Entrepreneurial Team Formation and the Role of Trust and Control
By Sarah Kenyon, Research Associate, Kenan Institute of Private Enterprise
Entrepreneurial culture celebrates the successful archetypical founder as a “lone wolf”; however, academic literature has found the majority of new entrepreneurial firms, ventures and start-ups are founded not by individuals, but by teams (Klotz, Hmieleski, Bradley, & Busenitz, 2014; Beckman, 2006).
The unique environment of entrepreneurship creates an atmosphere conducive to team formation. New ventures face a high uncertainty of success and, unlike established firms, entrepreneurial start-ups lack organizational structure and corporate cultural norms. The decision to form a team is greatly influenced by the uncertainty of the new venture’s outcomes, the choice to cooperate with others and the shared interest, encouragement and value orientation among potential team members (Harper, 2008; Forsström-Tuominen, Jussila, & Goel, 2017). The interdependence among team members is critical for the successful formation of a new entrepreneurial team (Harper, 2008).
Research demonstrates that founders often rely on their social capital and networks of friends, family members and work colleagues when forming co-founder relationships to develop new entrepreneurial teams (Reynolds, Bygrave, Autio, Cox, & Hay, 2002; Aldrich & Kim, 2007). New entrepreneurial teams tend to gravitate toward individuals with similar backgrounds or experiences and may place some importance on “chemistry” or interpersonal fit between individuals (Williams Middleton & Nowell, 2018; Klotz, Hmieleski, Bradley, & Busenitz, 2014).
Once formed, entrepreneurial teams face a set of unique challenges as the team establishes its own leadership structures and develops its culture. These early managerial decisions have a significant impact on the new venture and its growth (Ensley, Pearson, & Amason, 2002, Mischel, 1977; Hambrick and Abrahamson, 1995; Forsström-Tuominen, Jussila, & Goel, 2017).
While the literature is mixed on the optimal process for team formation, it does suggest that many ventures may experience a benefit from operating as a team (Held, Herrmann, & van Mossel, 2018). These benefits include increased creativity and idea creation; the ability to complement team members’ skills and compound existing skills; and, the ability to create and form meaningful bonds (Gundry, Ofstein, & Monllor, 2016; Kollmann, Stöckmann, Meves, & Kensbock, 2017). These benefits, however, are not guaranteed. An entrepreneurial team plagued with a lack of trust and cohesion – which often lead to high turnover – will struggle to fully capture the positive effects of the team.
Literature has extensively investigated and demonstrated the role and importance of trust and control in team conflict and performance, especially as the entrepreneurial team brings on additional employees (Simons & Peterson, 2000; Jehn & Mannix, 2001; Das and Teng, 2001). While trust is pivotal to a successful team, distrust can lead to member avoidance causing teams to work less effectively (Foo, 2011). Given the uncertainty within entrepreneurship, developing and sustaining trust is crucial for the success of the venture. In the early stages of team formation, it is critical for teams to recognize any signs of lack of trust and to take steps to repair it (Williams Middleton & Nowell, 2018). In conjunction with trust, an element of management control is necessary for teams to successfully function. Control provides structure and expectation management, driving behavioral expectations and organizational culture (Das and Teng, 2001; Eisenhardt, 1985; Greenwood and Hinings, 1988; Williams Middleton & Nowell, 2018; Cardinal et al., 2004). With an appropriate level of trust and control, teams can foster an open environment in which “team members are more likely to promote and work to implement the ideas of the team” (Gundry, Ofstein, & Monllor, 2016).
For more research regarding entrepreneurship and entrepreneurial teams, see the latest work of Chris Bingham, UNC Kenan-Flagler Business School Professor of Strategy and Entrepreneurship Chris Bingham and Travis Howell, UNC Kenan-Flagler Ph.D. candidate.
Interested in learning more about the Kenan Institute of Private Enterprise’s work within entrepreneurship? Visit its affiliated Entrepreneurship Center for the latest on research, events, and alumni and student spotlights. For information on the institute’s 2020 Frontiers of Entrepreneurship Conference, please click here.
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