Stanford finds reasons for startup success

•  Management turnover, leadership among top reasons

•  ‘Success is really driven by the team’

However, when it comes to assessing the effect of the founders and the senior management team on a venture’s likelihood of success, investors are forced to rely on little more than their experience, intuition, and general industry rules of thumb.

Founding and senior management teams with a variety of prior company affiliations and broad functional diversity tend to be more successful more quickly, according to research at the Stanford Graduate School of Business.

Turnover, specifically additions to the top management team and the exit of the founder, increases the likelihood that a company will achieve an initial public offering (IPO), the researchers say.

Success was defined as the company’s ability to attract venture capital funding and complete an IPO.

The new study found evidence that “putting together teams that are diverse with respect to both functional diversity and prior company experience is a good thing,” says lead author Charles O’Reilly, professor of management at the Stanford Graduate School of Business.

“It’s not just about who knows what, but where they come from,” adds co-author Christine Beckman, who is now an associate professor of organization and management at the University of California, Irvine.

Turnover is not always a negative, according to the study.

“You can argue that turnover is bad because it takes time for new people to adjust, which slows down company progress. The fact that people are leaving may also reflect the fact that there is conflict in the team,” says Mr. O’Reilly.

However, turnover can be positive “as start-up organizations begin to grow and require people that have different perspectives and more experience to help them succeed,” he says.

The results are based on information collected by the Stanford Project on Emerging Companies, a study of over 170 Silicon Valley startups now in its eighth year.

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