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Sep 26, 2019

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.

References:

Aldrich, H. E., & Kim, P. H. (2007). Small worlds, infinite possibilities? How social networks affect entrepreneurial team formation and search. Strategic Entrepreneurship Journal, 1(1–2), 147–165. https://doi.org/10.1002/sej.8

Beckman, C. M. (2006). The Influence of Founding Team Company Affiliations on Firm Behavior. The Academy of Management Journal, 49(4), 741–758. https://doi.org/10.2307/20159796

Cardinal, L. B., Sitkin, S. B., & Long, C. P. (2004). Balancing and Rebalancing in the Creation and Evolution of Organizational Control. Organization Science, 15(4), 411–431.

Das, T. K., & Teng, B.-S. (2001). Trust, Control, and Risk in Strategic Alliances: An Integrated Framework. Organization Studies, 22(2), 251–283. https://doi.org/10.1177/0170840601222004

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Ensley, M. D., Pearson, A. W., & Amason, A. C. (2002). Understanding the dynamics of new venture top management teams: Cohesion, conflict, and new venture performance. Journal of Business Venturing, 17(4), 365–386. https://doi.org/10.1016/S0883-9026(00)00065-3

Forsström-Tuominen, H., Jussila, I., & Goel, S. (2017). The Start of Team Start-Ups: Collective Dynamics of Initiation and Formation of Entrepreneurial Teams. Journal of Enterprising Culture, 25(1), 31–66. https://doi.org/10.1142/S0218495817500029

Greenwood, R., & Hinings, C. R. (1988). Organizational Design Types, Tracks and the Dynamics of Strategic Change. Organization Studies, 9(3), 293–316. https://doi.org/10.1177/017084068800900301

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Hambrick, D. C. and Abrahamson, E. (1995). Assessing managerial discretion across industries: A multimethod approach. Academy of Management Journal, 38:1427–1441.

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Klotz, A. C., Hmieleski, K. M., Bradley, B. H., & Busenitz, L. W. (2014). New Venture Teams: A Review of the Literature and Roadmap for Future Research. Journal of Management, 40(1), 226–255. https://doi.org/10.1177/0149206313493325

Kollmann, T., Stöckmann, C., Meves, Y., & Kensbock, J. (2017). When members of entrepreneurial teams differ: Linking diversity in individual-level entrepreneurial orientation to team performance. Small Business Economics, 48(4), 843–859. https://doi.org/10.1007/s11187-016-9818-6

Mischel, W. (1977). The interaction of person and situation. In Magnusson, D. and Endler, N. S. (eds.), Personality at the Crossroads: Current Issues in Interactional Psychology, pp. 333–352. Hillsdale, NJ: Lawrence Erlbaum.

Reynolds, P. D., Bygrave, W. D., Autio, E., Cox, L. W., Hay, M. 2002. Global entrepreneurship monitor. Kansas City, MO: Ewing Marion Kauffman Foundation.

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Williams Middleton, K., & Nowell, P. (2018). Team trust and control in new venture emergence. International Journal of Entrepreneurial Behaviour and Research, 24(4), 882–910. https://doi.org/10.1108/IJEBR-01-2017-0048

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