Researchers explore the division of labour between top management and employees in making innovation happen at successful start-ups.
It’s a given that recruiting and retaining the right employees are crucial, not to mention challenging, necessities for companies at all stages of development. But for a start-up building its team, the people whom Steve Jobs famously referred to as the “first ten” hold the venture’s very survival in their hands. A recent paper from Harvard Business Review and the Centre for European Economic Research (ZEW) examines how a start-up’s supporting players contribute to its success in innovation.
The researchers focused specifically on employee skills in relation to those of its founders. Broadly, business skills and technical skills are the two elemental sets. New business ideas are typically born out of technical skills, while business skills such as identifying markets and securing financing are needed to implement those ideas. Both types of skills should be present, but beyond that, they should be complementary, such that the return on one is greater when the other is engaged as well.
The challenge is to find the ideal configuration of founder-employee business and technical skills. The study found that not all firms that are equipped with both types of skills actually profit from them. Among those that do, the founder was more likely to have the technical skills and employ people with expertise in business. This “complementarity” was less common in cases where a founder with a head for business hires employees who bring the technical know-how.
Surprisingly, start-ups that have a balance of business and technical skills within the founding team were also less likely to prosper. “We suspect the costs of skill diversity are higher within the founding team, which has to agree on a joint strategy, than between founders and employees”, writes Martin Murmann, one of the study’s authors.
With regard to hiring decisions, Murmann said, “The theory of the entrepreneur as a jack-of-all-trades suggests that the success of a new venture is constrained by the weakest skill of the entrepreneur, which implies that entrepreneurs can only successfully employ personnel for tasks they are able to understand sufficiently well.” He posits that a founder with technical skills is more likely to have an understanding of business processes, while a founder with a business background is less likely to have technical expertise.
And yet, the data showed that many founders with technical skills do not hire business experts. This deserves a re-think. The study’s conclusions suggest that, at least from the standpoint of innovation success, tech-savvy founders are well advised to hire people who are trained in business, putting the responsibilities of business operations squarely in the employees’ corner.
