Does new venture team power hierarchy enhance or impair new venture performance? A contingency perspective

Abstract

Power hierarchy has the potential to both benefit and harm the functioning of new venture teams (NVTs) and hence new venture performance. Integrating structural contingency theory with the literature on power hierarchy, we propose that the effect of NVT power hierarchy on new venture performance is contingent on NVT homogeneity (as indicated by functional background homogeneity and shared team experience) and the powerholder's prior founding experience. Specifically, we propose that the effect of NVT power hierarchy on new venture performance will be positive when NVT homogeneity is low but negative when NVT homogeneity is high. Furthermore, this positive (negative) effect under low (high) NVT homogeneity will be strengthened by the powerholder's prior founding experience. Based on a five-year panel data of 285 new Internet ventures listed on the National Equities Exchange and Quotations (NEEQ) in China combined with qualitative fieldwork, our hypotheses received general support. We discuss the theoretical and practical implications of our findings on how NVTs should design power structures to achieve optimal new venture performance.