Academic journal article Academy of Entrepreneurship Journal

The Impact of Newness and Novelty on the Fit between the New Venture and the Top Management Team

Academic journal article Academy of Entrepreneurship Journal

The Impact of Newness and Novelty on the Fit between the New Venture and the Top Management Team

Article excerpt

ABSTRACT

This article reviews and applies lessons from the strategic management literature on the relationship between the level of innovation of a new venture and the size, diversity, and experience of its top management team. It is suggested that the greater the novelty of the venture, the smaller and more focused the management team should be. The initial thrust of the enterprise must be to eliminate ambiguity by developing causal understanding amongst all the relevant stakeholders. Once ambiguity has been resolved, the team can expand to address issues of uncertainty and other liabilities of newness.

To illustrate these concepts and drive home the point, the cases of two new ventures in the environmental remediation business are examined. Both were well funded and represented great potential. Both were taken to market by essentially the same top management team. However, one was a tremendous success; the other was a dismal failure.

INTRODUCTION

There is little question that entrepreneurs starting new ventures must build a top management team (TMT) that is knowledgeable in all of the key strategic, technical, and functional areas of their business to be successful. However, the question of when a new organization should add the missing pieces of their TMT puzzle, and whether these missing pieces should be added internally or outsourced, does not lend itself to easy answers. While it may seem logical that the faster a firm fills out its TMT the better, based upon the level of innovativeness of the new venture, this may be the worst thing that the organization can do.

In determining the likelihood of success of a new venture, few things matter more than the top management team. Accordingly, venture capitalists often look to the characteristics of the team and its record when making decisions about who gets funding and who does not. The top management team is important because it is this group of individuals who must usher the venture through the difficult liabilities of newness (Hay, Verdin & Willimason, 1993; Singh, Tucker & House, 1986; Stinchcombe 1965). Indeed, teams that have been successful in managing new ventures in the past are often considered safe bets to do so again in the future.

While acknowledging the importance of the team and the team's experience, this article suggests that venture performance also results from the fit between the team and the new venture itself. Research from the field of strategic management clearly shows that not all teams are equally suited to all tasks. As such, a team that performs well in one venture may not do as well in another. Later in this article, this point will be illustrated with cases drawn from two new ventures, each of which was managed by essentially the same top management team, yet managed to very different outcomes. One was a great success; the other was a dismal failure. Therefore, while the characteristics and experiences of the top management team are clearly important, those characteristics and experiences are by themselves less important than the fit between the team and the venture.

Specifically, the "fit" is between the size, diversity, and experience of the team and the innovativeness of the venture. Research in strategic management has shown that fit between strategy and implementation is key to success (McGrath, Tsai, Venkataraman & MacMillan, 1996). In new ventures, the management team is responsible for implementing strategy. As such, the fit of the team to the strategy is especially important. The degree of innovation appears to dictate many of the tasks of the top management team. In part then, venture performance reflects the fit between the team and the innovativeness of the new venture.

This article will examine how quickly a TMT should fill all of its functional positions given the level of innovation of the new venture. It is suggested that the greater the level of innovation in the new venture, the more homogeneous the TMT must be in knowledge, values, and beliefs. …

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