Tuesday, February 26, 2019

Heterogeneity in Experience Levels Helps Startups Succeed

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You might think that a startup management team consisting entirely of highly experienced managers would clearly outperform teams including members with little experience.  After all, it would seem that past experience launching and running start-ups should be a good thing.  However, that bit of conventional wisdom turns out to be incorrect according to some interesting research by Dorina Thiessa, Charlotta SirĂ©nb, Dietmar Grichnika.  They published a paper titled, "How does heterogeneity in experience influence the performance of nascent venture teams?: Insights from the US PSED II study" in the Journal Business Venturing Insights.  They examined 519 startups using a longitudinal dataset of new ventures in the United States.  Here is what they found:

Our results concerning management and start-up experience heterogeneities demonstrated that venture teams comprising only inexperienced members or only highly experienced founders seemed to be inefficient with regards to expected revenue and the progress of the venture. More specifically, even when heterogeneous teams had an overall low average level of management or start-up experience, they often outperformed those comprising only experienced team members. Furthermore, teams with lower levels of average management or start-up experience benefited from heterogeneous distributions of experience the most. One explanation for these results is that diversification of experience levels enabled team members to escape their own “knowledge corridors” (Gruber et al., 2013, p. 280), broadening the cumulative knowledge set of the team and thereby enabling more innovative insights and market responses, which ultimately resulted in improved venture performance. An accumulation of homogenous experience may also foster the use of mental shortcuts such as overgeneralization, and decreased engagement in counterfactual thinking (imagining alternative outcomes for past events) that assist in formulating more effective market responses (Baron, 1998, Baron, 2000, Shepherd et al., 2003). Thus, nascent venture teams with only experienced team members may fail to extract important insights from entrepreneurial action because team members become increasingly trapped in prevailing ways of thinking.

In sum, experience comes with some limitations or drawbacks.  You may have blinders on, or perhaps you cling too strongly to pre-established notions about how a new venture should be launched, structured, and led.  On the other hand, a team of novices will not likely thrive either. You need a mix of old hands and fresh eyes.  

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