Impact of the Core Founder’s Functional Experience Diversity on New Venture Performance and Moderating Effects of Environmental Dynamism

Abstract

ABSTRACTPrior research on the association between functional experience diversity (FED) and firm performance has focused primarily on top management teams (TMTs). In this study, we shift the focus of research from teams to key individuals and consider the moderating effects of environmental dynamism. Specifically, we argue that the core founder’s functional experience diversity (CFFED) helps not only to enhance the absorptive capacity of new ventures but also to improve the quality of decision-making and promote its implementation, thereby enhancing new venture performance. Experience inertia occurs after repeated use of functional experience and it can save time and effort in a stable environment; however, it can lead to wrong decisions and worsen the new venture performance in a dynamic environment. Using data about entrepreneur alumni of a Chinese university, we validate the above hypotheses. In addition, we find that environmental dynamism has the opposite moderating effect for CFFED compared to the TMTs case.