DISENTANGLING THE EFFECT OF VENTURE TEAM HETEROGENEITY ON VENTURE

SUCCESS
Uwe Cantner, Friedrich Schiller University Jena, Germany
Maximilian Goethner, Friedrich Schiller University Jena, Germany
Michael Stuetzer, Friedrich Schiller University Jena, Germany
ABSTRACT
Are heterogeneous new venture teams more successful than homogenously
compounded teams, or is it the other way around? Some scholars regard
heterogeneous teams as more effective in solving non-routine problems because of
the broader knowledge scope. However, heterogeneous teams may suffer from
disparity, which leads to communication problems and poor strategic decision
making. Therefore, heterogeneity is often regarded as a “double-edged sword”
(Milliken & Martins 1996, p. 403), illustrating the lack of consensus on how team
composition influences team outcomes. In this paper we develop new measures of
team heterogeneity to model both edges of the sword by using one source of
information – the functional background of the team members. Analyzing data from
337 start-up teams, we find both edges to be sharp and affecting the economic and
innovative performance of start-ups.
INTRODUCTION

Entrepreneurship is the process through which in the absence of a market for future
goods and services, these goods and services come to be in existence (Shane &
Venkataraman 2000). The alert individual recognizes an opportunity and packages a
business idea that forms the basis for a new business venture. This popular image of
the lone entrepreneur notwithstanding, our paper is concerned with the team that
packages the idea. The choice of entrepreneurial teams as the object of the present
study is appropriate, given that high-tech start-ups are more often created by
groups of people than by individuals (Francis & Sandberg 2000). In fact,
entrepreneurial teams are identified as an “omnipresent [economic] phenomenon”
describing “the superior entrepreneurial start-up concept” (Lechler 2001). The
apparent success of start-up teams can be attributed to the logic, that “high
technology industries might require more skills than an individual would be likely to
have, necessitating that individuals combine their abilities in teams in order to start
an organization successfully” (Gartner 1985, p. 703).###Sector table$$$Despite its
obvious importance, a sizeable gap exists in the normative and empirical literature
on the subject of start-up teams (Cooney 2005). Only recently, entrepreneurship
research has begun to address founding teams, focusing on venture team
composition in terms of heterogeneity and its effect on new venture performance
(Eisenhardt & Schoonhoven 1990, Chowdhury 2005). As yet, this literature provides
inconclusive results (Williams & O’Reilly 1998). On the one hand proponents of the
cognitive resource diversity perspective emphasize positive effects of heterogeneous
teams, arguing that heterogeneity stimulates creativity, and increases the cognitive
ability of a team to solve problems and make decisions. On the other hand
proponents of the similarity-attraction paradigm argue that team heterogeneity has
an adverse impact on team performance because of the lack of a common language
within the team, and the inherent tensions and emotional conflicts arising from
differences among its members.
Rather than subscribing to either perspective on the heterogeneity-performance
relationship, the current paper considers the propositions of both approaches to
obtain a more comprehensive explanation of new venture team performance. We
first ask whether two opposing modes of operation of team heterogeneity can
indeed be separated from each other. We, then, disentangle the multiple effects
team heterogeneity has on new venture performance. To test our hypotheses, we
rely on a unique dataset of 337 new venture teams established between 1994-2006
in innovative industries in Thuringia (Germany).
The remainder of the paper is organized as follows. Next we review the theory and
previous findings on heterogeneity. We, then, describe the methods used for data
collection and analysis. After that, we present our results and draw some
conclusions.###Customer’s rating table$$$The literature reveals two competing
schools of thought that have been advanced in order to explain the probable effects
of team heterogeneity, namely the similarity-attraction paradigm and the cognitive
resource diversity theory.
Proponents of the similarity-attraction perspective conclude that team heterogeneity
has an adverse impact on team outcomes (Williams & O’Reilly 1998). Grounded in
social psychology, the similarity-attraction paradigm argued that the more similar
group members are to one another, the more attracted they will be to the group.
Particularly, based on perceptions of similarities and differences people
subconscious-ly tend to place themselves and others in social categories. This might
lead to in-group and out-group memberships within teams, where similar in-group
members are regarded as more trustworthy, honest and cooperative compared to
dissimilar out-group members. Heterogeneous teams are, therefore, hypothesized to
be less productive because of inherent tensions and emotional conflicts arising from
member differences (Ancona & Caldwell 1992, Eisenhardt et al. 1997). Conversely,
homoge-neous groups are more likely to work well together because of their shared
charac-teristics, thereby increasing team cohesion and performance (Milliken &
Martins 1996, Horwitz 2005).###Customer’s rating chart$$$Adopting the cognitive
resource diversity perspective from management and organizational research,
scholars emphasized the positive effects of team heterogeneity on performance.
Contrary to similarity-attraction theory, this theory proposes that diverse teams are
more effective in solving complex, non-routine problems, which are common to
entrepreneurial start-ups. The underlying assumption is that the unique skills,
abilities, opinions and perspectives of dissimilar members may improve the breadth
of a team’s cognitive ability (Hambrick et al. 1996, Milliken & Martins 1996, Williams
& O’Reilly 1998). Increased cognitive breadth, in turn, should foster synergistic
processes which are characterized by flexibility and open communication,
encouraging team members to frequently exchange and interpret subjective and
even divergent information. Ultimately, heterogeneity among team members may
stimulate creativity, innovation, problem-solving and decision-making processes and
thus results in superior performance relative to homogenous teams (Bantel &
Jackson 1989, Horwitz & Horwitz 2007).
Overall, theoretical arguments suggest that team heterogeneity offers both an
opportunity as well as a challenge for the development of new ventures. On the one
hand, it is claimed that heterogeneous teams are more capable because of the
cognitive heterogeneity of team members. On the other hand, heterogeneity while
increasing the amount of information available to the team can also be
counterproductive as it may produce detrimental emotional conflicts (Pelled et al.
1999). These competing assessments of team heterogeneity have also been
manifested with mixed empirical findings (Williams & O’Reilly 1998). Accordingly,
heterogeneity is often regarded as a “double-edged sword” (Milliken & Martins 1996,
p. 403), illustrating the lack of consensus on how team composition influences team
outcomes. In order to simultaneously explore both effects we develop two
arguments, that is scope and disparity. The scope argument relates to the cognitive
resource diversity perspective. It, therefore, captures the productive effect of team
heterogeneity stemming from the breadth of a teams knowledge base. The disparity
argument relates to the similarity-attraction paradigm and captures the destructive
effect of heterogeneity, resulting from divergences in a team’s knowledge base.
THEORY AND HYPOTHESES

Direct effects

Organizational demography
Research in organizational demography and small groups has indicated that
heterogeneity in important issues, such as team members’ functional experience,
may negatively affect new venture performance (Jackson et al. 1991). Due to
different backgrounds of training and professional expertise, members of
heterogeneous groups may have different “languages” and vocabularies (Lovelace et
al. 2001). Hence, in heterogeneous, rather than in homogeneous, groups the team
interaction process is more likely to be hampered by difficulties people have in
understanding each other (Ancona & Caldwell 1992).###Population densities$$
$Moreover, given divergent perceptions on how the team should ideally operate in
order to realize its goals, the chances that misunderstanding and misinterpretation
will inadvertently trigger an affective dispute in heterogeneous teams increase
(Ensley et al. 2002). Affective conflict tends to reduce a team’s strategic decision
quality because it often focuses on personal dislikes or animosities between team
members (Amason & Sapienza 1997). More precisely and in accord with the
similarity-attraction-paradigm, such conflict might lead to hostile atmosphere that
could undermine consensus and produce ineffective communication results (Amason
& Sapienza 1997, Eisenhardt et al. 1997)

Other research
Other research shows that the level of a team’s heterogeneity in functional
experience is likely to have a positive impact on new venture performance (Ensley et
al. 1998). Roure and Maidique (1986) reported that a team’s “completeness” as the
degree to which key positions (e.g., marketing, engineering, finance) were staffed
by members of the founding team, was positively associated with firm success. The
general argument made for the positive relationship between functional
heterogeneity and firm performance can be traced back to the cognitive resource
diversity perspective. Accordingly, higher levels of functional heterogeneity within a
team are expected to be associated with less duplication of specific skills (Bantel &
Jackson 1989). Thus, when a number of entrepreneurs with heterogeneous
functional backgrounds choose to work together a variety of expertise, information
and resources are applicable that may not be available if all members were from the
same functional area (Stam & Schutjens 2006). As previously stated, these
divergences may also engender differences in opinions. However, when different
opinions of team members manifest themselves in the form of constructive cognitive
disputes, they may produce positive effects. Instead of emotional conflicts turning
down venture team effectiveness, cognitive conflicts may lead to frequent informal
communication and discussions of alternative options of operation, thereby reducing
groupthink and obtaining solutions for complex problems more rapidly (Amason &
Sapienza 1997, Pelled et al. 1999). Taken together, we expect higher numbers of
functional representations in the venture team to positively affect new venture
performance.

Cross-functional
Cross-functional groups bringing together persons with pertinent expertise are
considered effective means to foster a firm’s innovative performance. There is the
generally acknowledged fact that the greater the heterogeneity in the knowledge
stocks held by individuals in the firm, the greater the potential for new knowledge to
be generated (Cohen & Levinthal 1990). Accordingly, founding teams that
encompass heterogeneous functional backgrounds should have a higher level of
“absorptive capacity” to tap a broad array of relevant information and, thus, have
greater innovative capabilities. Similarly, arguments from the cognitive resource
diversity paradigm would suggest that teams with diverse backgrounds and
perspectives are more likely to challenge conventional ways of doing things and to
successfully generate new products and services than more homogenous teams
(Jackson 1992). Referring to this, Ruef (2002) convincingly argued that a team
composed of members with accounting, marketing and engineering backgrounds
should be more creative in terms of discovering new combinations of resources and
skills than a team composed only of accountants. Also, the literature on new product
development teams contended a strong relationship between the number of
functional representations in the venture team and innovative output of a firm.
Highly heterogeneous teams were found to decrease the time-to-market of new
products by bringing more creative potential to problem solving and ensuring
availability of critical input (Sethi et al. 2001).

Team heterogeneity
Yet, team functional heterogeneity does not generally unfold positive effects on
innovative performance. While different perspectives may enrich any decision-
making process, at some point, heterogeneity of inputs can create information
overload diminishing a team’s ability to handle various, often contradictory solutions
(Milliken & Martins 1996, Sethi et al. 2001). It is, then, not uncommon to find teams
resorting to algorithmic or routine problem-solving, which was suggested to reduce
the likelihood to discover innovative ideas (Sethi et al. 2001). Furthermore and in
accord with the similarity-attraction paradigm, functionally heterogeneous groups
made up of individuals from entirely different “thought worlds” may find it difficult to
develop a shared purpose since they may have different perceptions of the product
development process and even different definitions of basic terms such as “product”
and “market” (Ancona & Caldwell 1992). Under these circumstances, it should be
rather difficult to achieve an effective teamwork aiming to generate innovative
output (Lovelace et al. 2001, Sethi et al. 2001).

Suggestions
Following this discussion, we suggest an inverse U-shaped relationship between
founding team members’ functional experiences and innovative activity of the new
venture. As functional heterogeneity increases from a low to a moderate level, it
enhances innovative activity. However, beyond a moderate level, heterogeneity of
represented functional areas in the team has a negative effect on innovative activity.

Moderator effects

Becker (1964) stated that higher levels of human capital resources, comprised of
education and work experience, are linked to increased levels of productivity. It is,
therefore, relatively uncontroversial to claim that human capital positively influences
organizational performance in new venture start-ups (Eisenhardt & Schoonhoven
1990). Translating these propositions into a team framework implies that firms
founded by a large group of entrepreneurs will generally be more successful than
firms of smaller venture teams due to a larger amount of human capital resources at
their disposal (Ucbasaran et al. 2003). Following the cognitive resource diversity
perspective, the competitive advantage of larger venture teams may be even more
pronounced when team members bring together work experience from different
functional areas. As compared to smaller teams, large heterogeneous teams are
better equipped to process large amounts of information and execute more tasks
simultaneously. A larger group of entrepreneurs with different functional
backgrounds further allows for functional specialization and a higher degree of
division of labor (Eisenhardt & Schoonhoven 1990).

Team size

On the other hand, team size is also argued to have the potential to increase team
processing demands. Teams with a higher number of members can cause
coordination problems and communication errors due to increases in team member
interactions (Horwitz 2005). Additionally, founder teams may be faced with free-
riding problems. It was theorized that in large groups the individual group member
has an incentive to work less than at the efficient level (Kandel & Lazear 1992).
Based on these findings, authors have pointed out diminishing returns of team size.
In the same vein, arguments from the similarity-attraction paradigm would suggest
that larger teams, more than smaller teams, suffer from intensified emotional
conflict (Ancona & Caldwell 1992, Eisenhardt et al. 1997). Previous research
contends that teams with a greater number of members are also more likely to
encompass divergent perspectives, personal goals, and functional backgrounds.
Hence, the chances of reaching any consensus diminishes as the number of
members rises, suggesting that dysfunctional emotional conflict occurs more
frequently in larger teams (Amason & Sapienza 1997).
DATASET AND METHODS

Dataset

The data for our analysis are taken from the “Thuringian Founder Study“. This is an
interdisciplinary research project on success and failure of innovative start-ups and
comprises psychological data as well as business data. This unique dataset
comprises the entries of private and commercial companies in the commercial
register (Handelsregister) between the years 1994-2006 in Thuringia. We restricted
this base to entries in innovative industries (according to ZEW classification). The
first registered owner-managers (4,215 founders) for each new entry (2,971
companies) form the survey-population. As the next step we selected a random
sample, contacted the founders, and conducted 639 face-to-face interviews with the
solo entrepreneur or the leading entrepreneur of a start-up team from January to
October 2008. This corresponds to a response rate of approximately 25%. We
restrict our analysis to 410 new venture teams, counting as members all individual
persons, which were actively involved in the venture creation process and owned or
had owned a part of the venture. Thereby it is irrelevant if some of these persons
joined the team later or left the new venture prior to start-up. To save interview
time we collected in depth information only for at the maximum five team members.
After removing not genuinely start-ups and observations with missing data, our final
sample consists of 337 companies.

Dependent Variables

Our dependent variables attempt to measure the economic and innovative

performance of start-up firms (italics indicate the respective variable name). The first
indicator of economic performance is the survival status of the companies after the
first three years of operation. Venture growth, our second economic performance
indicator, is approximated by the absolute number of employees in the third
business year. Finally, we measure innovative performance of the companies by
capturing their patenting activities. Therefore, data from the German Patent Office is
used. We count the number of patents which either the founding team (as inventor)
or the company (as applicant) filed during the first four years of business operation.

Independent Variables

As already stated, extant literature conceptualizes team heterogeneity as referring to

the distribution of one single attribute among the team members, such as age,
gender or education. Research applying this kind of measurement typically provides
contradictory effects of heterogeneity on team performance, suggesting for the
“double-edged sword” metaphor. We aim to take account of these issues by
modelling both “edges” of team heterogeneity. That is to say, we consider both the
positive and the negative effects found in past studies on venture team
heterogeneity by developing two separate heterogeneity dimensions, namely scope
and disparity of the new venture team’s knowledge base. Furthermore, both
dimensions are each composed of two different heterogeneity indices applied from
the fields of ecological, technical and product diversity. More precisely, variety and
diversity indices form the measure of knowledge scope, while dissimilarity and non-
redundancy indices form the knowledge disparity measure. In order to generate
these indices, we focus on the functional background of the new venture team
members. The necessary information was retrieved by asking the interviewee in
which of the following six categories team members had prior work experience: 1)
management, 2) marketing / sales / promotion, 3) accounting / controlling /
financing, 4) engineering / r&d, 5) production, and 6) personnel. To formalize, let n
be the total number of functional categories in which one entrepreneur can acquire
practical experience prior to the start-up. Let m denote the number of the team
members. If an entrepreneur has experience in one or more categories, this can be
written as
(1) [Formula]
In applying a more fine-grained approach to tackle the complexity of venture team
heterogeneity, our measures circumvent weaknesses of well-established
heterogeneity measures found in entrepreneurship studies (Chowdhury 2005) and in
the top management team literature (e.g., Amason & Sapienza, 1997). The most
prominent example is Blau´s (1977) index
(2) [Formula]
where pi denotes the proportion of the team members which had prior experience in
each category.###Summation sample$$$Next, we illustrate how the indices of
variety, diversity, dissimilarity and non-redundancy were calculated in order to finally
obtain our measures of knowledge scope and knowledge disparity. For a better
understanding, an illustrative example is provided.

Variety and Diversity

The basis for these two indices of a venture team’s knowledge scope is a general
measure of entropy, as formulated by Hill (1973) and Baumgaertner (2004). They
adopted concepts of information theory (Shannon 1948, Rényi 1961) and applied
them to measure product diversity with various indicators. Central to this family of
measures is, as in the case of the Blau index, the proportion of the team members
with experience in the different categories. This enters the calculation in a weighted
form. To be more precise, the procedure weights the number of team members with
experience in a given functional category against the absolute number of
experiences the team as a whole enjoys in all categories. The weighting procedure
can than be formalized as
(3) [Formula]
where si denotes the weighted probability of team members experience in a given
category. A general measure of entropy (Hill 1973, Baumgaertner 2004) is then
given by
(4) [Formula]
Subspecies of this formula family can be derived by including different values of a.
For example, one obtains the Shannon (1948) entropy index for a = 1, or the
Herfindahl-Hirschman index for a = 2 (Herfindahl 1950, Hirschman 1964). In
general, a determines how much weight one imposes on the absolute breadth of the
functional background (low values of a) of the whole team and how much the
evenness of the distribution of the functional background (high values of a) between
the different team members matter. We calculate the indices of variety and diversity
with the extreme cases of a = 0 and . For variety, equation (4) reduces to
(5) [Formula]
where z is simply the number of categories in which at least one of the team
members had prior experience.1 Variety can be interpreted as the breadth of the
knowledge base of a start-up team. As a approaches infinity, equation (4) collapses
to
(6) [Formula]
Diversity only hinges on the weighted probability of the category in which the team
members have the most experience. It is therefore, a measure how dis-specialised a
new venture team is according to its work experience and knowledge base.

Dissimilarity and Non-redundancy

Our measure of dissimilarity is based on pair wise comparison of the functional

background pattern of the entrepreneurs. Therefore we examine for each pair of
entrepreneurs if their functional backgrounds overlap. We write exemplary for the
two entrepreneurs A and B of a team
(7) [Formula]
Thereafter, we sum up fi over all categories and obtain with the number of
categories with overlapping experiences between entrepreneur A and B. The
dissimilarity in the functional pattern between those two entrepreneurs is calculated
by
(8) [Formula]
This variable ranges from zero indicating complete overlap of the functional
background to unity indicating complete heterogeneity of the functional backgrounds
of A and B. Finally, we take the mean of all pair wise dissimilarity measures to obtain
the dissimilarity index of the team as a whole.
A suitable starting point for the derivation of non-rendundancy is the variety
measure of the pure breadth of a team´s functional background. Here, we weight
the pure number of categories (z) in which at least one of team members had
worked prior to starting the firm with the absolute number of experiences the team
as a whole enjoys in these z categories. Non-rendundancy is therefore calculated by
the following equation
(9) [Formula]
In the context of entrepreneurship non-redundancy is a measure of the thinness of
the team members shared experience in their functional pattern, with high values
indicating a lack of a common language and cohesion.

Controls

We control for several other indicators of heterogeneity discussed in the literature

(Chowdhurry 2005, Ruef et al. 2003, Bantel & Jackson 1989). We include the
number of team members during the venture creation process in our regressions.
Using the above described Blau´s index we calculate age heterogeneity (7
categories) and industry experience heterogeneity (2 categories).###Insert Picture
window$$$We also have data concerning the nature of the relationship among all
team members (coded as 1=spouses or partners, 2=relatives, 3=friends or
colleagues with prior work experience, 4=friends or colleagues without prior work
experience, 5=strangers before joining the team) at the time of the first steps into
the venture creation process. To account for this relational composition among the
team members we compute the mean for this variable on all pair wise combinations
of the team members. We control for the effect of financial capital by including the
start-up capital in the first year of operation. Furthermore we control for the
innovativeness of the companies products and services.2 Final controls refer to
industry and the start-up year. Note that our data have a clear time structure, since
all the independent variables and controls refer to the nascent phase from the first
steps into the venture creation process till the start of the first business year. The
dependent variables relate to subsequent venture success.###The Ribbon in Word$
$$
RESULTS

Descriptive Results

Table 1 shows descriptive statistics and intercorrelations of the variables used. The
start-up teams are characterized by high variety, covering at the mean more than
four out of the six predefined functional categories. Concerning diversity,
dissimilarity and non-redundancy we find our teams showing a moderate degree of
heterogeneity, although there is high variation among these variables. As expected
our measures of variety and diversity are highly correlated (r > .8). The same holds
true for the measures of dissimilarity and non-redundancy (r > .8). A principal
component analysis further revealed that both pairs of heterogeneity indicators
loaded on a separate factor (factor loadings exceed the value of .95).###SmartArt
sample$$$As variety and diversity are designed as indicators for the breadth of a
team’s knowledge base, this factor is termed knowledge scope (henceforth scope).
Non-redundancy and dissimilarity measure the team’s similarities and differences in
their work experience pattern. High values indicate the absence of a “common
language”, while the likelihood of emotional conflicts and tensions is rising.
Therefore the respective factor is called knowledge disparity (henceforth disparity).
Both factors, scope and disparity stem from the same data source (team members’
experience in six predefined functional fields) but show almost no correlation (r
= .1).

Regression Analysis

Looking first at the determinants of venture survival (left part of table 2), we find
new venture teams with high levels of disparity to have a significantly (p < .05)
lower probability of business continuation after the first three business years. Scope
as well as traditional indicators of heterogeneity (number of team members, industry
experience, age, relational composition) seems to have no effect on venture survival.
The models in the right part of table 2 analyze the determinants of venture growth
in terms of absolute employment after three business years. Here, we find that new
venture teams profit from their scope (p < .01), whereas disparity does not affect
employment. Taken together, we find support for Hypotheses 1a and 1b. High
degrees of disparity negatively and high degrees of scope positively affect new
venture performance.

Innovative activity
Now we turn to the innovative activity of a new venture team (table 3). In addition
and consistent with our assumption (Hypothesis 1c) disparity had a negative effect
(p < .05) – which is robust over all models – on innovative activity of the company.
In order to test Hypothesis 1d we include the squared term of scope in model P-I.
Both terms turn out to be significant (p < .1) in this model, with the maximum of
the innovative activity being reached at a value of .45 for scope. However, we
conclude our Hypothesis 1d to be weakly supported.3

Number of team members

Hypothesis 2a stated that the number of team members has a moderating effect on
the linkage between scope and new venture performance. At first sight, the results
of the logistic regression on survival (model S-III in table 2) indicated that the
interaction of number of team members x scope is negative and significant.
However, Ai and Norton (2003) suggested that the interpretation of an moderating
effect in non-linear models is different from linear models and not done by a t-test
on the respective interaction term. Following the procedure suggested by Ai and
Norton (2003) we still find the interaction effect of number of team members x
scope to be negative but now non-significant. Since the interaction term of number
of team members x scope does also not affect the employment growth of the
companies (model E-III in table 2) our Hypothesis 2a is not supported. Hypothesis
2b proposed a moderating effect of the number of team members on the linkage
between scope and the innovative performance. However, inspecting model P-V in
table 3 we find the respective interaction term non-significant and therefore have to
reject the hypothesis.

Moderating effect
Now we turn to the moderating effect of the number of team members on the
linkage between disparity and new venture performance (Hypothesis 2c) as well as
innovative activity (Hypothesis 2d). Model P-IV in table 3 indicates a negative and
significant moderation concerning the number of filed patents. Running an OLS
regression instead of a negative binomial regression confirms these results even at a
higher level of significance (p < .01). At the mean, high degrees of disparity already
reduced the number of filed patents of a company. This effect is more pronounced
for larger teams. Taken together we find Hypothesis 2d to be supported. Hypothesis
2c is not supported by the data, since the respective interaction terms in models S-
IV and E-IV (table 2) are non-significant.
CONCLUSION

We find that our four indicators of heterogeneity (variety, diversity, dissimilarity, and
non-redundancy) indeed condense to two separate factors (scope and disparity),
which stand in the tradition of the cognitive resource diversity perspective and
similarity-attraction paradim. Both factors affect success differently. New venture
teams with high degrees of disparity had a significantly lower probability to survive
the first three business years. However, disparity had no further impact on the
growth of the company. In contrast, scope affected positively the employment
growth of a company, but had no effect on survival. Concerning innovative success
new venture teams profited from moderate levels of scope. A too high as well as too
low value of scope significantly reduces the number of filed patents. Also high values
of disparity lead to a reduction of patenting activities.
Based on our findings, we argue that the inconclusiveness of previous empirical
research on the team heterogeneity–performance link is, at least to some degree,
attributable to the use of inappropriate heterogeneity measures.
CONTACT: Uwe Cantner; (T): +39-3621-9455201; Friedrich Schiller University Jena,
Chair of Microeconomics, Carl-Zeiss-Str. 3, 07743 Jena, Germany
NOTES

1. Equation 5 differs slightly from the original equation of Baumgaertner (2004). This
is due to the fact that Baumgaertner only runs the calculations with the categories,
which are effectively occupied. In our case the entrepreneurial team may have no
experience in one or two of the six predefined categories, leaving them empty and
si=0. For values of zero the equation is not defined. We resolve the problem by
calculating the equation only for those categories which are not empty or in other
words in which at least one of team members gained experience. Nonetheless, this
detour keeps the spirit of Hill’s and Baumgaertner´s idea completely intact.
2. This is a binary variable with the value of one if the company has a product,
process or distribution innovation compared to their competitors and the business
idea is new at least at a supraregional level.
3. We do so because we could only run the regression on patents with a small sub
sample of those projects which undertook own R&D-efforts. If we reasonable
assume all other firms to have zero patents and run zero inflated negative binomial
regressions the results become more pronounced and are stable among various
variations of the model.
4. Regression results are available upon request from the authors.
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