Starting off on the Wrong Foot? Newly Founded Firms, TMT Structures, and the Unusualness Penalty

Abstract

*Abstract*: While there is abundant evidence about the effects of top-management-team (TMT) characteristics, less is known about the effects of TMT structures, meaning the array of functional positions that TMT members fill.There are strong norms about TMT structures, so organizations that violate these norms may suffer.This is especially true for startups, which rely on their TMTs for legitimacy.Although many new organizations adopt TMT structures that are typical in their industry, others adopt more unusual structures.To study the effects of TMT structure unusualness, we build on theories of TMTs, legitimacy, and imprinting.We argue that organizations with more unusual TMT structures at startup suffer an /unusualness penalty/ and are more likely to fail, and that this unusualness penalty is stronger for specialists than generalists.We also argue that even if organizations amass experience with unusual TMT structures or their structures become less unusual, the unusualness penalty persists.To test these predictions, we analyze data on firms in one industry over five decades.The results generally support our predictions, indicating that unusual TMT structures have negative consequences that organizations cannot easily overcome.