Entrepreneurial Teams: Prior Industry Experience and Early-Stage Growth

We use career backgrounds of initial employees from a full cohort of U.S. startups to measure founding teams’ skillsets. Startups with more diverse prior industry experience grow faster than same-industry local peers. One-standard-deviation-higher diversity is associated with 16% (10%) higher five-year employment (sales) growth, controlling for demographic diversity, prestartup wages, and other observables. Startups in innovative industries and facing lower coordination costs among team members drive the results. To address endogeneity, we exploit shocks in which teams suddenly lose members with unduplicated skills. Overall, combining individual specialization with team-level diversification allows teams to act as “jacks of all trades and masters of each.”

This paper was accepted by Bo Becker, finance.

Funding: This research uses data from the Census Bureau’s Longitudinal Employer Household Dynamics Program, which was partially supported by the National Science Foundation [Grants SES-9978093, SES-0339191 and ITR-0427889], the National Institute on Aging [Grant AG018854], and grants from the Alfred P. Sloan Foundation.

Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00773 .