Management Control Systems in Early-Stage Startup Companies

Abstract

This paper uses a multi-method, multi-case field research design to study the evolving portfolio of the management control systems (MCSs) of 78 early-stage startup companies. We examine 46 individual systems from eight different MCS categories - financial planning, financial evaluation, human resource planning, human resource evaluation, strategic planning, product development, sales/marketing, and partnerships. We report analysis of the following: (1) The speed of adoption of financial planning and financial evaluation systems in relation to six other MCS categories. These systems are considered key management control systems associated with management accounting. We find financial planning to be the most widely adopted MCS category at an early stage, followed by the human resource planning and strategic planning categories. Financial evaluation systems are typically adopted at a later stage. (2) Variables associated with the rate of adoption of management control systems. Our results indicate that number of employees, presence of venture capital, international operations, and time to revenue are positively associated with the rate of adoption. Furthermore, the rate of adoption simultaneously affects company size. (3) CEO turnover and the rate of adoption of management control systems. We find that CEOs who have adopted fewer MCS systems have shorter tenures. This is consistent with the hypothesized difference between entrepreneurs and managers. Overall, the evidence strongly supports the relevance of MCS systems to the growth of early-stage startup companies.

Keywords: management control, management accounting, entrepreneurship, startup companies, CEO turnover

JEL Classification: M13, M40, M46