Diverse founding teams that change composition face hidden performance penalties
A simulation study shows that startups whose founding teams become less diverse over time suffer greater long-term performance hits than teams that maintain diversity throughout. The findings challenge conventional wisdom and suggest diversity strategy matters as much as diversity itself—particularly when founders respond to competitors' success by reshaping their teams.
Originaltitel: Dynamics of founding team diversity and venture outcomes: A simulation approach
<p><strong>Research summary</strong></p><p>Entrepreneurship research overlooks the dynamics of changing diversity in founding teams. Our simulations calibrated from existing studies suggest that founding teams that change diversity exhibit greater discounted performance for their ventures due to being less diverse and thus their ventures surviving longer, compared to teams that maintain their diversity. Moreover, discounted performance is higher for teams changing diversity due to other teams' performance than due to their own poor performance. Simulating without membership changes the interdependence between team diversity, venture performance, and team disruption, we find that while team diversity is overall performance-enhancing, this association differs across contexts and its impact varies as ventures mature. Founding team diversity should thus be seen as a continuum where moderate diversity can best serve teams in turbulent environments.</p><p><strong>Managerial summary</strong></p><p>We simulated the behavior of founding teams over time to show that compared to teams that do not change their diversity, those who do experience greater discounted performance for their business ventures. This improvement stems from the increased longevity, and thus greater accumulated performance, for teams that switch since they are more rather than less homogeneous. Our investigation also indicates that ventures led by teams that change diversity because they aspire to outperform other teams, tend to exhibit greater discounted performance than those that change diversity to outperform themselves. When we investigate the interconnectedness of teams' diversity, ventures' performance, and disruption, albeit without allowing for any changes in team diversity, we find that while diversity usually helps, teams moderately diversified tend to perform best in turbulent times.</p>