Organizational growth: linking founding team strategy, environment, and growth among U.S. semiconductor ventures, 1978-1988

Administrative Science Quarterly,  Sept, 1990  by Kathleen M. Eisenhardt,  Claudia Bird Schoonhoven

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Joint experience. We measured joint work experience in two steps. First, we determined the number of founding executives who had worked with another founding executive for at least six months prior to founding the company. Second, this number was divided by the total number of founding executives. This variable ranges between 0, for teams in which none of the founders had previously worked together, and 1, for teams in which all of the founders had previous work relationships together. Since most teams have either very high or very low joint experience, the assessment of joint experience is insensitive to the method of calculation.

Team size. The founding team size was measured as the number of individuals who were designated by the company respondents as founders. These individuals founded the firm and worked full time for the firm in executive positions at its inception. The number of founders ranged from one to seven.

Heterogeneity of industry experience. We measured the heterogeneity of industry experience by computing the standard deviation of the number of years of semiconductor-industry experience for all executives on the founding team. Company respondents provided this information for each member of the founding team. We then averaged these experience levels for a team score and computed the standard deviation. The standard deviation is superior to the coefficient of variation because the variable itself and its scale are theoretically meaningful in this study (Allison, 1978).

Dependent Measure

Firm growth. We measured firm growth as the difference in sales in each year of life through 1988 relative to sales at founding. However, since the sales at founding were 0 for all firms, the measure of growth in any year reduced simply to the sales in that year. We obtained these growth data directly from firms and public sources such as public-offering documents and annual reports. We adjusted these sales figures to 1988 dollars using the annual producer price index of the Bureau of Labor Statistics. We used this growth measure instead of alternative measures such as percentage growth and growth rate, for several reasons. First, it measures the absolute change in size of each firm from a common starting point, the founding of the firm. This fits with our interest in understanding why some young firms grow more than others. Second, it is computationally tractable. In contrast, percentage growth cannot be computed from founding, since all sales are initially zero and, for many firms, are zero in subsequent years as well. Finally, growth rate is simply our measure of growth divided by the time period. However, since the time period is constant across cases for any point in time, one is simply adjusting all cases by a constant. Thus, there is no difference in the pattern of significant results between the two measures. Five firms were acquired. Since these firms continued as independent entities (e.g., wholly owned subsidiaries) after acquisition, we used their sales figures both before and after acquisition. Failed firms were those that ceased to operate. We analyzed the data for failed firms in two ways: eliminating the dead firms when they failed and including them with 0 sales for each year in which they could have had sales if they had lived. The results using the former method are presented. However, given the small number of firms in this category (e.g., no firms failed before 1985), there is little difference in results.