Founder–inventors and their investors: Spurring firm survival and growth

• Author: Carolin Haeussler,Elisabeth Mueller,Maria Hennicke
• Published date: 01 September 2019
• DOI: http://doi.org/10.1002/sej.1326
• Date: 01 September 2019

SPECIAL ISSUE ARTICLE

Founder–inventors and their investors: Spurring

firm survival and growth

Carolin Haeussler

1

| Maria Hennicke

2

| Elisabeth Mueller

3,4

1

University of Passau, Passau, Germany

2

Frankfurt School of Finance and Management, Frankfurt am Main, Germany

3

German Graduate School of Management and Law, Heilbronn, Germany

4

ZEW - Leibniz Centre for European Economic Research, Mannheim, Germany

Correspondence

Carolin Haeussler, University of Passau,

Innstrasse 27, 94032 Passau, Germany.

Email: carolin.haeussler@uni-passau.de

Funding information

Deutsche Forschungsgemeinschaft, Grant/

Award Numbers: HA 5363/2-1, MU 3573/2-1

Abstract

Research Summary:Drawing on insights from resource orches-

tration literature and the competence-based perspective, we

argue that founders involved in inventive activities display firm-

idiosyncratic founder–inventor competences critical to the firm's

performance. This effect is enhanced by venture capital inves-

tors. To test our hypotheses, we use panel data from 1,498

firms. Controlling for founders' technical skills, our results reveal

that founder involvement in R&D increases firm survival and

growth. Furthermore, venture capitalists leverage founders'

engagement in inventive activity to achieve even higher growth.

Our findings imply that continuous application of founder–

inventor competences serves to catalyze effective resource

orchestration and strengthen new venture performance.

Managerial Summary:The role of founders and founder

competences is critical as firms progress along their life

cycles, whereby founders face decisions about which tasks

deserve their attention and which ones they can delegate to

their employees, middle-management, and/or new hires.

One key strategic choice for founders is whether to engage

in inventive activities themselves and remain engaged.

Based on a large firm dataset, we find that founders' inven-

tive activities spur survival and growth. Furthermore, ven-

ture capital investors leverage the effect on growth because

they often bring in their own industry expertise, turn

Received: 30 July 2017 Revised: 26 April 2019 Accepted: 15 June 2019 Published on: 9 August 2019

DOI: 10.1002/sej.1326

© 2019 Strategic Management Society

288 wileyonlinelibrary.com/journal/sej Strategic Entrepreneurship Journal. 2019;13:288–325.

attention to the core capabilities, and revitalize the top man-

agement team. These investor activities enable founders to

focus their attention on areas in which their involvement

best supports the firm's performance, namely inventive

activities.

KEYWORDS

firm performance, founder–inventor, research and development,

resource orchestration, venture capital

“What am I good at? What, of all these needs of the venture, could I supply and supply with distinction?”

Peter Drucker (1985, p. 201).

1|INTRODUCTION

Exactly how research-intensive firms develop, create value, and thrive and exactly whose competences are the driv-

ing force behind success are topics of considerable complexity and interest in the field of entrepreneurship. Yet, few

prior studies have addressed organizational design issues related to the competences and roles of a venture's man-

agers, such as their functional specialization (Beckman & Burton, 2008; Ferguson, Cohen, Burton, & Beckman, 2016),

the adoption of managerial practices (Baron, Burton, & Hannan, 1999; Colombo, Piva, & Rossi-Lamastra, 2013), and

changes in terms of founder control of the board and/or the CEO position (Wasserman, 2017). An important organi-

zational design issue that has yet to receive significant research attention relates to the design of research and devel-

opment (R&D) teams and the role of founders in R&D in particular.

This lack of investigation is surprising given that research-intensive firms are challenged to create value based on

the firm's unique resources. While there is growing scholarly debate about the link between the orchestration of

resources and the creation of value (e.g., Sirmon, Hitt, & Ireland, 2007; Sirmon, Hitt, Ireland, & Gilbert, 2011), the

field offers little insight to date into how founders and their particular competences affect the resource transforma-

tion process. The role of founders and founder competences is critical as firms progress along the life cycle, and

founders face decisions about which tasks deserve their attention and which ones they can delegate to their

employees, middle-management, and/or new hires to achieve higher performance. One key strategic choice for

founders is whether to engage in R&D activities themselves and remain engaged. The objective of this article is to

investigate the impact on firm performance of (ongoing) founder involvement in inventive activities. We approach

our investigation as a question of resource orchestration, which provides a means of understanding how firms create

and maintain value, and combine it with the competence-based perspective, which offers a way of investigating

whose involvement and competences are key.

Resource orchestration is an emerging research stream aimed at extending the resource-based view by explicitly

focusing on the role of managers' actions in transforming resources into performance (Sirmon et al., 2011). Individ-

uals in firms are tasked with structuring the firm's resource portfolio, bundling resources to build capabilities, and

leveraging those capabilities to create competitive advantage (Hitt, Ireland, Sirmon, & Trahms, 2011; Sirmon et al.,

2007, 2011). The resource orchestration literature seeks to understand how a firm's resources turn into firm value

and to identify where potential has yet to be realized. Empirical research, such as Chirico, Sirmon, Sciascia, and

Mazzola (2011), is beginning to provide insight into the mechanisms of this process of transformation. We propose

augmenting the resource orchestration view by using the competence-based perspective as an angle of inquiry

HAEUSSLER ET AL.289

explicitly to address who in a firm's roster can master this process of transformation and with what competences.

The competence-based perspective looks at competences of individuals, such as skills and tacit knowledge, as a

means of understanding and quantifying the existence, structure, and growth prospects of firms (Foss, 1993;

Hodgson, 1998; Penrose, 1959). This approach is concerned with who is involved and what makes individuals particu-

larly equipped to effectively deploy and manage their skill sets along with a firm's resources to create value

(Mahoney, 1995). Our study combines resource orchestration's concern with the “actions leaders take”(Hitt et al.,

2011, p. 64) and the competence-based perspective's identification of individual competencies best applied to effec-

tively manage the firms' resources.

Indisputably, the unique capabilities of ventures are closely related to the skills of their founders (Colombo &

Grilli, 2005). Firms are created based on the firm-idiosyncratic and noncontractible nature of entrepreneurial judg-

ment (Foss & Klein, 2012; Hodgson, 1998). The importance of founders for setting the firm's future path and their

long-lasting imprinting effect on startups is well documented (Baron, Hannan, & Burton, 1999; McMullen & Shep-

herd, 2006; Penrose, 1959; Stinchcombe, 1965). At the same time, researchers suspect founders may not be able to

lead firms on a high-growth path and argue for reorganizing activities in later stages (Hébert & Link, 2006; Smith,

Mitchell, & Summer, 1985; Wasserman, 2008).

Not surprisingly, an increasing number of studies shed light on the importance of founders' technical capabilities

for their ventures' performance (e.g., Gimmon & Levie, 2010; Gruber, Kim, & Brinckmann, 2015; Roberts, 1991). In

particular, these studies address founders' technological education and experience before founding the firm. For

example, Colombo and Grilli (2005) report that technical experience prior to founding determines growth, whereas

commercial experience exerts an impact only in interaction with technical experience. In their 2010 paper, they find

that prior technological work experience matters for growth, but their results for technological education are mixed.

Gruber, MacMillan, and Thompson (2013) show that founders' technological expertise determines whether a firm

can identify varied market opportunities, but this expertise does not exert a significant effect on diversification.

Hence, results on prefounding technological experience reveal that technical capabilities seem to matter but that the

specific measurement is important. What is surprising, however, is that existing literature offers limited insight into

whether application of these capabilities in their firms—by founders in fact being involved in inventive activity—is

important. Insight into the measurable outcomes of founder–inventive involvement would allow us to better under-

stand the nature of the distinct, firm-idiosyncratic competences founders add when they continue to be involved in

inventive activity.

In this article, we contribute to the organizational design literature by complementing resource orchestration lit-

erature with the competence-based perspective to accomplish two main objectives. First, we lay out and empirically

test how a founder's involvement in R&D impacts firm performance. By combining the management perspective of

resource orchestration and competence focus of the competence-based perspective, we develop a particularly pow-

erful theoretical lens to support our understanding of why the involvement of founders is idiosyncratic to their firms

and usually irreplaceable.

Second, proponents of the resource orchestration view argue that external orientation is important for capability

leveraging (Kazanjian, Drazin, & Glynn, 2002). We propose that venture capital (VC) investors can promote capability

leveraging in that they positively moderate the involvement of founders in inventive activity. We expect thatventure

capitalists are effective because they often bring in their own industry expertise, turn attention to the core capabili-

ties, and revitalize the top management team (TMT). These investor activities enable founders to focus their atten-

tion on areas in which their involvement best supports the firm's performance, namely inventive activities.

To accomplish our objectives, we have compiled a data set that allows us to trace the involvement of founders in

inventive activity as well as the survival and growth of their firms from founding on. Our methodological approach

enables us to distinguish for a given firm the intellectual property (IP) intensity of the firm, the founders' technologi-

cal capabilities prior to founding their firm, and their active involvement in R&D postfounding. Our data sources are

the Mannheim Enterprise Panel, which covers almost all German firms, and the Worldwide Patent Statistical Data-

base (PATSTAT). We identify German technology-oriented firms founded between 1998 and 2007 with at least one

290 HAEUSSLER ET AL.