The goldilocks effect of diversity? The effect of team diversity on new venture performance

Abstract

Conflicting arguments and inconclusive findings on the effect new venture team diversity on the performance of new ventures dominate existing literature. In this research, I investigate the relationship between educational, industrial, organizational and occupational diversity and the performance of new ventures. I address several research gaps by including multiple dimensions of diversity, allowing for non-linear effects and including longer career histories of individuals. The effect of diversity is quantitatively tested on the survival and sales of new ventures using data from Statistics Sweden. A total of 891 software programming ventures founded between 2002 and 2009 doing are included. The results show that each diversity dimension has its own distinctive influence on the performance of new ventures, and this influence varies for different performance measures. First, educational diversity has a negative effect on sales and is unrelated to survival. Second, industrial diversity does not appear to have any relation at all to the performance of new ventures. Third, organizational diversity positively effects sales and shows an inverted U-shaped relationship to survival. Last, occupational diversity shows an inverted U-shaped effect to sales but has no effect on survival. The results imply that scholars should be careful with applying diversity arguments uniformly. Moreover, the prominent role of industrial experiences and similar organizational experiences in literature might need to be reconsidered.