Literature review

Entrepreneurial Teams

From the traditional idea of many that the entrepreneur is a loner excelling in every business field there is now increasing academic support that in most ventures a mix of people with a varied skill-set is needed. As an example Cooney (2005) describes Apple Computers where people tend to immediately think about Steve Jobs, although it was Steve Wozniack who invented the first PC model and Mike Markkula who offered the business expertise and access to venture capital. This shows that although a venture seemingly has one entrepreneur ‘who started it all’, this is rarely the case, as most entrepreneurs will have a team around them to making the venture successful.

According to Vanaelst et. al. (2006) there has been definitional confusion in academia as to how one should define an entrepreneurial team. From Kamm, et al. (1990) who defined entrepreneurial teams as “two or more individuals who jointly establish a firm in which they have a financial interest” there has been several variations of the definition. Gartner et al. (1994) broadened the definition to cover those individuals who have direct influence on strategic choice. In the study of Ensley et al. (1998) the authors combined both the definitions above and said that individuals have to fulfil all three criteria in order to be considered members of the entrepreneurial team. However, I believe these definitions are too narrow and allows for little flexibility. The reason for this debate around what constitutes an entrepreneurial team Vanaelst et. al. (2006) claim can be put down to entrepreneurial teams being investigated within a static framework such as the time of formal incorporation of a company. Others who have seen this shortcoming recognise the evolutionary nature of teams and investigates factors associated with member entry and exit (Ucbasaran et al. 2003). The definition I would support is the one of Cooney (2005) where he has identified an entrepreneurial team as “two or more individuals who have a significant financial interest and participate actively in the development of the enterprise“. This gives the definition some flexibility unlike many of the more limiting definitions of others in academia. One might in my view however argue that an individual might not have significant financial interest in order to be part of a team. This reflects the nature of how entrepreneurial teams might be formed in this context; it will vary from time to time with varying degrees of commitment from its members.

Research-based spin-off ventures have become an increasingly popular way of commercializing research results from universities. This is often done via so called “technology transfer offices” that sit somewhere in between the university and the business community. Vanaelst et al. (2006) have described how this process often is set up in European universities today. Others have studied the entrepreneurial events of the spin-out process more in detail and also found that more often research based spin-offs are created by a team rather than by one entrepreneur (Clarysse and Moray 2004).

In entrepreneurial literature one can see a consensus emerging saying that businesses started by a team accounts for a greater number of high-growth firms and therefore are becoming more and more interesting for investors (Clarysse and Moray 2004). Cooney (2005) also points out that there is a growing body of evidence in academia to suggest that new ventures formed by teams achieve faster growth and are more successful, as it is more likely that a group will collectively have the traits required for success. People with varied backgrounds will use their experience, network and knowledge to the entrepreneurial ventures benefit. An entrepreneurial team as opposed to a sole entrepreneur will also have access to a wider network, which will give the team a competitive advantage; this will be reflected in the networking part of this article.

Development of the team is linked to the life cycle stages of the business (Cooney 2005). For example, in high-tech start-ups gaps might emerge in the team when the company is established. Research also shows that gaps in team competencies emerge over time (Birley and Stockley 2000). This also resonates with Clarysse and Moray (2004) - who suggest that entrepreneurial teams, which have no experience at the start, are able to acquire the necessary skills in a relatively short period. In order for an entrepreneurial team to have a steep learning curve as described is often dependent on having a good external coach. As described in Clarysse and Moray (2004) the coach strategy can be effective but can also be a pitfall as the coach is often regarded as a natural candidate for the CEO position, whilst Clarysse and Moray argue that the point is to mature the right candidate within the entrepreneurial team. This was exemplified in Clarysse and Moray’s article with a research-based spin-off case where one of the engineers matured into becoming a CEO. In the next section of this review, “Entrepreneurial Leadership”, the question of leadership within an entrepreneurial team will be addressed in greater detail.

Entrepreneurial Leadership

As I have indicated in the first part of this paper, there is an indication that entrepreneurial teams or ventures that have been started by teams perform better than sole entrepreneurs. However, there are many situations where an entrepreneurial team will be in need of a leader. For example, there are the formal obligations that a limited company has to fulfil – one of them is having a CEO. Another formal requirement is for the board to hire a CEO to run the business in a manner that they think is within their strategic and economic vision. Another angle one might take on the need for a leader, is from the outside of the company as investors, media and others will also expect the company to have a formal leader that they can contact.

Chen (2007) suggests that the lead entrepreneur, or the entrepreneurial leader, is central to the entrepreneurial team. This is because such a leader is the one who has to create visionary scenarios that are necessary for selecting and mobilizing a team of supporting members. Gupta et al. (2004) define entrepreneurial leadership as “leadership that creates visionary scenarios that are used to assemble and mobilize a ‘supporting cast’ of participants who become committed by the vision to the discovery and exploitation of strategic value creation.” Others such as Hogan and Kaiser (2005) claim that the leader is the one organizing the collective effort and is also argued to be the key to organizational effectiveness. One definition of leadership is that it is “a process of social influence in which one person is able to enlist the aid and support of others in the accomplishment of a common task” (Chemers 1997). As Chemers (1997) suggests, the major points of this definition is that leadership is a group activity based on social influence, which revolves around a common task. In situations where the leader is selected after the team is formed, one can say that the definitions above are also relevant. The leader needs to keep the team focussed on the vision of the venture but does not necessarily need to select his or her team to accomplish this.

There are numerous theories on leadership as such, but in this context entrepreneurial leadership is of particular interest. However, I would claim that a search in academic databases (Google Scholar 2010) shows that there is a gap in research on entrepreneurial leadership. In my view this might be related to the fact that this field of study has to be conducted over many years with a broad selection of start-up companies. Considering that a large proportion of start-up companies fail in the first few years one can imagine that it is hard to get good studies on entrepreneurial leadership. In 2005 an article was published in Southern Business Review under the heading “A New Paradigm: Entrepreneurial Leadership” (Fernald et al. 2005). Fernald et al. (2005) compare the successful entrepreneur and leaders, and found that they both delivered results in the following areas: strategy (vision and long term goals); problem solving skills; timely decision-making; a willingness to accept risk and good negotiating skills. Through these characteristics they intend to show that the behavioural characteristics of leaders and entrepreneurs are more similar than different. From this Fernald et al. (2005) argue that entrepreneurial behaviour can simply be seen as another type of leadership.

The leadership moment theory proposed by Ladkin (2010) can also be applied to entrepreneurial leadership, as it is more or less generic. It recognizes that the nature of leadership is interactive and context-dependent, and that leadership is a moment of social relation. The leadership moment identifies pieces of leadership that interact in order for leadership to be experienced. These pieces are identified as context, purpose, leader and follower. In Ladkin’s book the importance of leader ‘face’ in times of crisis is put up as an example of leadership moments: she uses for example the Mayor of New York, Rudy Guilliani’s active presence at Ground Zero in the aftermath of the World Trade Centre strikes as an illustration of visible ‘leading’ in times of national difficulty. As a parallel to this (and far less dramatic) one can think that one member of an entrepreneurial team can in some situations lead the team better than perhaps the formal CEO. This could for example be that the member of the team have the most specialized knowledge for the task that needs to be tackled and hence could have more natural leadership abilities in that context.

The leadership moment theory can be said to be quite closely linked with another theory on leadership also studied by Ladkin (2010), which is the concept of distributed leadership. A research study performed by the Australian psychologist Cecil Gibb in the 1950s showed that in the most successful group works, leadership followed the task rather than being held by only one individual. Distributed leadership contest the possibility of identifying individual leaders and measuring the level of impact they have on any task’s outcome. One of the results of this research was the distinction between headship and leadership and the fact that they can exist independently of each other. Headship is held by the person in a group with the highest level of hierarchical power and authority, while leadership is a process of influence which moves between the individuals in the group (Ladkin 2010).

The theories and issues discussed in this section of the article suggest to me that a venture will most likely always have to have formal roles such as a CEO. Internally within the team or venture - leadership can be distributed or move with the team members according to different projects or tasks.

Entrepreneurial Networks

Approximately 20 plus years ago, research on networks emerged as an important new area of inquiry within the field of entrepreneurship (Hoang and Antoncic 2003). According to Aldrich and Zimmer (1986), entrepreneurship is embedded in a social context, channeled and facilitated, or constrained and inhibited, by entrepreneurs’ positions in networks. A term used in entrepreneurial network literature is social networks. It usually describes to whom the prospective entrepreneurs relate to in order to acquire the resources needed to start up.

To describe networks characteristics such as structural (size, range), interactional (multiplexity, kin/friends) and attributal (colleagual, industrial, service, or multiple) are often used (Foss 2010).

Definitions of structural characteristics are typically network size, network range (the number of different attributes covered in the network) and measures (measurable attributes; for example access to resources). Definitions of interactional characteristics are multiplexity (degree of multiple ties), kin/friends and measures (measurable attributes; here contacts within network with specific traits). Definitions of attributal characteristics are colleagual zone: actors having an attribute that represents a business starter, industrial zone: actors having an industrial attribute, service sector: actors performing services which are publicly/privately financed and provided.

Another concept in networking theory is Structural holes (Burt 1995). Burt defines the concept as: ”Structural holes are the gap between non-redundant contacts. As a result of the hole between them, the two contacts provide network benefits that are in some degree additive rather than overlapping” (Burt 1992: 47). What Burt’s theory means in practical terms is that between the contacts overlapping there will be redundant information. This also means that redundant contacts lead to the same people and provide the same information. Burt argues that network size in itself does not matter, it is the number of non- redundant contacts that matters; this is because in a network of non- redundant contacts there will always be relevant information.

Uzzi and Dunlap (2005) argue that for entrepreneurs building their networks there are three unique advantages the entrepreneur should consider. In a good network there will be access to private information, access to diverse skill sets and power. Private information offers significantly more competitive advantage than public information as it is gathered from personal contacts and offers something unique. With skill sets one can say that expertise has become more specialized during the past 15 years. Organizational, product, and marketing issues have become more interdisciplinary and that individual success is related to the ability to utilize the skills of the contacts in ones network. Highly diverse ties to contacts, helps develop more complete, creative, and unbiased view of issues. Trading information or skills with people whose experiences differ from your own – provide one another with unique, exceptionally valuable resources. Access to power is networks in also an important factor according to Uzzi and Dunlap (2005) as both personal networks and corporate networks are highly clustered networks. Someone that acts as a mediator between clusters are called ‘brokers’ in the Uzzi and Dunlap article and are useful and powerful as they have the ability to connect separate clusters. This means in reference to competitive advantage for teams as previously discussed in this article; that an entrepreneurial team who has a large network with many non-redundant contacts which supply private information, have a diverse skill-set and are in power-positions, should be in a position of competitive advantage if utilized correctly.

Greve and Salaff (2003) did a study of network activities of entrepreneurs through three phases of establishing a firm in four countries and found that entrepreneurs access people in their networks to discuss aspects of establishing and running a business. Another finding was that entrepreneurs build networks that systematically vary by the phase of entrepreneurship, analyzing number of their discussion partners, and the time spent networking. It was found that entrepreneurs talk with more people during the planning than other phases. Family members are present in their networks in all phases, particularly among those who took over an existing firm. Lastly one of the findings from this study was that experienced entrepreneurs have the same networking patterns as novices. Moreover, these networking patterns are the same in all countries.

The concept of embededness in networking theory originates from Granovetter’s point of economic behavior as embedded in social and institutional structures (Granovetter 1985). Further studies on this concept has been done by Jack and Anderson (2002) with the focus on the nature, depth and extent of an individual’s ties into the environment. Jack and Anderson say that embededness is important for entrepreneurs because it ties the entrepreneur to a larger structure. Handling this structure may affect entrepreneurial outcomes. It affects entrepreneurial activity, through resource availability or constraint and it helps the entrepreneur identify social resources. The theory of embededness say that networks are dynamic and that the actors are embedded in ongoing social relations. Behaviour and business development processes affected by social linkages - form patterns of social interaction. For entrepreneurs it is therefore essential to understand the nature of the structure, to act upon and to maintain both the link and the structure. The level of embededness in a local environment is determined by the networks, ties and the entrepreneur’s relationships. Social networks provide the mechanism for becoming embedded and has been exemplified in the literature by for example Foss and Solnørdal’s (2008) article about the importance of relations in the business community in a town like Tromsø, Norway. In Foss and Solnørdal (2008) embedding is shown to be a two-way process of gaining credibility, knowledge and experience (reciprocity). Reciprocity provides the entrepreneurs with knowledge, contacts and resources, but only when the locals know the entrepreneurs. Opportunity recognition and realization are conditioned by the dynamics of the entrepreneur and the social structure. Being socially embedded enables access to opportunities and latent resources, not otherwise available for the individual entrepreneur.

Hoang and Antoncic (2003) show the network as an independent variable and that networks do affect the entrepreneurial process; it could lead to positive outcomes for the entrepreneur and the firm. They also show the network as a dependent variable, which means that entrepreneurial processes and outcomes in turn influence network development over time. Furthermore, Hoang and Antoncic’s article (2003) show that entrepreneurs are embedded in a social network that plays a critical role in the entrepreneurial process. Factors that are shown to be important for entrepreneurs are the nature of content exchanged in networks, how governance mechanisms shape relations and how the network is structured.

The network structure describes a pattern of direct and indirect ties between actors. Foss (2010) propose that the actors differential positioning within a network structure has an important impact on resource flows, and hence, on entrepreneurial outcomes. The size and centrality of the network indicates the amount of resources an actor can access. Weak ties and structural holes in the network indicate diversity of resources. One can utilize structural holes by bridging them (connecting people). This can be said to yield power and influence over those who are otherwise unconnected. The bridging of structural holes will also yield diverse, nonredundant contacts and as a result increase exposure to novel information.

Conclusion

The question I set out to reflect upon when writing this article was whether the elements of leadership, team and networking are any more or less important in more established versus start-up firms. From the literature I have reviewed I have had a strong focus on entrepreneurial teams, leadership and networking and hence I will now try to discuss the question in established versus start-up firms briefly.

Nearly all companies will have more than one member associated with its founder team. An entrepreneurial team needs to have just the right balance in order to work well as a team, but does not need to have all the business skills required from the onset in order to become successful as most qualities can be learned over time. A good coach can help a team to achieve this. It is also often easier for an external to see the potential leader in a team.

Leadership in teams is essential in some form or other and it seems that although a distribution of leadership some times can work well – there are certain situations where a leader needs to step up and represent the company (such as a CEO). The ‘natural’ leader in the establishing phase might not be the natural leader in the entrepreneurial team or in the growth phases. This means that care and consideration should go in to the choice of a leader at all stages. There should be a recognition within the entrepreneurial team that leadership can change in different stages of the business should be emphasized from the start of the venture.

A team that has a good diverse network might be able to succeed faster than a sole entrepreneur as this means that their network range can be increased threefold. If the team members are within the same field or are in the same city most likely there will be some overlapping contacts which means that the ‘value’ of the network decrease some.

In my view networks, leadership and teams will also be important as the company continues and becomes more established. Networks needs to be nurtured in order not to fade (ideally it should grow). A team is sensitive to change especially in transitions from entrepreneurial to growth stages and leadership within new ventures can often be the source of conflict as was shown in Clarysse and Moray (2004).

With this article I hope that I have managed to show that teams, leadership and networks are equally important in the new venture creation process. I believe that a fine balancing act between these three elements is required in order to succeed and those who have considered the balance between all these three might have a better starting point than those who have not.

References

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