The high rate of personnel turnover in entrepreneurial teams has become a common phenomenon. According to a survey by a foreign research institution on 100 of the fastest-growing small companies, it was found that half of the founding teams were unable to survive smoothly during the first five years of the company. In addition, Chandler & Hanks (1998) discovered in their study of 12 cases of founding teams that only two teams remained as intact after five years as they were at the start.
Wang Hong is the general manager of Yantai A Company, which engages in the production and sales of home decoration materials. After four or five years of development, the company has become the leading player in the home decoration material market in Yantai, with over 30 million yuan in total sales in 2002 and a steady market share ranking first. However, Mr. Liu has been very upset recently because several senior figures who started the business with him in Jiangxi Province have left his company. Among them, the departure of the vice general manager Wang affected Mr. Liu most deeply. Vice General Manager Wang held a high prestige in the company; he was the only undergraduate among the seniors, and much of the company's development could be attributed to him. His words left an unforgettable impression on Mr. Liu: "Mr. Liu, it was you who brought me and XX, XX from Jiangxi Province here. We worked hard together, growing from six people and 50,000 yuan to more than three hundred people and thirty million yuan now. But as the enterprise grows bigger, our hearts grow colder. For so many years, the annual dividends are distributed based solely on your momentary happiness, deciding arbitrarily how much each person gets. Everyone feels insecure. We all feel there is no hope for working here. If things continue like this, we will definitely all leave."
Why do founding teams split?
The composition of founding teams can be divided into two major categories. The first category is referred to as core-led founding teams. This type of team generally starts when one person comes up with a business idea or opportunity, and then begins to assemble the required team. For example, Sun Microsystems was initially founded by Vinod Khosla who established the concept of multi-purpose open workstations, followed by his recruitment of Joy and Bechtolsheim, experts in software and hardware respectively, and McNealy, who had practical manufacturing experience and interpersonal skills. Thus, the founding team of SUN was born.
The second category is called group-based founding teams. This type of team is mainly formed by partners who come together due to experiences, friendships, and shared interests, discovering business opportunities through partnership. Examples include Yahoo!'s Jerry Yang and Stanford Electrical Engineering Ph.D. candidate David Filo, Microsoft's Bill Gates and childhood friend Paul Allen, HP's David Packard and his Stanford University classmate Bill Hewlett. Many well-known enterprises were created primarily through relationships and acquaintances, generating entrepreneurial ideas through interactions, then starting businesses together.
Simply put, core-led founding teams are those where the entrepreneurial idea precedes the team formation, while group-based founding teams are the opposite — the core team forms before the entrepreneurial idea arises. Moreover, group-based founding teams emphasize the role of interpersonal relationships in team formation more than core-led founding teams. From the perspective of China’s entrepreneurial teams, due to its unique cultural characteristics and behavioral patterns formed over thousands of years, the number of group-based founding teams far exceeds that of core-led founding teams. Peking University纵横Management Consulting Company once analyzed seventy-plus private enterprise clients and found that over 80% of private enterprise founding teams belong to the group-based category.
In terms of team stability, group-based founding teams are less stable than core-led founding teams. The main reason lies in the fact that core-led founding teams are composed by a core leader who considers members' personalities, abilities, technical skills, and future value distribution models during selection. This ensures that team members’ capabilities remain suitable as the company scales, and avoids situations where personality or interest conflicts between founding members lead to team dissolution.
From the perspective of organizational life cycle theory, a company typically goes through four stages from its inception, growth, to eventual decline or expansion. Organizational structure, leadership system, and management systems form predictable patterns across different stages of the life cycle, and each stage is actually a continuous natural process. Below is a chart illustrating the four main stages of organizational development.
Organizational Life Cycle Development Stage Diagram
Team splits are most likely to occur during the transition from the entrepreneurial stage to the collective stage.
Characteristics of the entrepreneurial stage include the organization's founders dedicating all their energy to technical activities in production and marketing to ensure survival in the market. The organization is non-standardized and non-bureaucratic, with longer working hours as everyone fights for survival without overly focusing on personal gains and losses. In contrast, the collective stage features a company that has passed the survival phase, gaining favorable leadership and beginning to set clear goals and directions. Departments are established according to power hierarchies, task assignments, and labor division. During the transition from the entrepreneurial stage to the collective stage, as the company moves from non-standardized operations to normal management, many contradictions within the founding team easily surface, and these contradictions are the primary reasons for team splits. I have summarized the following four factors:
1. As the company grows, some members may lack the ability to manage larger-scale, more standardized operations.
This is particularly evident in many small and medium-sized township enterprises in China. Many of the founding seniors of these township enterprises have low educational backgrounds. Their initial success often came from hard work, enduring hardships others couldn't endure, and doing what others dared not do. However, as the company enters a period of standardized development, personal limitations in quality and ability may become obstacles to corporate development, leading to potential team splits.
2. Differences in business philosophy and methods among team members, lack of unified thinking, and some members not recognizing the company's goals and strategies due to value conflicts result in team dissolution.
This situation is very common. A typical example is the split between Niu Guangnan and Liu Chuanzhi of Lenovo. Liu Chuanzhi is a technology-background enterprise manager, while Niu Guangnan is a scientist. Their differences stem from inconsistent business philosophies - Liu is market-oriented, while Niu Guangnan is technology-oriented. This fundamental difference led to the split of the once-renowned "best duo in Zhongguancun" Lenovo founding team. Of course, the split of the Lenovo founding team did not occur during the transition from the entrepreneurial stage to the collective stage but rather during the transition from the collective stage to the standardized stage.
3. Personality, individuality, and interest mismatches among founding members cause friction issues, making it difficult to carry out entrepreneurial activities normally, leading to team dissolution.
Group-based founding teams are prone to such situations. These teams consist of partners who come together due to close personal relationships, such as friends, colleagues, classmates, alumni, and relatives. They usually find co-founders through interpersonal relationships or similar ideals and views, such as individuals with similar technical research backgrounds who unite due to enthusiasm for a particular technology. In such cases, interpersonal connections are the most important condition for becoming a member of a group-based founding team. Under these circumstances, differences in personality and attitudes towards problem-solving among team members can be easily overlooked. Some teams appear to be working hard on the surface, but in reality, only one or two people are fully committed. Additionally, there is often a lack of genuine communication within the team. Such a team does not truly function as a cohesive unit but merely represents the sum of individual efforts. If team members have inconsistent goals, the result will be that 1 + 1 < 2, inevitably leading to the dissolution of the founding team.
4. Lack of a clear profit-sharing plan at the early stage of establishment leads to disputes over profit distribution as the company develops and profits increase, resulting in team dissolution.
This situation is very common in private enterprises. Many small and medium-sized private enterprises either fail to consider or avoid discussing specific future profit-sharing plans due to face-saving concerns during the early stages of development. When the company scales up, disputes over profit distribution arise. Yantai A Company is a case in point. Vice General Manager Wang and General Manager Liu did not determine a profit-sharing plan and ratio during the early stages of entrepreneurship, and ultimately, the team dissolved due to profit distribution issues.
How to Maintain Stability in Founding Teams
From a human resource management perspective, establishing a complementary founding team is key to maintaining team stability. When creating a team, it is essential to consider not just mutual relationships but also the complementarity of members' abilities or technical expertise. Sun Microsystems is a highly valuable reference in this regard. Initially, Vinod Khosla recruited three individuals who were experts in software, hardware, and management respectively. The stability of Sun's founding team contributed significantly to the stable development of Sun Microsystems.
A founding team is the core of any company's human resources. When establishing a founding team, talents with different internal and external focuses, patient "managers," and strategic-minded "leaders" should be considered, along with experts in technology and market areas, ensuring the diversity of team members. It is also crucial to pay attention to individual personalities and perspectives. Having both a constructive member who always proposes feasible suggestions and a critical member who continuously identifies problems can greatly benefit the entrepreneurial process. Leaders as core members of the startup must remember to select passionate individuals to join the team and ensure that everyone is prepared for long working hours from the start. Regardless of how high someone's professional level might be, if they lack sufficient confidence in the entrepreneurial venture, they will not meet the demands of entrepreneurship.
After the team has been formed, whether it is a core-led or group-based founding team, to maintain the stability of the project team, the following points should be noted:
1. The founding team must develop consistent entrepreneurial thoughts after discussion. Members should have a common goal and vision, recognize the objectives and direction the team aims to achieve, and establish their own action guidelines and behavioral standards. This involves the construction of team culture.
2. Clearly define a profit-sharing plan in legal document form. Clearly define basic responsibilities, rights, and interests, especially equity, options, and dividend rights. Other matters closely related to team members' interests, such as capital increase, expansion, financing, withdrawal, personnel arrangements, and dissolution, should also be clearly defined.
3. Ensure smooth communication channels among team members, fostering continuous communication. Communication should take place when the team starts working, when problems arise, when solving problems, and especially when conflicts occur. During communication, focus on the team's long-term goals and grand ideals, and prioritize discussions that benefit the team's development.
This article originates from 88fa Franchise Network http://www.88fa.org/, original address: http://www.88fa.org/post/40.html