Born into chaos: How founding conditions shape whether ventures survive or thrive when experiencing environmental change

Abstract

Research Summary: Integrating research on the persistence of founding conditions and the effects of environmental change, we explore how a venture's performance outcomes following environmental change depend on the venture's environmental conditions at founding. Using a unique sample of 1,060 new ventures from a comprehensive survey of university alumni, our analysis indicates that the interaction of high environmental dynamism at founding and a functionally diverse founding team is beneficial to venture survival when environmental dynamism increases over time. However, the same founding conditions result in a decreased likelihood of positive exit when environmental dynamism decreases. Managerial Summary: This study examines the interplay between environmental change and internal team composition, revealing how best to benefit from the potential created by environmental change. We find that (relative to functionally homogenous teams) founders that assemble more functionally diverse teams survive longer when facing increasing environmental dynamism. In contrast, a more functionally homogenous team is better able to capture opportunities when environmental dynamism decreases after founding. While predicting the course of environmental change is difficult, entrepreneurs who can synchronize their predictions of change with their decisions regarding team composition can enable better venture performance. This study also highlights the importance of developing capabilities to enable flexibility in decision-making processes, which are often inflexible, limiting the ability to take advantage of unique opportunities provided by environmental change.