Top Managers in Entrepreneurial Firms: Who Is Running the Show?

Abstract

New venture teams have a strong impact on firm performance, and researchers have long been interested in understanding how entrepreneurs select co-founders and early employees. In this paper, we examine how entrepreneurs choose top managers for their ventures. Founders often lack the necessary skills and motivation for managing their firms personally and hire professional managers instead. We find, however, that entrepreneurs have a strong tendency to hire managers who are similar to them, even when this may negatively affect firm performance. Our results are consistent with the idea that founders choose managers with similar demographic characteristics, such as age, nationality, and education, due to homophily. Yet they hire managers with similar industry experience because such similarity is good for the firm.

Keywords: top manager, entrepreneur, founding team