Entrepreneurial founder teams: factors associated with member entry and exit.

This exploratory study provides a review of the neglected area of entrepreneurial founder team turnover. A novel distinction is made between entrepreneurial founder team member entry and team member exit. Ninety owner-managed ventures were monitored between 1990 and 2000. Presented hypotheses relating to a team's human capital were explored using multivariate logistic regression analysis. Variables associated with entry were found not to be the same as those associated with exit. The size of the founding team was significantly negatively associated with subsequent team member entry. The link between team turnover and entrepreneurial team heterogeneity was mixed. Functional heterogeneity was weakly significantly positively associated with team member entry. Heterogeneity of prior entrepreneurial experience was significantly positively associated with team member exit. In addition, family firms were significantly negatively associated with team member exit. The average age of the team was not significantly associated with team member entry or exit. Additional insights in future research may be gathered if a broader definition of team turnover (i.e., considering team member entry and exit) is considered. Practitioner awareness of the different factors associated with team member entry and exit may encourage them to provide assistance, which facilitates the team building process over time in developing firms. Promising areas for additional research are highlighted.

Introduction

Gartner et al. (1994) argued that the "entrepreneur in entrepreneurship" is typically plural, not singular. Only recently has the entrepreneurial team phenomenon received explicit attention (Ensley, Carland, & Carland, 1998, 2000; Ensley et al., 1999). Entrepreneurial founder teams (EFTs) may provide a venture with access to an array of valuable financial, social, and human capital resources (Kor & Mahoney, 2000). Each team member adds to the diversity of views and skills, and can enable the completion of complex tasks. The presence of an EFT can play a pivotal role facilitating business development and superior business performance (Roure & Madique, 1986; Kamm & Shuman, 1990; Westhead, 1995). Subsequent changes in the EFTs have been noted (Cooper & Daily, 1997). Cooper and Bruno (1977) detected that 48% of surveyed high-technology firms reported that at least one founder had left the surveyed ventures. Boyd and Gumpert (1983) found that more than two-thirds of founders starting with partners eventually dissolved ties. Further, Timmons (1990) focusing upon high-potential ventures noted that almost every new firm had lost at least one founder over a five-year period.

Changes in senior managers have been explored in studies focusing upon top management team (TMT) turnover. These studies have focused on large established firms and have explored turnover with regard to organizational strategy and performance (Hambrick & Mason, 1984; O'Reilly, Cardwell, & Barnett, 1989; Jackson et al., 1991). TMT turnover can be viewed as a strategy of adaptation linked to changing external environmental conditions (Furtado & Karan, 1990; Wiersema & Bantel, 1992, 1993). Also, TMT turnover may encourage the successful turnaround of a business (Kesner & Dalton, 1994). For example, poor business performance can preempt TMT turnover in large corporations. In addition, the announcement of changes to a company's TMT can impact its share price (Furtado & Karan, 1990).

In sharp contrast to larger established firms, the issue of management turnover has been neglected in the context of independent private firms owned by EFTs. The relationships found with regard to TMTs in larger established firms may not necessarily hold for EFTs in independent private firms. Two features of EFTs suggest that their turnover will be distinctive. First, there are important differences in ownership and control between larger established firms and newer independent private firms. Fama and Jensen (1983) argue that classic entrepreneurial firms are associated with owners (i.e., principals) that combine residual risk bearing (i.e., ownership) and decision making (i.e., control). Indeed, Hawley (1927) argued that ownership rights are crucial for undertaking entrepreneurship, because they allow the entrepreneur to make decisions about the coordination of resources to gain entrepreneurial rents, in return for absorbing the uncertainty of owning those resources. The majority equity stake generally held by EFTs brings power that can imprint on the formulation and execution of strategy (Boeker, 1989). Studies focusing on entrepreneurial teams generally define team members as those who hold ownership and control positions (Kamm & Shuman, 1990; Gartner et al., 1994; Watson, Ponthieu, & Critelli, 1995; Cooney, & Bygrave, 1997; Chandler & Hanks, 1998a; Ensley, Carland & Carland, 2000). (1) In large complex organizations, there are benefits from separating decision-making functions (i.e., control) from residual risk bearing (i.e., ownership). Managers in most large organizations are unlikely to hold substantial amounts of equity. We can speculate that the link between adverse performance and team departures may be relatively weaker in the context of EFTs (Furtado & Karan, 1990). In contrast to TMTs in larger established organizations, EFTs do not have the external pressures to leave imposed by a board of directors, or the market for corporate control.

A second issue concerns the nature of team turnover itself. Team turnover may be attributed to the departure of existing team members (i.e., exit) and/or the introduction of members to the team (i.e., entry). Studies have tended to focus on team turnover either in terms of the extent to which members were no longer with the team after a specified period (i.e., exit) (Jackson et al., 1991; Walsh & Ellwood, 1991; Wiersema & Bantel, 1993; Krug & Hegarty, 1997), or the extent to which there were changes in the TMT over a specified period (Daily & Dalton, 1995; Krishnan, Miller, & Judge, 1997). The latter group of studies do not distinguish between entry and exit. These studies predominantly relate to large established firms, where arguably the necessary range of managerial skills are already present in the TMT so that team member entry is less of an issue. Team member entry is likely to be important for new private ventures, because venture owners need to fill skills gaps to facilitate the development and implementation of their strategies. As the firm develops beyond the start-up phase, the competencies and behaviors required are likely to change, necessitating augmentation and transition in the initial founding team (Gartner, Bird, & Starr, 1992). New team members will need to be equity holders in order to have the incentives and the power to enhance organizational performance. In contrast, exit from a team has been widely researched in large established firms, with under-performing managers being replaced due to conflicts and reduced cohesion (O'Reilly et al., 1989; Ensley et al., 2002).

This study aims to make the following contributions to knowledge. First, the study explores the neglected area of team turnover in EFTs. In particular, we suggest that greater clarity is needed when discussing turnover with regard to team member entry as well as exit. Second, guided by the human capital perspective, we suggest that the variables associated with team member entry may not necessarily be the same as those associated with team member exit.

The article is structured as follows. In the following section, we discuss the conceptual framework underpinning the study. The second section develops the hypotheses and, in particular, explores in turn whether entrepreneurial team member entry and exit are associated with the initial amount and nature of human capital embodied in the team itself. In the third section, the sample and methodology utilized are discussed. The fourth section provides definitions of the selected dependent, independent, and control variables. Results are then presented in the fifth section. The final section discusses conclusions, limitations, and areas for further research.

Conceptual Framework

Venture development may be shaped by the ability of an entrepreneur to efficiently utilize accumulated tangible and intangible resource stocks (Bloodgood, Sapienza, & Almeida, 1996). A venture with an EFT will generally have a larger and a more diverse array of human capital than a venture associated with a solo entrepreneur. Becker (1975) argued that human capital resources consist of achieved attributes, which are linked to increased levels of productivity. The EFT may use the human capital of its members to leverage social (Adler & Kwan, 2002), financial, and other forms of capital. However, we acknowledge that some solo entrepreneurs may be able to access human capital from their pool of employees. Due to their ownership stake in the firm, EFT members may have a clearer incentive to leverage their human capital to enhance organizational performance. In this study, EFT members are individuals with an equity stake in the business, and who have a key role in the strategic decision making of the venture at the time of founding. The firm thus possesses a supply of human capital resources inextricably linked to the team members who founded the venture. These initial resources, may impact upon the strategic alternatives at the entrepreneurs' disposal, which in turn bear upon the capabilities developed in younger firms (Boeker, 1989). These resources are not necessarily fixed. Rather, team members can manage the resources at their disposal through the entry of new members, as well as the exit of team members.