Part 1 - Entrepreneurial teams and start-up culture

Introduction

I have started a lot of companies and many of them have been successful. Some may say too many. I often get asked what is the “secret sauce” behind a successful start-up company, and after uumming and aaahing a while, I inevitably say that it’s the team. We win awards – we thank the team. We succeed in doing impossible things – thanks to the team. We recover from a seemingly impossible downturn – once again it’s the team.

So what makes a great start-up team?

In this series of articles, I thought that rather than giving my personal thoughts on the subject, I would share some of the academic theories and research. If you can plough your way through this, you may be better equipped to start your own team – or even to identify problems and issues within your existing team. And maybe not ….. but at least it will make you think. As ever, I wish you “good luck” in your entrepreneurial quest.

As they say in Hamilton “see you on the other side”.

Part 1 - Entrepreneurial teams and start-up culture

Although there are many companies which start in any given year, the scope of this article is to restrict analysis and discussion to VC backed start-ups. These companies frequently attract very bright individuals, and yet this intelligence alone is unlikely to be a solid basis for a founding team. Belbin (1981) found that teams comprised of individuals who were sharp, analytic, and with high mental ability gave unexpectedly poor results – termed “Apollo Syndrome”.

This would seem to conflict with the Baron & Hannan (2002) study discussed in some detail below, which found that the “Star” blueprint, based on attracting the brightest and best individuals, while less likely to IPO than the Commitment model, was nevertheless the fastest growing blueprint post-IPO. Perhaps, the bonding within the Star blueprint companies was better in the sample studied by SPEC than in the Belbin (1981) sample, or perhaps as described by Baron & Hannan, at some point the founder’s HR blueprint had been changed by an incoming CEO – which may account for the Belbin (1981) results. It should, however, be pointed out that Belbin (1981) was not explicitly looking at start-up companies, thus the comparison may be inaccurate.

As for the leader of such a team, Goffee & Jones (2000) reported in the Harvard Business Review that there were four unexpected qualities they had discovered in inspirational leaders: they selectively show their weaknesses; they rely heavily on intuition; they manage with tough empathy; and they reveal their differences. These characteristics would seem to anecdotally fit with what is know of the style of well know Entrepreneurs, but the literature does not directly relate these findings to the company size or stage of the company’s life.

Start-up culture

McClelland (1961) claims that Entrepreneurial behaviour is the result of n Achievement, the presence of which will create “Entrepreneurial effects” and which “can be acquired”, suggesting that it may be a learned behaviour rather than a natural skill, and perhaps may be communicated by the lead Entrepreneur to the other start-up members. Sexton & Bowman- Upton (1991) suggest a model for the factors which contribute to Entrepreneurial success, quoting Carsrud et al (1985) which indicates that both psychological and personal variables will have a significant impact on the organisation and nature of the business.

Barron & Hannan (2002) suggest that the Commitment model may be the optimum start-up format for a high-tech environment, where familial ties bind the founding team and selection is based on cultural fit. Their SPEC project showed that over the eight years of the study, allowing for other factors such as industry segment and VC funding, the Commitment blueprint companies were the “fastest to go public” and the “least likely to fail”.

Getting the organisation style to match the types of people involved in the company was strongly urged by Kilmann & Mitroff (1976) - “individuals of the same personality type tend to .... have the same image of their ideal organisation. Indeed the differences between the stories of different types are so strong ... that the “ideal” of one type is the “hell” of the other.”

This is echoed in Southon & West (2002) who suggest building the team from people “you know and like”. Stating that the normal source of employees in start-ups is “friends, family, and fools.” In their later work on boardroom Entrepreneurs, Southon & West (2005) compare the start-up environment to a sports team where people “know each other well; they can predict each other’s moves, ideas, moods ... they have huge loyalty to the group, often feeling “it’s us against the world”.

Francis & Sandberg (2000) conducted a meta-study of the role of friendship within Entrepreneurial teams, and conclude that while it certainly has a bearing on success, “relationships among the Entrepreneurial team are an unexplored subject”. This seems to conflict with the statements of Southon & West (2002) but perhaps Francis & Sandberg (2000) were referring to empirical rather than anecdotal exploration.

All of the above does seem to point to a notion that there is such a thing as an Entrepreneurial team – no longer the lone figure described by Schumpeter (1943), but a tightly bonded group who have a profound impact on the way that the start-up builds and retain its culture.