The structure of founding teams: Homophily, strong ties, and isolation among U.S. entrepreneurs

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Citation: Martin Ruef, Howard E. Aldrich, Nancy M. Carter (2003) The structure of founding teams: Homophily, strong ties, and isolation among U.S. entrepreneurs. American Sociological Review (RSS)



Tagged: Sociology (RSS) Demographics (RSS), Entrepreneurship (RSS), Organization Theory (RSS), Homophily (RSS)


Summary:

Martin Ruef, Howard Aldrich and Nancy Carter attempt to offer a broad characterization of founding teams of new firms that tests a variety of mechanisms. They argue that previous work has (1) not used nationally representative samples, (2) been biased toward successful entrepreneurial ventures that result in firm foundings and (3) focus on only a few highly theorized variables like homophily. The authors instead attempt to make broad foray into finding evidence for mechanisms that connect individual founders to one another.

The authors focus on both achieved and ascribed characteristic affect the composition of founding teams and how these factors are mediated by social context. They focus on five general mechanisms:

  1. Homophily around concepts like gender and race which would predict that people will tend to found new firms with others like them.
  2. Functionality that might include a variety of different and complementary skills
  3. Status expectations that might mean that high-status individuals can attract more people than low-status individuals (which was operationalized as members in higher status groups including males, whites, and professionals).
  4. Network constraint which suggests that teams are formed within pre-existing networks.
  5. Ecological constraint which emphasize spacial distribution and suggest that people will be located closely together in physical space or in the same industry.

The authors adapt these into 1 assumption, 7 hypotheses, and 2 correlaries which each follow closely from the core ideas above.

The papers primary contribution is empirical. They use data from the Panel Study on Entrepreneurial Dynamics where 64,622 people were contacted across the country in a nationally representative survey. People were asked if they were in the process of creating a new firm. If they were, they were invited to participate in a longer survey (which they were compensated for). The authors ended up with a sample of 816 nascent entrepreneurs.

The authors then used structural event analysis to test their hypotheses. The authors found that men (who they argued were higher status) were no more likely to band together than women, found no evidence that functionally diverse teams were more common than would be expected at random and found that larger founding teams tended to be characterized by more homophily (including functional-based homophily).

Essentially, the authors found very strong support for one mechanism: homophily in terms of gender, ethnicity, and occupation. They found mixed support for network and ecological constraints. They found very little empirical support for functional diversification of achieved characteristics or status-based expectations.

Theoretical and practical relevance:

Ruef et al.'s article has been cited more than 245 times in the 7 since years since its publication. Almost all of these citations have come from the literature on entrepreneurship with an emphasis on studies coming from sociology.