The impact of newness and novelty on the fit between the new venture and the top management team.

Carton, Robert B.

ABSTRACT

This article reviews and applies lessons from the strategic management literature on the relationship between the level of innovation of a new venture and the size, diversity, and experience of its top management team. It is suggested that the greater the novelty of the venture, the smaller and more focused the management team should be. The initial thrust of the enterprise must be to eliminate ambiguity by developing causal understanding amongst all the relevant stakeholders. Once ambiguity has been resolved, the team can expand to address issues of uncertainty and other liabilities of newness.

To illustrate these concepts and drive home the point, the cases of two new ventures in the environmental remediation business are examined. Both were well funded and represented great potential. Both were taken to market by essentially the same top management team. However, one was a tremendous success; the other was a dismal failure.

INTRODUCTION

There is little question that entrepreneurs starting new ventures must build a top management team (TMT) that is knowledgeable in all of the key strategic, technical, and functional areas of their business to be successful. However, the question of when a new organization should add the missing pieces of their TMT puzzle, and whether these missing pieces should be added internally or outsourced, does not lend itself to easy answers. While it may seem logical that the faster a firm fills out its TMT the better, based upon the level of innovativeness of the new venture, this may be the worst thing that the organization can do.

In determining the likelihood of success of a new venture, few things matter more than the top management team. Accordingly, venture capitalists often look to the characteristics of the team and its record when making decisions about who gets funding and who does not. The top management team is important because it is this group of individuals who must usher the venture through the difficult liabilities of newness (Hay, Verdin & Willimason, 1993; Singh, Tucker & House, 1986; Stinchcombe 1965). Indeed, teams that have been successful in managing new ventures in the past are often considered safe bets to do so again in the future.

While acknowledging the importance of the team and the team's experience, this article suggests that venture performance also results from the fit between the team and the new venture itself. Research from the field of strategic management clearly shows that not all teams are equally suited to all tasks. As such, a team that performs well in one venture may not do as well in another. Later in this article, this point will be illustrated with cases drawn from two new ventures, each of which was managed by essentially the same top management team, yet managed to very different outcomes. One was a great success; the other was a dismal failure. Therefore, while the characteristics and experiences of the top management team are clearly important, those characteristics and experiences are by themselves less important than the fit between the team and the venture.

Specifically, the "fit" is between the size, diversity, and experience of the team and the innovativeness of the venture. Research in strategic management has shown that fit between strategy and implementation is key to success (McGrath, Tsai, Venkataraman & MacMillan, 1996). In new ventures, the management team is responsible for implementing strategy. As such, the fit of the team to the strategy is especially important. The degree of innovation appears to dictate many of the tasks of the top management team. In part then, venture performance reflects the fit between the team and the innovativeness of the new venture.

This article will examine how quickly a TMT should fill all of its functional positions given the level of innovation of the new venture. It is suggested that the greater the level of innovation in the new venture, the more homogeneous the TMT must be in knowledge, values, and beliefs. The implication is that the more innovative a new venture, the slower the entrepreneur should fill all of the functional positions of the TMT in order to foster team and stakeholder understanding and preserve company resources.

NEW VENTURES AND INNOVATION

Innovation has been defined as the introduction of something new, representing change in existing circumstances (McGrath, Tsai et al., 1996). Accordingly, all "new" ventures are by definition innovative. While this apparent newness is seen easily in the case of firms like Netscape or Federal Express, both of which created whole new industries, it is not nearly as apparent in cases like Wendy's Old Fashioned Hamburgers or Kinkos, which merely modified and extended existing business models and practices. Reflecting the dissimilarity of these cases, researchers have concluded that innovation can take different forms. Some innovations are altogether new and different and so constitute true revolutions. These do more than merely change the rules of the game, they change the game itself. At the same time, there are also innovations that build on existing knowledge and awareness. These are more evolutionary than revolutionary and merely redefine the nature of existing competition (D'Aveni, 1995; Dewar & Dutton, 1986; Tushman & Anderson, 1986).

Each type of innovation can be placed along a continuum based upon its novelty. The more new products and services differ from what competitors offer and from what customers expect, the greater their innovativeness. Thus, new ventures that create whole new industries by doing something altogether new and different or by delivering an existing product or service in an altogether new and different fashion are highly innovative. At the same time, ventures that simply fill a gap in existing markets through marginal improvements in known products or by moving into new areas of unsatisfied demand are less innovative. The distinction is important because variations in innovativeness affect the level and nature of the knowledge demands facing the venture management team.

To be successful, new ventures must develop a sustainable competitive advantage. This concept implies that 1) customers must value the new product or services the new venture is offering and 2) competitors must not be able to quickly or easily imitate or appropriate what the firm is doing (Porter, 1985). With respect to the first concept, new ventures create value for customers either by reducing what a customer pays for a product or by providing them greater utility, product benefits or features. Hence, new ventures create value for customers either through process innovation, they make it less expensively, or through product innovation, customers pick the new product over competitors for reasons other than price, such as features or benefits.

Thus, innovations can be divided into two primary categories, process innovation and product innovation. Process innovations result in producing a product or service in a new way. The aim of process innovation is to improve efficiency or quality. If a new venture seeks to compete in a market solely on the basis of process innovations, customers will already understand the use and utility of the products and must only be convinced that the new venture's products are less expensive. Cost to the customer can be measured either by purchase price or by the sum of the purchase price plus other expected savings associated with the purchase. An example of these additional savings would be lower after-purchase ownership costs such as maintenance due to the higher quality of the product.

In counterpoint to process innovations, product innovations require that the customer perceive a need for the new features or benefits of the new product. This requires that customers first understand these features and benefits and second, find value therein. With incremental changes to existing products, customer understanding can be readily achieved. However, with significant innovations, customers may need extensive education before accepting the new product.

Both process and product innovations require knowledge transfers both internal and external to the new venture. New ventures may innovate along one or both dimensions simultaneously. New processes may be applied to either new or existing products and new products can be produced by either new or existing processes. Therefore, the overall level of innovation is a function of individual levels of process and product innovation.

How people perceive innovation is based upon their level of understanding of what is new. The less they understand, the more novel the innovation is to them. The result is that anyone that deals with the new venture, such as suppliers, distributors, customers, employees, regulators, etc. must learn what is different about the new venture and understand how it impacts them. The type and level of novelty of the innovation will dictate how much effort it will take to "educate" these stakeholders.

For example, consider the launch of a venture such as Wendy's Old Fashioned Hamburgers. In a case such as this, the need for education was limited. Most of the stakeholders understood the products, the mode of delivery, the nature of the operation, and the range of performance. The process of franchising was understood and accessible. Specifications for inputs were available and objective. Operating parameters were tested and established. Even though new employees required training, they were likely to have been familiar with the nature of their jobs from prior contact with the business as a customer. In short, despite the fact that the venture itself was new, the liabilities of that newness were limited to internal coordination and efficiency challenges, which were easily overcome with information readily at hand.

Conversely, in a highly novel venture like Netscape, stakeholders had few experiences with which to understand the new business. Managers could not be certain what it would take to establish the business because there was no clear and existing market for the product. Potential customers may or may not have understood the benefits of a web browser but in any case would have had no experience with the technology nor would they have had reason to trust this particular firm. Further, management had few precedents to follow in running the business and so had to create new operating and measurement systems from scratch. In addition, management had to do all of this while "on the job" of building and running the new company. Thus, this venture faced significant liabilities attributable not just to newness but also to "differentness." As research by Kimberly (1979) shows, while it is difficult to be new, it is especially difficult to be new and different.

Based upon the above discussion, the level of innovation of a new venture can be represented by two distinct dimensions, product understanding and process understanding. New ventures can be either high or low on either dimension. As a group, new ventures that are high on both dimensions face the greatest challenges in implementing their plans. They will reap the greatest rewards but will also face the greatest chance of failure. New ventures that are low on both dimensions will reap lower rewards but will have a lower chance of failure. Figure 1 depicts this relationship.

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TOP MANAGEMENT TEAM HOMOGENEITY AND SHARED KNOWLEDGE

The top management team of any venture is comprised of those individuals who are responsible for making strategic and policy decisions that determine the success or failure of the organization. As such, they are ultimately responsible for the performance of the organization. For new ventures, the TMT may be limited to the founding entrepreneur or may comprise a limited group of senior executives. To be successful, new venture managers must have a shared vision for how they will guide the organization in its internal development as well as its interactions with the external environment. In most instances, this involves "on-the-job" training for their new roles while simultaneously building a new organization. The new venture managers must establish relationships both internally with employees and externally with customers, suppliers, distributors, investors, creditors, advisors and other stakeholders. Securing the cooperation of all of these constituencies requires establishing personal and organizational legitimacy, which is primarily a function of learning.

As a group, the TMT must have a wide range of knowledge, much of which is not shared. The greater the shared knowledge of the TMT, the greater the homogeneity of the team. The greater the breadth and divergence of knowledge of the TMT (such as non-overlapping functional or industry experience), the greater the team heterogeneity. TMT heterogeneity includes personality factors such as values, beliefs, and cognitions and elements of executive experience such as age, education, functional background, and tenure working together.

Each member of the TMT brings with them a unique set of knowledge resulting from their past education and experience. This knowledge is based upon prior context-specific experience and is stored in the form of schema (Fiske, 1980; Levitt & March, 1988). When an individual encounters a context-specific event in the present that is similar to a prior experience, they are quickly able to activate schemas that dictate courses of action. In essence, the actions they will take are programmed responses based upon prior experience (Abbot & Black, 1986). What differentiates an expert from a novice is the possession of schema related to the context of interest. Experts, given a little bit of situational information, can quickly make inferences about what may happen next in the circumstances and can react accordingly (Abelson & Black, 1986; Shank & Abelson, 1977). However, prior experience can lead to improper actions when schemas are applied to inappropriate context (Chandler, 1996; Reed & DeFillipi, 1990).

The specific knowledge that has been suggested as significant in prior literature is prior managerial experience, prior startup experience, prior management team experience, knowledge, skills and abilities, and prior experience in the line of business (Chandler, 1996; Chandler & Hanks, 1994; Dutton & Jackson, 1987; Herron, 1994; Hoad & Rosko, 1964; Lant & Mezias, 1990; Lumpkin & Dess, 1996; MacMillan, 1986; MacMillan, Seigel et al., 1985; McGee, Dowling et al., 1995; Mitchell, 1994; Roure & Keeley, 1990; Roure & Maidique, 1986; Stuart & Abetti, 1990). These specific areas of knowledge can be classified into two categories, skills/abilities and task/environment (Chandler, 1996; Herron, 1994). Skills/abilities include managerial, technical, functional area, opportunity identification, and creativity knowledge. Task/environment knowledge refers to knowledge gained from prior business experience. This includes knowledge of customers, suppliers, technology, competitors, products/services, and political, legal, and social trends.

In the case of new ventures, the less novel the venture, the more prior experience will work in favor of the new firm as prior schema can be used with little or no modification. However, in the case of highly novel new ventures, prior experience may not be appropriate and existing schema in TMT members must be ignored in favor of new realities. This requires first convincing the new TMT members that they are operating in uncharted territory and then training them how to operate in the new environment. In other words, it can be difficult to teach old dogs new tricks. How well suited the TMT is to learning what is required for the new environment will directly impact the success of the new venture. Accordingly, there must be a fit between the requirements of the new venture strategy and the TMT (Chaganti & Sambharya, 1987; Gupta, 1984; McGrath, Tsai et al., 1996).

Thus, knowledge can be a two-edged sword for new ventures. Too little knowledge in the TMT will mean significant investment in catching up to competitors or in simply understanding the concept of the new venture. Too much knowledge, in particular in skills/abilities area, can lead to the use of inappropriate schema in the context of the current venture. The more aligned and shared knowledge is between members of the TMT, the greater the homogeneity of the TMT. Figure 2 depicts this relationship.

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NEWNESS, INNOVATION AND THE NEED FOR BEHAVIORAL INTEGRATION

The central premise of this article is that the higher the level of innovation, the more homogeneous a new venture's TMT should be in the early stages of the enterprise. Information processing and communication differences imposed by the different levels of innovation are at the heart of this issue. Hambrick (1994) defined the "degree to which [a] group engages in mutual and collective interaction" as "behavioral integration." The more novel the new venture, the greater the need for TMT behavioral integration in either developing the new products and/or implementing new processes.

Research on top management teams has shown that many top management teams do not really function as "teams" in the traditional sense of the word (Hambrick, 1994). Indeed, some are little more than collections of semi-autonomous individuals, who perform separate and specialized tasks with little or no direct involvement from or interaction with their fellow team members. While sharing ultimate responsibility for the firm, these individuals share little responsibility for their individual jobs and interact little in the performance of them. In the language of early organization theorists, these teams operate with low interdependence. At the same time, other teams are truly interactive and mutually responsible for the performance of their jobs. These teams are composed of individuals who work collectively with their fellow team members and share responsibility for the firm itself as well as for a range of its different tasks. These teams represent high interdependence.

In very novel situations, like those commonly found in highly innovative ventures, managers do not possess appropriate schema for the new circumstances since there is no past precedent upon which to draw. Accordingly, managers have two choices: 1) apply schema from past experience that are in some way related or 2) develop a new approach to the situation. In novel circumstances, people tend to rely on what they know best. However, by definition, innovation requires obtaining new information. Managers are forced to develop new patterns and approaches to their situation, which means they must develop and communicate collectively a common perspective and shared understanding of the venture's products, processes, systems, and public persona. Research shows that shared and collective effort, as opposed to segmented and individual effort, is necessary to accomplish such tasks (Hoffman & Maier, 1961; Hoffman, Harburg et al., 1962). Moreover, research also shows that prior experience can hinder the development of new perspectives and understandings (Chandler, 1996). Therefore, it is incumbent upon the TMT to jointly develop a common perspective and a shared understanding of the new venture's products, processes, and the way it should be managed.

Conversely, in less novel situations, like those commonly found in less innovative ventures or when process innovation is restricted to a limited functional area of the new venture, behavioral integration becomes less important since only a subset of the managers are involved in the novel aspects of the new venture. There is greater precedent upon which to draw and available schema are much more appropriate. In these cases, environmental scanning and boundary spanning can be used to obtain necessary new information. Such tasks do not require collective effort and can therefore be effectively segmented into individual initiatives (Eisenhardt & Schoonhoven, 1990). Moreover, research shows that prior experience can be beneficial and enables quick and efficient understanding of the important issues and consensus on how to approach them. In fact, over time, managers within a given field will develop "industry recipes" which reflect a distillation of the best practices within the industry. At the extreme, the development of such heuristics and norms may allow managers to move from firm-to-firm or team-to-team without noticeable loss in their effectiveness as a "team" member.

Therefore, in highly innovative new ventures, TMT members must have high levels of behavioral integration to create shared understanding where none existed before. In less innovative new ventures, TMT members will spend more time scanning the environment, gathering information from key stakeholders, and focusing on the threat from competitors.

The larger the TMT, the more difficult behavioral integration becomes. New ventures tend to have very limited slack resources, principal among them TMT member time. In the early stages of a new venture, managers must not only supervise the day-to-day operations of their functional areas, but they must also build the organization itself. Without standardized operating procedures to rely upon and confronted with the demands of building a cohesive organization from scratch, new venture managers face tremendous demands for their time. As a result, getting a large number of TMT members together for frequent meetings and working sessions becomes an exercise in herding cats. Conversely, large TMT's are well suited for gathering large amounts of information from the external environment, as is required by less innovative new ventures.

It appears clear then, that the skills and abilities needed to manage highly innovative ventures are different from those needed to manage less innovative ventures. In the first case, the team must be able to create a new model to resolve its ambiguity before it can move forward with the other tasks of running the new firm and herein lies the additional difficulty of being both new and different. On the other hand, where there is little ambiguity the team can move quickly to gather and apply information to address uncertainty. These differences in the requisite tasks necessitate different sorts of teams with different sorts of skills and abilities to match them.

DOING FIRST THINGS FIRST

Given the importance of the management team to venture success, many entrepreneurs, venture capitalists, and new venture managers believe their success depends upon their ability to quickly assemble a team with a full range of functional talents and experience. However, this view may not be fully accurate. Managing a new venture can be seen as the implementation of a strategy. Strategy implementation is enhanced when the skills and abilities of the manager are matched to the requirements of the strategy (Szilagyi & Schweiger, 1984). An entrepreneur starts a venture with the purpose of pursuing a specific opportunity. The management team is then responsible for going to market with that opportunity and commercializing it successfully. Thus, the development of the management team should be seen as a critical first step in the process of implementation.

First and foremost in the implementation process is the development of what has been called "causal understanding" (McGrath, Tsai, et al., 1996). Causal understanding relates to consensus on issues such as the venture's competencies and the use of those competencies in the creation of value. What is the product and what value will it create for the customer? Who are the customers and how will they be identified and sold? What sort of operating model will the venture adopt and how will it progress towards its goals? These sorts of basic questions have to be resolved before the venture can effectively go to market and begin to interface with its constituents.

In less innovative ventures, a great deal of causal understanding occurs naturally as there is a high level of familiarity with the business type. As a consequence, a larger and more diverse team, with a deep reservoir of prior experience in new venture management, can be quickly built to facilitate rapid expansion and market acceptance. Of course some liabilities will remain, as there are bound to be uncertainties associated with managing the new firm. However, because of the low novelty setting, information about these uncertainties will be available and accessible to an experienced team proficient in environmental scanning and boundary spanning. In addition, is the presence of appropriate precedent, allowing the team to draw from its reservoir of experience and employ existing schema to manage and coordinate its work. This enables an efficient process with only minimal interdependence. Thus, a large, diverse, and experienced team should add the greatest value to the implementation of less innovative new ventures. This is not to imply that all uncertainty can be eliminated, just that the diverse team can gather a greater amount of pertinent information upon which to make decisions.

In highly innovative ventures, however, the lack of causal understanding means that a smaller and less diverse team may actually be better suited to the task. What is needed in truly novel situations is not the application of existing knowledge to the problem, but the creation of new knowledge through intense processing and exchange of ideas. Thus, in these situations, the ability to frequently exchange rich information and to closely coordinate action is at a premium. Moreover, it is important that the teams not rely too heavily on prior experience; if it were to do so, it might apply inappropriate precedent and schema to the novel situation. Innovativeness necessitates the development and sharing of new perspectives, which, heretofore, did not exist. Management teams without the baggage of previously confirmed "solutions" are more likely to struggle with and talk over possible new ways of contending with the problems at hand. They are also likely to be better at generating new knowledge. Indeed, some researchers have begun to call these unique initial perspectives "learning advantages of newness" (Autio, Sapienza, & Almeida, 2000).

The above discussion suggests that the large, diverse, and experienced team that would be well fit for a less innovative venture, might be altogether unfit to manage a highly innovative one. Such a pre-existing and "complete" team, because of its prior experiences, might have difficulty tolerating ambiguity, and so apply schema and precedent that are inappropriate. Because of its diversity, such a team might allow or even encourage low levels of interdependence among its members and focus instead on efficiency and the segmentation of tasks along the lines of the team's existing skill set. Further, because of its size, such a team might find meetings cumbersome and difficult to coordinate and so further reduce interdependence and face-to-face communication (Amason & Sapienza, 1997). Taking such actions would be detrimental to the early stages of implementing a highly innovative strategy.

Figure 3 depicts the integration of these concepts. If the TMT does not have causal understanding, it is incumbent upon the entrepreneur to educate the other members of the team. The more novel the idea, the more difficult the task. The more difficult the task, the more resources must be consumed in the effort and the longer the time before the new venture will be ready to go to market. The longer the time-to-market, the less critical certain functional areas become, such as sales (if you don't have a product to sell, you don't need sales staff). Thus, it is clear that the more innovative the new venture, the more homogeneous the initial TMT must be. This suggests that in the early stages of a new innovative venture, the entrepreneur should focus on hiring and training only those members of the TMT that will be necessary to move the venture to the next level.

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THE CASE OF TWO NEW VENTURES

As mentioned previously, the propositions concerning the interaction between TMT heterogeneity and the level of new venture innovation reflect the findings of research in the strategic management literature. The above points can be illustrated in the form of two brief cases. These stories are taken from the experiences of the author, who is a seasoned manager with significant new venture experience. The cases are the stories of two new ventures in the environmental remediation industry. What makes the stories especially compelling is that both ventures were taken to market by the same top management team, but with very different results.

The first venture was a specialized, but less innovative, hazardous waste cleanup venture that was extremely successful. The second involved a highly novel biotech environmental cleanup venture that failed. Both were managed by what was essentially the same team, with the same chief executive officer, chief operating officer, chief financial officer, and vice president of engineering and both were well funded at the time of start up. However, whereas the first venture was able to quickly establish causal understanding before consuming its resources, the second required a substantially longer time to build causal understanding and, as a result, consumed its resources prior to commercial success.

The first case involves a company that we will call Greenway. Greenway was formed in late 1982 as a subsidiary of a large engineering firm to pursue hazardous waste cleanup contracts. At the time, there was limited but intense competition in the industry from larger and more established firms, as well from smaller regional firms. Greenway's strategy was to enter strategic partnerships with the smaller cleanup firms in the Southeastern United States to compete with the large firms for Environmental Protection Agency (EPA) contracts. Towards this end, Greenway initially employed a CEO and a toxicologist as its only employees in putting together its first bids. Until an initial contract was obtained, no other staff was hired.

The firm was awarded its first multimillion-dollar contract by the middle of 1983 and so began to hire staff. An operations manager, field employees, and engineers were added as new contracts were obtained. The company also hired marketing, technical, and administrative managers to complete its team soon after the initial contract was awarded. Greenway's strategy was to be a primary contractor and to subcontract any specialized services that may have been required such as trucking, biological treatments, chemical fixation, and disposal. The only field staff that the company employed were supervisors and semi-skilled laborers.

Greenway only pursued contracts where the method of cleanup was well understood by the clients and regulatory authorities. As such, while the strategy was highly focused and specialized, neither the service nor its application were particularly novel. The addition of the marketing staff led quickly to obtaining commercial work including long-term contracts with the largest polluters and, after three years, the company had earned an outstanding reputation.

As the company was growing quickly, having a well-qualified chief financial officer allowed Greenway to adopt new financial and reporting systems to keep pace with the rapidly expanding administrative and accounting requirements associated with large government contracts. Overall, since there were no impediments to growth except establishing legitimacy and being competitive on price, having an experienced and functionally specialized management team was critical to the company's success. With such a team in place, Greenway grew in a period of 5 years from two to three hundred and fifty employees with annual revenues approaching $25,000,000. At that point, the company was sold for one of the highest prices ever paid for a hazardous waste cleanup contractor at the time.

This case provides a good example of a less innovative startup and of the implementation requirements placed on its top management team. Greenway was well funded initially yet lacked the reputation and systems required to be successful. The competitive nature of the industry required that both a high level of reliability and a low cost be achieved. To be successful, Greenway needed to scan the environment for the most reliable subcontractors, the most prolific polluters, the contracting requirements of the EPA, as well as information about regulation and oversight. This information needed to be gathered quickly and internalized if the firm was to succeed, which meant that the management team needed to be relatively complete, with individuals who could span these environmental boundaries and fill these gaps in the venture's knowledge.

Towards this end, the team was assembled to include a variety of functional specialists, with specific knowledge and experience in the different functions the firm would perform. The marketing manager had experience and skills that allowed him to quickly identify opportunities and bid work. The engineering manager had the knowledge and experience to identify and work with subcontractors to insure efficient and well-done projects. The CFO had knowledge and experience with government contracts, payment practices, documentation requirements, and control systems that allowed him to manage the growing workload. Finally, the CEO had sufficient knowledge and experience to structure this group of managers in a loose fashion while motivating them to be proactive and aggressive. This arrangement, when matched with the high level of business familiarity, enabled the members of the team to work independently, yet towards a common goal. Everyone knew and understood the strategy and their role within it. Thus, having in place this complete, functionally diverse, and experienced team, with its high level of causal understanding, enabled a quick and effective start up of what ultimately became a very successful venture.

The second case involves a company that we will call Bioclean. The story of Bioclean is quite different from that of Greenway and provides a clear example of the pitfalls of misfit between the strategy and the top management team. In 1989, a venture capital firm provided seed funding to a university professor of microbiology for the development of a biological treatment using naturally occurring organisms for certain highly recalcitrant carbon-based compounds such as creosote (a wood preservative) and the wastes from the production of gas from coal. The purpose of the seed funding was to provide the matching funds for a Cooperative Research and Development Agreement (CRDA) with the EPA at their main biological research facility.

Under the CRDA, Bioclean provided two Ph.D. microbiologists as lead researchers and two lab technicians. The EPA provided lab and office space, equipment, additional lab technicians, as well as access to all researchers at the laboratory. The CRDA provided that the EPA would own any discoveries at the lab and Bioclean would have an exclusive license to commercialize them. The EPA would receive a royalty on the use of any of the discoveries.

The process of isolating naturally occurring microorganisms that use targeted wastes as food is painstaking, often requiring several years. Once the microorganisms are isolated, there is a long, involved process of proving the efficacy of the environmental treatment including field trials under the supervision of the EPA. Even after proving the commercial viability of the treatment, the typical lead-time for environmental remediation projects is twelve months.

In 1990, the first successes were achieved in the laboratory and Bioclean was ready to begin commercial trials. However, before the venture capital firm would advance the money necessary for further development, they required that a professional management team be hired. As mentioned, this requirement is consistent with the popular belief that quickly establishing a complete and experienced team is key to success. Towards this end and consistent with the notion that successful new venture managers are likely to be successful again, Bioclean hired a president who had experience in starting and growing an environmental remediation company. The president's prior company, Greenway, had managed many large, EPA-contracted, environmental remediation projects.

Acting in manner consistent with accepted wisdom, the new president moved quickly to complete what he perceived as the critical components of the top management team by hiring a vice president of engineering to manage interactions with the EPA, a vice president of operations who was experienced in site cleanup operations, a vice president of finance to continue to look for investment capital and to report to the venture capital firm, a vice president of research and development, a senior project manager, and a senior marketing representative. To support these people, a secretary, an office manager, and several operations technicians were also hired.

Inasmuch as the firm had not yet begun selling its new product, the cost of employing this complete management team led to considerable losses. To offset some of the cost, the new management team began pursuing additional business in the form of conventional remediation projects. Such aggressiveness was consistent with the CEO's experiences and had been effective in the past in helping other ventures gain legitimacy. Several biological remediation projects involving readily available and existing technology were obtained and performed. These projects were profitable but required considerable management attention and investment in conventional remediation equipment. The result was a continuing need for funding from the venture capitalist. However, a more important consequence of pursuing conventional cleanup contracts was that resources were diverted from the primary research effort, including the involvement of the Ph.D. researchers in marketing and technical consulting on the new contracts. As these projects accumulated, management's focus was further diverted from the research, development, and refinement of its core technology. The consequence of this misdirected focus was considerable delay in the development of the new products. Moreover, the increasing focus on conventional projects and on staff and resources to support that focus led to ever-escalating overhead, which only further fueled the desire for more billable projects.

By 1993, the venture capital firm had reached the limit of what it would invest yet Bioclean was still losing money and demanding more resources. The completion of the new and highly innovative products that could yield the necessary high margins was still months if not years away. In short, the company had a well-qualified management team, with a proven history of success, which had lost its focus and support. An attempt to sell the company resulted in minimal returns on the sale of the technology and the rights to the CRDA, but no value was received for the remainder. Although different from the first case, the lessons of the second are just as clear. This venture represented a tremendous opportunity. Its innovative technology had the potential to dramatically alter the nature of the remediation business. Further, with the sole rights to license the technology and with the support of the EPA, Bioclean had opportunities to reap considerable margins for some time into the future. However, the firm lost focus and ultimately failed. How could this happen given the knowledge and experience of the management team? As discussed throughout, the answer lies in the issue of fit, or in this case, misfit between the level of innovation and the composition of the top management team.

There was a clear absence of causal understanding in this case, brought about by the presence of a management team whose abilities were not yet needed and whose costs were not yet productive. This team of individuals had a proven track record and had successfully launched new ventures in this industry before. Thus, when faced with the ambiguity of this new situation, they fell back on established patterns of behavior. Indeed, their success with these established patterns might well have contributed to their inability to do anything else. Research has shown that teams can become locked into patterns of past behavior, replicating successful behaviors and discontinuing unsuccessful ones (Autio, Sapienza, & Almeida, 2000). Over time, this tendency can create unwillingness to experiment and blindness to new information that is uncovered.

Bioclean's management team consisted of knowledgeable specialists. These individuals had worked together before at Greenway and were comfortable with one another's abilities. As such, they had learned to take charge on certain tasks themselves while relying on their fellow team members to perform others. They had also learned to be independent and to quickly reach out to span the gap between the firm and the environment. Their low level of interdependence further facilitated this tendency.

When placed in the position of managing Bioclean, they behaved as they had with Greenway. However, in this instance, those behaviors did not fit the requirements of the new venture and its strategy. There was a need to focus on the core technology to get it to market. However, the desire and ability to sell new work was a distraction from this. There was a need to establish legitimacy for the firm as the provider of choice for the technology. However, the expansion into more traditional forms of remediation sent Bioclean in the wrong direction. Finally, there was a need for an internal focus, designed to build causal understanding of the technology and the potential it represented. However, the presence of existing schema and established behavior patterns undermined this effort. Thus, a top management team that had a strong track record and a deep reservoir of knowledge and experience failed to implement what could well have been a winning strategy.

CONCLUSIONS

The lessons learned since top management teams were first introduced to the strategic management literature have particular relevance for those interested in new venture management. Indeed, perhaps at no other time in a firm's history is it as dependent upon those few people at the top as when it is new. Thus, entrepreneurs, venture capitalists, and new venture managers alike could all benefit from applying what has been learned over the years about top management teams to their firms.

Specifically, fit between the management team and task is important. Whether in large diversified multinationals or in small, specialized startups, the notion of fit seems to be generally applicable. But that is not surprising. Everyone has observed how all people are not equally well suited to all situations. Similarly, all teams are not equally well suited to all ventures. The question becomes what type of team best suits what type of venture? Of course, this question begs that of how to distinguish between the ventures themselves. Here again, research provides some guidance. As ventures undertake strategies that are more or less innovative, the demands placed upon their management teams vary. To achieve fit and effectively implement the strategy, as these demands vary, so too should the experience, skill, and ability profiles of the TMT.

This was illustrated in the cases of Greenway and Bioclean. In the case of Greenway, the company was not particularly innovative in that it was not seeking to do anything different from its competitors. Clients, suppliers, managers, and employees already had considerable causal understanding at the time the company was founded. The key to success was to quickly establish legitimacy and begin competing for work. This was accomplished primarily through hiring a large team of specialists with significant experience in the environmental field and allowing them to do what they did best with little interference. Greenway's team had considerable knowledge, skill, and experience, having worked in the environmental industry for many years doing similar jobs. Many of the TMT members had worked together before and so had developed shared values and beliefs from their prior experience. There was little need to develop new knowledge. They simply had to apply existing precedent and schema to the new situation.

Conversely, in the case of Bioclean, although the team members had prior experience and industry knowledge, those characteristics were not applicable to the new and innovative venture. Unlike at Greenway, there was little causal understanding. As such, the team was not able to easily establish legitimacy, despite serving the same industry, because the new methods were not readily understood or accepted. Moreover, the team was not able to draw on its history of interaction patterns and practices as those patterns and practices were designed around highly segmented and individual effort with a low level of interdependence. Thus, the team that had so benefited from its specialized expertise, efficiency, and familiarity in one setting, found itself and those same characteristics ill-suited to another.

From the available research and from stories like these and others like them, a few general principles can be deduced. One such principle is that, like strategy implementation, new venture management is a process that occurs over time. Researchers and managers together often like to categorize firms in one-way or another (i.e., new vs. established, low cost vs. differentiated, innovative vs. imitative, etc.). Despite these labels, it is important to remember that new firms survive to be old ones, that innovative firms grow to appear less innovative, and that, at different points along this path, the needs and demands of the firm may change. Thus, while all new ventures may ultimately require the services of a large and functionally diverse team, the pace at which they complete that team can and should vary.

In addition, at different points along that path, a venture may or may not be prepared to deal with the costs of a large and experienced team. In the earliest stages, when capital preservation is most crucial, it is important to recognize that management talent costs money and that the burden of this expense can become a distraction and so divert the team's attention away from the development of causal understanding of the venture and its strategy.

Having assembled its talented team, Bioclean was forced to find alternate ways to cover its costs, diverting efforts from the main strategy of commercializing its proprietary treatment process. As this team was more comfortable with the tried-and-true methods they had used previously, more attention was directed to selling those services than to building the new understanding and knowledge necessary to implement the intended strategy. Had the firm continued with its smaller, more research oriented staff, it would have been able to devote considerably more resources to proving the efficacy of the new technology, thereby establishing legitimacy in the eyes of key stakeholders.

It also seems that experience is not necessarily the key to success. Experience can be helpful in that it can provide a framework of established schema for managers to draw upon when confronting uncertainty. Greenway's management team faced many liabilities in their effort to build the new firm. Those liabilities, however, were minimized by the presence of familiarity. The members of the team had worked in this industry; moreover, they had worked together. They knew what was expected and they knew what to expect from one another. These assurances provided a foundation of certainty from which the team could operate to address their uncertainty. All they needed to do was to draw upon their experiences, make the required connections, and gather the information their new firm needed

However, while this experience was beneficial to Greenway, it was not so to Bioclean. Indeed, experience may have proved detrimental, as it may have hastened the push for more traditional contracts and limited the progress of the development of high-margin, proprietary technologies. Thus, it may well be that the value of experience has been overstated. Managing a new venture is all about learning. However, different new venture managers will need to learn different things. At the earliest stages of development, highly innovative firms may want to diverge from common knowledge and accepted wisdom. They may want to experiment with new processes and business models that challenge established paradigms. In such cases, an experienced team may well be a hindrance.

Finally, it is important to recognize that newness is a multifaceted concept. There is the sort of newness that relates to youth and there is the sort of newness that relates to differentness. While both present certain challenges, the newness that relates to differentness is the more problematic. New business models require a whole new understanding of the environment, the relationship to the customer, and the management of operations. Moreover, these understandings must be developed with little help from outside, as truly different firms can find few precedents from which to draw. Differentness also creates problems for the venture's constituents. Being so unfamiliar, truly different businesses have difficulty establishing relationships with vendors, creditors, and customers. Thus, as research has shown, truly different firms have higher risks of mortality (Sing, Tucker, & House, 1986).

Unfortunately, many in the new venture field have lost sight of this distinction. As a result, the issues of youth and novelty have become somewhat compounded as all new ventures have been lumped together. From a practical perspective, this is potentially hazardous. Young ventures do face some common difficulties associated with the uncertainties of organizing and managing new people in a new environment and these difficulties should not be understated. However, they are altogether different from the liabilities associated with trying to be both new and different (Stinchcombe, 1965). As such, these different contexts necessitate different sets of managerial skills and abilities to address them.

Although in no way a complete set, these few implications serve together to make one final point, which is that the literature on top management teams and strategy implementation and the literature on entrepreneurship and new venture management can do much to inform researchers and practitioners of both. As mentioned, there is likely no time when a firm is so heavily reliant upon the skills and abilities of its top managers as when it is new. With no inertia and little capital, new ventures give their management teams little margin for error. Thus, it is particularly and especially important that the two fit well together.

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