Outside board members and strategic orientation of new ventures in the startup phase

Abstract

AbstractResearch SummaryWe investigate the relationship between outside board members (OBMs) and short‐ versus long‐term strategic orientation of new ventures in the startup phase. Owing to their smallness and newness, a short‐term orientation may be more desirable. Using a dataset of 170 Belgian new ventures in the startup phase, we find a positive association between the proportion of OBMs and a short‐ rather than long‐term strategic orientation, attributed by our interviewees to concern for firm survival. This association is stronger in new ventures operating in highly competitive environments, and where the founding team performed few pre‐startup activities. Greater focus on the short‐term may be beneficial in the long run, as a positive association is found between a high relative short‐term orientation and ventures' growth.Managerial SummaryNew ventures in the startup phase should primarily focus on short‐term issues: get a better understanding of who are the customers and try to validate the business model. This article reveals that the board of directors plays a pivotal role in influencing the extent to which startups have a short‐term strategic orientation. Specifically, it explains how OBMs provide advice, monitor the startup's progress, and guide entrepreneurs on key short‐term priorities. This strategic role of OBMs is more pronounced in new ventures where the entrepreneurial team is less prepared at founding and in firms operating in highly competitive environments. Importantly, our paper provides evidence that a short‐term orientation in the startup phase does not jeopardize future venture growth in the scale‐up phase.