Tuesday, March 23, 2021

How Much to Know? Entrepreneur Experience and Venture Failures

We are well aware of the advantages of knowledge, both when doing something conventional and when making innovations. People who teach entrepreneurship do it because knowledge helps the foundation of a successful venture. But is there such a thing as too much knowledge?

When I work alone, more knowledge is better – it generally gives performance at a higher level, and it gives the creativity that can yield outstanding outcomes. My earlier researchon innovations in the comic book industry is one of many research projects showing this effect. Things get more complicated when multiple people come together to do something complex like founding a new venture. The great benefit of having much knowledge and many kinds of knowledge is the potential for combinations that others cannot think of. The problem with doing this in a team is that combining knowledge requires communication, and communication gets harder when each member has different types of knowledge.

So how to resolve this dilemma? Research by Florence Honoré published in Academy of Management Journal shows a nice path.
The idea is simple: variety in knowledge is great as long as it stays within one person, but teams should also have shared knowledge that transfers directly to the problem they are solving.

This makes sense if we think of specialized knowledge as roughly equivalent to languages. People with shared experience speak the same language, while people who have different experiences need to translate. A person with many kinds of knowledge is a polyglot, and that is OK because we are all good at talking to ourselves.

So what did the research show? New ventures were at great risk of failing if their venture team had a mixture of experiences across team members, and this problem got worse the more founders had earlier been employed by multiple firms. On the other hand, more shared experience among the founders helped the firms survive, and this was especially true if the venture had multiple founders who transitioned from the same prior employer to founding a venture together.  

The implication for entrepreneurship is obvious. A team with experience in the same industry that they are forming a venture in will perform better, and they will do especially well if they make sure to also have one member with a variety of experiences. And, they should listen carefully to that person, because it is exactly the integration of knowledge from this polyglot member that can benefit the venture most. In other words, this research is another win for diversity in business.

HonorĂ©, Florence. 2021. "Joining Forces: How Can Founding Members’ Prior Experience Variety and Shared Experience Increase Startup Survival?" Academy of Management Journal forthcoming.