What is the entrepreneurial team? Discuss the importance of the team in entrepreneurial ventures?
Below is an essay I wrote as an Entrepreneurship and Innovation student at the Said Business School, Oxford.
The entrepreneurial team is located in the third column and first row in the Venture Evaluation Matrix (Da Rin and Hellmann, 2019). The first row describes the value proposition which is the ability of the venture to provide value to the customer. Intuitively, this involves creating a solution (supply) for a customer’s need (demand). However, it also requires a team to implement the solution and provide the value to the customer. Implementing the solution requires good execution and good management of the team which requires skills, experience, motivation, commitment and cohesiveness of the team (Da Rin and Hellmann, 2019).
Having entrepreneurial experience can lead to higher valuations and a much smoother ride with investors. For instance, compare the journey of Tim Westergreen in Savage Beast, who was previously in hodgepodge of positions, experiencing a rollercoaster journey nearly reaching bankruptcy twice with that of Daniel Ek, an experienced entrepreneur, who managed to steer Spotify to a unicorn status with a valuation of over $1 billion. Although Savage Beast’s Pandora did eventually reach a valuation of over $1 billion showing that the idea did have that potential, Tim Westergreen lack of experience and skills initially meant he was much slower to receive funding that Daniel Ek who easily found funding. Experience of entrepreneurs can make securing investment easier, and perhaps rightfully so, as entrepreneurship can be described as a behavioural phenomenon (Stevenson, 1983), an approach to management, that can be learned through experience.
Furthermore, the organisation culture of the firm is often an extension of the founder style, personality and preference (Wassermann, 2008). For instance, if founders are motivated by maintaining control of their firm they may seek to bootstrap and avoid giving away too much equity to investors. This could inhibit growth of the firm as the firm seeks to grow organically. A rapid growth model usually require large cash expenditures and low profit margins to attract customers which massively increases the requirements for external funding (Manigart, 2018). Consequently, the revenue model and cost model of the firm can be a direct product of the preference of the founder. The method the firm takes to implement its solution to provide value to the customer is dependent on the preferences of the founder. Furthermore, if the founders have preferences for the firm to have a social impact such as in Zoona Mobile, this can affect the business model and thus attract different types of social impact investors. Inevitably, the entrepreneurial team shape the venture and can steer the firm in the direction they wish. Their experiences, skills and talent can pivot the firm to success even with an initially flawed idea (Wassermann, 2008) whilst the opposite is also true. Furthermore, beyond a binary between success and failure, firms are characterised by the unique identity of their team which can steer the path of the venture to a unique destination, as there are usually multiple viable strategies for every idea (Gans, Stern and Wu, 2016).
The entrepreneurial team benefits from diversity as a variety of different roles are required for the success of an entrepreneurial venture from managing finances, to creating new technology to developing sales strategies. The entrepreneurial team can be evaluated using the three ‘R’s’ (Wassermann, 2008) defined as roles, relationships and rewards. The roles need to be thought out where there is a trade-off between overlapping and clear division of roles and roles that are equalitarian or hierarchical . Clear division can allow founders to specialise in what they do best but at an early stage, start-ups have such a wide range of diverse tasks needed to be carried out that there needs to be lots of overlapping and sharing of work. Furthermore, relationships are important such as whether the founders are close friends and family or complete strangers. Again, there is a trade-off between understanding each other and having trust and having a professional relationship and also benefiting from a wider range of networks with strangers. Finally, there is a trade-off in rewards with splitting rewards equally to avoid conflict and to avoid making difficult decisions early-on and compensating fairly for different input founders have had and may have in the future. According to noble prize winner Holmstrom, when allocating internal rewards between founders, the largest allocation should be given to the most productive member of the team. This is to balance incentives to maximise productivity in the firm (Da Rin and Hellmann, 2019). To conclude, there are many complex decisions to be made to establish a team with a variety of trade-offs that there are no objective answers to. Consequently, teams must be willing to compromise, have trust and communicate well to cooperate productively to implement the solution required for the benefit of the customer and themselves as a firm.
