The genesis of strategy in new ventures: escaping the constraints of founder and team knowledge

Abstract

Although an entrepreneur's initial strategy choices have a critical effect on a new venture's survival, growth, and long-term performance, few studies have explored how pre-founding experience influences these choices. Founders who over rely on their historical industry experiences may simply replicate the strategies of legacy firms. In turn, little is known about how founders can break these experience-based constraints, if they exist. In an empirical analysis of 120 prospective entrants in air transportation from 1995-2005 we find that a founder's past experience strongly constrains choices, and the effect depends on the form of experience and type of strategy choice. Diversity of experience, at the level of the founder and founding team, lessens these constraints. Our results have valuable implications for research in strategy and entrepreneurship.

The Identification of Sustainable Opportunities in Existing Enterprises

“…Recent studies have proposed explanations for the fact that some entrepreneurs do identify and pursue such opportunities to prevent environmental and community degradation when others do not . As established in many studies, entrepreneurs typically identify opportunities in line with their existing knowledge base (Fern et al, 2012;Gruber et al, 2010;Shane, 2000), and thus prior knowledge of individual entrepreneurs forms an important predictor for the identification of particular types of opportunities. Therefore, the knowledge of the natural and communal environment, prior knowledge of markets, ways to serve markets and the awareness of customer problems could impact recognizing opportunities for sustainable development .…”

“…In new ventures and in small and medium-sized enterprises, these top management or venture teams typically incorporate all the key decision makers in the venture and they control the venture's assets (Steffens et al, 2012). These teams have a decisive influence on a venture's performance and the composition of their set of skills and backgrounds shape a venture's strategy (Amason, Shrader, & Tompson, 2006;Delmar & Shane, 2006;Fern et al, 2012). Therefore, the venture team and its composition is important, as the team's composition impacts opportunity identification and creativity (e.g., Joshi & Roh, 2009;Shin et al, 2012;Shin & Zhou, 2007) as well as performance (e.g., Amason et al, 2006;Ensley & Hmieleski, 2005;Jehn, Northcraft, & Neale, 1999).…”

“…This paper will focus on task-oriented diversity, and more precisely on functional diversity, which can be viewed as an indicator of the cognitive heterogeneity necessary for venture development (Ucbasaran, Lockett, Wright, & Westhead, 2003; see also Bantel, 1993). Moreover, task-oriented diversity, and primarily functional diversity, is in particular relevant for outcomes such as creativity and strategy formation (Fern et al, 2012;Shin & Zhou, 2007).…”

“…In a recent study, Fern et al (2012) found that unique knowledge in the founding team directs important choices by the team. Unique knowledge is positively related to product market choice, geographic market choice and resource choice, whereas the effect of shared knowledge in the team is only related to geographical market choice.…”

“…In particular, the team composition in terms of functional diversity (as a proxy for cognitive diversity) seems to have a positive influence on creative processes (Jackson, Joshi, & Erhardt, 2003;Joshi & Roh, 2009), as it facilitates coming up with novel combinations. Most entrepreneurship studies find functional and cognitive diversity to be positively related to teamlevel creativity (Fern, Cardinal, & O'Neill, 2012), the number of identified opportunities (Gruber, MacMillan, & Thompson, 2010), and performance (Eisenhardt & Schoonhoven, 1990;Ensley & Hmieleski, 2005;Steffens, Terjesen, & Davidsson, 2012). Yet, studies also report that functional diversity can hamper creative processes (Hmieleski & Ensley, 2007), as teammembers might be attracted to similarity rather than diversity (Williams & O'Reilly, 1998).…”