ventures due to resiliency and other factors.
ENTREPRENEURIAL TEAM BUILDING
Available literature takes individual and team-based approaches to Entrepreneurship. While recognizing the value of the Entrepreneurial spirit and the personality that leads an individual to forge his or her own way toward creating economic or social value in a novel way, this project leans heavily toward the theory surrounding team building success in Entrepreneurial ventures. Obschonka & Silbereisen (2012) argue the contrary,
“Many entrepreneurship researchers agree that the most central unit of investigation is the (potential) entrepreneur. It is argued that this is the key agent whose human agency, decisions, strategies, and behaviors matters, and through which opportunities, which are so central for the entrepreneurial process, are discovered, recognized, or created,” (Obschonka & Silbereisen, 2012, p. 108).
Indeed, much of the current Entrepreneurial support structure in the United States is set up with the individual in mind. However, the premise behind our hypothesis is that a formulaic approach can be developed through reviewing and testing sociological theories to help Entrepreneurial teams consistently and effectively break common barriers to early venture success. Later sections will reveal the threats of reliance on individual Entrepreneurs regarding decision-making and leadership. They will also emphasize the resiliency inherent to heterogeneous teams and correlation in the literature of these teams to startup success. For these reasons, developmental approaches to Entrepreneurial study will be ignored for the time being.
Robinson & McDougall take a contingency approach to uncovering barriers to Entrepreneurial entry into manufacturing markets. They build models that include the moderating effects of life cycle stage and venture strategy when considering new venture performance predictors including return on sales, wealth creation, and sales growth (Robinson & McDougall, 2001, pp. 678-679). Contingency theories hypothesize that the relationship between two variables is contingent on a third variable, making for much more complex but no less valid theoretical ties (p. 666). Strategies, in particular, can greatly affect likelihood of Entrepreneurial success by optimizing market conditions and current business trends or environments to “catch or ride a wave,” so to speak. Rominelli (1989) suggests two general business strategy tacks available to founders. She writes:
“First, if possible, they can time founding to coincide with rapidly increasing sales in the industry… Second, founders can attempt to tailor their resource-acquisition strategies to conditions of environments. “Changes in industry sales” is an important contingent factor for choosing between specialist and generalist strategies, on the one hand, and aggressive and efficient strategies, on the other,” (Rominelli, 1989, p. 386).
Initial strategy is an important contingent factor, as are life cycle stages in a venture, but a focus on Entrepreneurial team construction transcends those moderating factors. Ammetller et al, note that there is often a drastic process-based change in environments from the time a venture is conceived and the early phases of operation, writing:
“Initially, a process is triggered by internal factors related to the Entrepreneur’s personal prior start-up experiences. It then develops throughout two consecutive stages during which internal and external resources play a relevant role: in the first by providing information about alternate, potential business support services; in the second by facilitating the assessment of them,” (Ammetller et al., 2014, p. 16).
Through four startup stages, Entrepreneurs are prone to short-term, unplanned behavior. This is where the team dynamic steps in to provide a buffer from the potential perils that can derail a startup venture with fewer or less diverse resources. Schjoedt & Kraus note,
“The complexity [of external and internal management for an entrepreneurial team (ET)] is furthered by the fact that venture creation is a novel and mostly unstructured task. Adding to this complexity is the lack of operating history and non-developed scanning capabilities, because there is no precedence to rely upon. These aspects require that the ET needs heterogeneity in its human capital, e.g. experiences, knowledge, skills, and abilities, as well as homogeneity to be able to function together, to be effective in managing the venture and in responding to the external environment,” (Schjoedt & Kraus, 2009, p. 515).
Similarly, Bamford et al conclude after observing a database of more than 500 newly-chartered banks, that “all of the resource and decision choices changed significantly over the first three years of operation,” (Bamford et al., 2004, p. 909). The authors go on to explain that resource choices and other decisions varied significantly across founding and post-founding periods, however, “new venture resource and decision choices made at the point of inception had a significant impact on new venture growth even 5 years after formation,” (pp. 914-915). Even success begets change, according to Witt (2000), who states, “If the entrepreneurial venture is successful and grows, the increasing business volume also requires expansion of the firm organization.” Its size can change the cognitive underpinnings of a firm and force it into major restructuring (Witt, 2000, p. 753).
Discussion of temporal process change aside, the list of determinants of team performance in Schjoedt and Kraus is impressive. Their model is based on three groups of influencing factors: external environment, team composition, and team processes. According to the authors, “the external environment influences ET performance and, in turn, venture performance, through the ET composition. ET composition influences ET performance, both, directly and indirectly,” (p. 519). Of the processes, conflict, power, politics and communication are all factors to be considered.
But what, exactly, is an ET? Tihula et al define a team as “a small number of people with complementary skills who are committed to a common purpose, performance goals and approach for which they hold themselves mutually accountable.” Teams rely more than other groups on “discussion, debate and decision, sharing information and best-practice performance standards,” (Tihula et al., 2009, p. 556). A management team is “a small group of managers, including the managing director and the managers from different functional areas and other key persons, who give a firm its general direction and who specialize in running the business,” while an Entrepreneurial team is “two or more individuals with financial interest jointly launching, actively participating and developing a business. Team members are involved in pre-startup activities and they establish and share ownership of the new organization,” p. 557. The main difference between a management team and an ET is shared entrepreneurial risk.
Participative Management is a major theoretical subset of Change Management Theory established through a large body of research by Kurt Lewin, Rensis Likert, and their associates in the 1950s and 1960s. Lewin’s contributions include the study of various intellectual management concepts such as team building interpersonal competence, job satisfaction and group interaction. After Lewin’s death, Likert carried on his research by developing theories and hypotheses related to supportive relationships in organizations, group decision making, and group performance goals, all of which make up the core of Participative Management. Likert’s version of employee-centered management encourages measurements other than direct production. Employee morale, commitment, and peer-group loyalty are all intervening variables that contribute to team and the organization’s overall health and ultimately to the overall sustainable performance ability of a system. Like most things that are worthwhile, building human assets requires time and investment, but the work seems to result in strong correlations with high-performing organizations. Likert believed supportive relationships, group decision-making procedures and performance goals requiring group involvement could all be refined just like any other business skill to become more efficient and effective within groups. Investments involving better and more effective “buy-in” for employees and volunteers can pay off in the longer-run with boosted performance and higher levels of resiliency and sustainability. Below is a list of practical team-based models derived from the concepts of Participative Management:
- Workers consulted about what needs to be accomplished and how.
- Increased agency and responsibility for workers and volunteers.
- Team-building activities initiated by workers, supported by management.
- Interesting and challenging work allowing for flexibility and accountability.
- Material and non-material rewards for effective, enduring job performance.
- Relaxed work environments where employees socialize and form bonds.
- Employee-centered management styles (Tompkins, 2005, pp. 290-293).
Rolková & Farkašová simplify Participative Management into four main features:
- commitment – employees voluntarily commit to task; negotiate objectives and procedures.
- mastery, autonomy and meaningfulness – three factors that increase intrinsic motivation.
- self-management – unnecessary for workers to be managed at all times.
- engagement – workers feel involved and desire work, passion, creativity, and independence (Rolková & Farkašová, 2014, p. 1384).
The researchers report that more than half of the employees they surveyed feel they don’t have enough chance to participate in decision-making based on the absence of these features. They found no difference between men and women subordinates in their surveyed levels of participation (p. 1387).
Since Entrepreneurs are not robots and are personally more connected to their feelings about their levels of commitment, intrinsic motivation, creativity, passion and independence at work than a typical company employee, it is clear that a happy Entrepreneurial team is more likely to perform at a higher level for a longer period of time. Bains’ research looked at matching working styles that keep teams happy over a five-year period and theorized over the lack of impact of individual personality traits.
Bains found the “Big 5” personality traits – extroversion, agreeableness, conscientiousness, emotional stability, and intellect (or imagination) – to basically be unrelated to how well Entrepreneurial groups work together. What did matter was a factor he called “Deadline Brinksmanship” that measured how likely a team member was to complete a task under pressure. Team members who have a deadline-friendly working style where an “on-time, good enough” approach is satisfactory seem to contribute to happier teams in the long-run, which the author notes has potential to be fraught with peril (Bains, 2014, p. 20).
In her article, Staffing an entrepreneurial team: diversity breeds success, Kakarika writes,
“Evidence shows a venture grows and survives when team members have varied industry and entrepreneurial experience and non-redundant knowledge. … Venture teams composed of individuals with a rich set of knowledge and expertise are expected to outperform homogeneous teams in recognizing and evaluating opportunities and in exploiting them,” (Kakarika, 2013, p. 31).
Kakarika sites advantages and opportunities including more avenues to fundraising, financial and human resources, more support from diverse stakeholders, less biased strategic decision-making and flexibility in problem solving. However, her research suggests some diverse teams underperform averages. It uncovers a specific mix of diversity in three categories seen as optimal.
Kakarika points to the “knowledge complementarity” school of thought that team diversity is beneficial to venture performance because differences in the knowledge and skills of team members complement each other in three specific dimensions: Diversity of opinion, diversity of expertise, and diversity of power (p. 33). Maximum diversity of opinion may bring more options to the table but it may also make compromise and action difficult. Maximum diversity of expertise can bring in cross-sectional viewpoints that can be helpful for flexibility and problem solving. Maximum diversity of power creates a structure where one person can overrule the rest of the team, but it again makes decision making swift and effective. Kakarika’s research finds the optimum mix is found in Entrepreneurial teams with “1. moderate in diversity of opinions; 2. high in diversity of expertise; and 3. low in diversity of power,” (p. 36).
Leary & DeVaughn’s empirical research on 141 startup banks in Florida revealed several other characteristics that correlated with Entrepreneurial success. Examples include: CEO strongly embedded into team; no team member with 10% or more of total equity; members have less (rather than more) industry experience; and members with prior founding experience. Of these, CEO embeddedness and prior founding experience seem to have the greatest impact, (Leary & DeVaughn, 2009, p. 575). The researchers estimate each unit increase in prior founding experience increases likelihood of successful launch by a factor of 5 while an embedded CEO increases that likelihood by a staggering factor of 47. They posit, “if a CEO has not been identified or embedded into the founding team at the time of charter application, he or she is not likely to be privy to the debate, discussion and rationale behind the bank’s plan and as a result, may be less committed to it,” (p. 576). In subsequent research, DeVaughn & Leary add that an increased number of stakeholders helps prevent one member from wielding a disproportionate amount of power relative to other members, (DeVaugn & Leary, 2010, pp. 686-687). This reduces the likelihood of a single dominant member, which invites wider team participation in decision making and in turn increases team effectiveness. (p. 687).
Finally, Hackman & Wageman (1995) present a well-fledged analysis of how TQM, born out of ideals within the manufacturing process, can offer theoretic underpinnings for systematic ET building. They highlight four “change principles” to guide ETs toward continuous quality improvement: 1) Focus on work processes; 2) Analyze variability; 3) Manage by fact; and 4) Commit to learning and continuous improvement, (Hackman & Wageman, 1995, p. 311-312). These principles lead to several dimensions of practical prescriptive advice for management teams. Proposed interventions to realize value principles include:
- Explicit identification and measurement of customer requirements.
- Creation of supplier partnerships.
- Use of cross-functional teams to identify and solve quality problems.
- Scientific monitoring of performance; identifying high-leverage recommendations.
- Use of process-management heuristics to enhance team effectiveness (pp. 315-317).
TQM theory captures the essence of what all business including Entrepreneurial ventures should be doing, which is continuously keeping an eye on the ball that is the customer’s needs and satisfaction thereof. In practice, it has led to amazing quality and performance improvements.
FROM EXISTING FRAMEWORKS TO NEW MODELS
It is apparent that there are many existing frameworks from which to build new models of Entrepreneurial teams that can be further tested for fit and function in various real-world and theoretical environments. One variable yet to be touched on is the distinction between for-profit ventures and social ventures. According to Chell (2007), Entrepreneurs can create both economic and social value with their innovative business practices. She reasons:
- To behave entrepreneurially is to engage in a process that creates value.
- That value positions an enterprise among competition and generates wealth to be distributed among stakeholders.
- The process is embedded within a socio-economic context.
- If the mission of value creation is to be maintained, the enterprise must be sustainable.
- Some enterprises may rely on grants and donations as a critical revenue stream, particularly where the beneficiaries of the enterprise cannot pay.
- All enterprises must be positioned along a spectrum from purely philanthropic to the commercial sources of financial support.
- Therefore, a mix of resources – a commercial component, ‘voluntary’ or in-kind contributions, and possibly donations and grant aid –helps ensure future sustainability.
- The entrepreneurial process pursues opportunity with a view to the creation of economic and social value (Chell, 2007, pp. 13-14).
It is difficult to see Chell’s harmonic vision of social and economic value in the bank Entrepreneurship of the 1980s, but for many of the organizations that come to mind when social enterprises are invoked, the theory seems to hold well. There is no need to separate out social enterprise from other types of Entrepreneurship unless social value is specifically the focus of a particular study and economic value is of relatively little interest to researchers. Perrini et al (2010) conducted an in-depth, longitudinal study of the Social Enterprise success surrounding one of the most successful Recovery Community Organizations in history – San Patrignano in Italy. This village is part commune, part cooperative, part work-study program, part apprenticeship program, part social business venture, and part government-nonprofit partnership, among other things. It inherently blends economic and social value in every way imaginable. As the authors state, “San Patrignano offers a unique illustration of the complexity of an entrepreneurial process, which blends a prominent social objective with economic viability and sustainability,” (Perrini et al., 2010, p. 528).
The qualitative research of this positive outlier among Social Enterprise ventures yields a five-stage model of successful social enterprise growth, augmented with contingency factors of both a personal/developmental nature and an environmental nature. The cyclical system involves opportunity identification, evaluation, formalization, exploitation and scaling, while at the same time allowing for vision, resources, networks, personal contributions, government contributions and behavior modeling to all moderate the scale and speed at which each stage develops before the process starts again. The study is an excellent resource for determining which inputs are most relevant in determining the shift from one phase to the other and understanding how “economic value accumulation is just the means to an end” which is “social value creation and the achievement of long-lasting social change.” To the extent that it has an additional value-creation goal, social enterprise is perhaps slightly more complex than Entrepreneurship in general, but “the combination of heterogeneous resource providers, such that no resource prevails over others, helps preserve autonomy and freedom of action,” among the stakeholders (p. 529).
This review has covered barriers to Entrepreneurial success, all manners of theories with which to examine the construction, goals, actions and ultimate success of startup ventures, frameworks that may be useful for beginning to construct new models for replicable team-based success, and discussions of the various processes, systems, contingencies and moderators that all factor into the ability of the synthesized models to consistently create economic and social value in a flexible, resilient and sustainable manner. This analysis contributes to the overall knowledge base on determinants for Entrepreneurial success and lays the theoretic groundwork for future model building and team building, including the rigorous testing of hypothesis and outcomes that will ultimately be necessary for creating sustainable models of success.
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