CHAPTER FIVE

ASSEMBLING THE TEAM:

ACQUIRING AND UTILIZING ESSENTIAL HUMAN
RESOURCES

LECTURE NOTES
SIMILARITY VERSUS COMPLEMENTARITY: “KNOW THYSELF” REVISITED

Learning Objective:
Explain the difference between similarity and complementarity and the relevance of these
concepts to the task of choosing cofounders in a new venture.

Choosing excellent cofounders can be difficult.

Should you have cofounders with similar skills, backgrounds and interests as yourself –
similarity? Or should you have cofounders who are different from you, but have skills,
interests, etc. that complement those of yourself?

Great care should be taken in selecting cofounders.

Similarity:

Studies show that people tend to hire and promote other people who are similar to
themselves.

The danger to this is overlapping skills, knowledge, training, and aptitudes.

Rule Number One in assembling a team of cofounders is:

Don’t yield to the temptation to work solely with people whose backgrounds,
training and experience is highly similar to your own.

Self -Assessment: Knowing What You Have Helps Determine What You Need

Learning Objective:
Explain why entrepreneurs should conduct a careful self-assessment as part of the
process of choosing potential cofounders.

Your self-assessment is an inventory of the knowledge, experience, training, motives, and

characteristics you possess yourself.

This is difficult because

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 1. We often are unaware of at least some of the factors that affect our
behavior.
2. We do not gain knowledge of our major traits, abilities, or even
attitudes directly, through self-reflection. We actually gain this
insight gradually through our relations with other people

You can determine what you need from others by looking at these dimensions:

1. Knowledge base
2. Specific skills
3. Motives
4. Commitment
5. Personal attributes
6. Conscientiousness
7. Extraversion-introversion
8. Agreeableness
9. Emotional stability
10. Openness to experience.

Conscientiousness shows the strongest association with task performance

The higher individuals are on this dimension, the higher their performance is.
The higher entrepreneurs are in conscientiousness, the more likely are their new
ventures to survive.

Emotional stability is also related to task performance – the more emotionally stable
individuals are, the better their performance is likely to be.

The “Getting Down to Business” exercise on page 129 is helpful in assessing your own
abilities. Knowing this information can help you determine the type of cofounders you
should select.

Similarity or Complementarity: A Final Word

Complementarity is very important with respect to knowledge, skills and experience.

New ventures must acquire a rich and useful inventory of human resources.

Similarity offers benefits as it enhances ease of communication and facilitates good

personal relationships.

A balanced approach is best.

Focus primarily on complementarity with respect to knowledge, skills and

experience.

Look at similarity into with respect to personal characteristics and motives.

CHOOSING COFOUNDERS: MAXIMIZING THE NEW VENTURE’S HUMAN

RESOURCES

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 We must know how to form correct impressions of others when looking for cofounders.

Impression Management: The Fine Art of Looking Good – and How to Recognize It

Learning Objective:
Define “impression management” and describe various tactics used by individuals for
this purpose.

Self-enhancement – efforts to increase their appeal to others

Strategies in the self-enhancement area of impression management include

efforts to boost one’s physical appearance through

1. style of dress, personal grooming, use of props (eyeglasses), etc.

2. efforts to appear highly skilled
3. describing oneself in positive terms

Other-enhancement – efforts to make the target person feel good in various ways.

Strategies in the other-enhancement area of impression management include

efforts to boost positive reactions in the other person through

1. flattery
2. expressing agreement with the other person’s views
3. showing a high degree of interest in the other person
4. doing small favors for the other person
5. asking the other person for advice, etc.

Slime effect – people do not like it when others play up to their supervisors but
treat their co-workers with contempt.

Accepting others’ statements about their own skills, experience, and past
accomplishments without a due diligence investigation is risky.

Recognizing these tactics in other people requires considerable practice.

Deception: Beyond Impression Management

Learning Objective:
Explain how entrepreneurs can use nonverbal cues to determine when others are
engaging in deception.

People in the act of deceiving you generally give clues to their untruthfulness by:

1. Microexpressions – fleeting facial expressions lasting only a few tenths of a

second. These reactions appear on the face very quickly after an emotion-
provoking event and are difficult to suppress.
2. Interchannel discrepancies – these inconsistencies between nonverbal cues
from different basic channels.
a. “Channel” refers to type of nonverbal cues.

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 b. People who are lying find it hard to control all these channels at
once. They may manage their facial expressions well, but they have
difficulty looking you in the eye as they tell their lie.

3. Nonverbal aspects of speech – when people lie, the pitch of their voices often
rises. They tend to speak in a more hesitating manner and make more errors
in their speech.
4. Eye contact – persons who are lying blink more often and show pupils that
are more dilated than persons who are telling the truth. They may also show
an unusually low level of eye contact or an unusually high one.
5. Exaggerated facial expressions – they may smile more or more broadly than
normal. They may show more sorrow than is typical in a given situation.

Use of deception by entrepreneurs is not only unethical but may also be criminal.

Entrepreneurs might express greater optimism about their new ventures that current facts
merit. So, they must walk a fine line between enthusiasm and optimism on the one hand
and intentional misrepresentations on the other.

DANGER! PITFALL AHEAD!

Author Dr. Robert Baron invented a new product. Needing someone with knowledge in
manufacturing, he interviewed potential cofounders of a company to manufacture the
invention. Dr. Baron liked one man in particular because he was down-to-earth, said he
had lots of experience in manufacturing, and had run a marketing company.

Dr. Baron put up the money for the patent and the cofounder received a 20% interest in
the new company. The cofounder was to take care of the day-to-day operations. He
failed to do so. Telephones went unanswered, financial records were a mess, and
shipments were slow .Gradually, Dr. Baron had to take over the cofounder’s duties.
Because he was unable to do this on a long-term basis, the company (which was
profitable) was ultimately dissolved. The lessons learned were that Dr. Baron did not do
appropriate due diligence in checking on the cofounder and did not try to determine
when he was hearing the truth and when he was not.

UTILIZING THE NEW VENTURE’S HUMAN RESOURCES: BUILDING STONG

WORKING RELATIONSHIPS AMONG THE FOUNDING TEAM

If the venture is to succeed, the members of the founding team must work well together.
Studies have shown that higher levels of cohesion among the founding team were
strongly associated with superior financial performance by those new ventures.

Roles: The Clearer the Better

A major source of conflict in organizations is uncertainty concerning responsibility and

jurisdiction.

Questions of who is supposed to be accountable for what (responsibility) and

who has the authority to make decisions (jurisdiction) can produce
disagreements.

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 The cofounders should have a clear definition of roles – who is to do what and how much
authority does each member of the team have?

This can minimize role conflict – contrasting expectations about behavior and
responsibilities held by different persons.

Perceived Fairness: An Elusive But Essential Component

THE VOICE OF EXPERIENCE

David Gibson, founder of X-Ray Optical Systems, emphasizes that one of the factors
necessary for entrepreneurial success is that the entrepreneur’s family and close friends
are in agreement with and support the entrepreneur in his or her new business venture..
These people have to understand the downside of possibilities in the new venture. If your
spouse and close family members are not comfortable with the risks and debts, you
should not proceed. Making sure that family members and close friends are part of the
team in the sense that they fully support what the entrepreneur is trying to do is one of
the most important steps entrepreneurs can take to enhance their chances of success.

Learning Objective:
Define “self-serving bias” and explain how it plays an important role in perceived
fairness.

Self-serving bias – the tendency to attribute successful outcomes largely to internal

causes (our own efforts, talents or abilities), but unsuccessful ones to largely to external
causes (the failure or negligence of others, factors beyond our control).

Each participant in the relationship tends to accentuate their own contributions

and minimize those of others. Since all cofounders will have this tendency, the
result is often friction and conflict.

Perceived fairness – we all heave a tendency to assume that we are receiving less than we
deserve in almost any situation.

Distributive justice – we prefer that the larger the person’s contribution to the venture, the
larger his or her rewards.

The danger is that our self-serving bias leads us to think we have done more than
others and that therefore we should have more of the rewards. Since we are not
getting more of the rewards, we can feel we are being treated unfairly.

When this occurs, we demand a larger share or reduce our contributions to the
venture, both of which can be detrimental to the venture’s success.

People tend to look at fairness less often when things are going well, but they
devote increasing attention to this when things begin to go badly.

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 Cofounders should consider the issues of perceived fairness and distributive justice very
carefully.

This problem can also arise between companies that form strategic alliances.

Effective Communication

Learning Objective:
Explain the difference between constructive and destructive criticism.

A major factor in conflicts involves faulty styles of communication.

Delivering feedback, especially negative feedback, in an inappropriate manner, can be a

source of problems.

The only truly rational reason for delivering negative feedback to another person
is to help him or her improve.

Often negative feedback is delivered for the wrong reasons – to put the recipient
in his other place, to embarrass them in front of others, etc.
Delivering negative feedback in an informal (as opposed to formal) context is
called criticism.

Constructive criticism is designed to help the other person.

It is considerate of the other person, does not attribute blame to

the recipient, is specific in content and offers concrete
suggestions for improvement.

Destructive criticism is perceived as a form of hostility or attack.

It is harsh, contains threats, is not timely, blames the recipient for

negative outcomes, and offers no concrete ideas for
improvement.

Conflict between cofounders can be useful, if it is focused on specific issues and is kept
in rational bounds

EXPANDING THE NEW VENTURE’S HUMAN RESOURCES: BEYOND THE FOUNDING

TEAM

The larger the founding team and the more varied the experience of the members, the
greater the likelihood that the new venture will succeed.

Obtaining Excellent Employees: The Key Role of Social Networks.

Learning Objective:
Describe the role of social networks in new ventures’ efforts to hire additional
employees.

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 Team members are frequently located through social networks – directly through
personal contact, or indirectly through recommendations from people they already know
and trust.

Advantages in this are:

1. They can find people quickly in this manner

2. Because they know these people directly or indirectly, it is easier to convince
them of the value of the opportunity of joining the new venture.
3. New ventures often lack clearly established rules or a well-defined culture,
so it is easier to integrate people found in this manner into the new venture.

Is Bigger Necessarily Better? Number of Employees as a Factor in New Venture Growth

Learning Objective:
Describe the relationship of number of employees to new venture success.

New employees are a source of information, skills and energy, so the more employees a
new venture has, the greater the number and larger the size of the projects it can
undertake.

But, the new employees also add to the fixed expenses and increase management
problems.

New ventures that start with more employees have a greater chance statistically of
surviving than ones that begin with a smaller number.

Companies with more employees have higher rates of growth than ones with fewer
employees.

Still hiring new employees alone does not assure success.

Should New Ventures Hire Temporary or Permanent Employees? Commitment Versus Cost

Learning Objective:
List the relative advantages and disadvantages of temporary and permanent employees.

Temporary employees

1. reduce fixed costs

2. provide for much flexibility
3. can be hired and released as the business requires
4. permit the securing of specialized knowledge or skills when needed

Disadvantages to temporary employees include

1. the may lack the commitment of permanent employees

2. they may lack the motivation of permanent employees
3. risk that they will acquire valuable information and trade secrets

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 Permanent employees tend to:

1. be more committed to the company

2. be more motivated
3. stay with the company longer

Where flexibility is important, temporary employees may be best.

Where speed in acquiring new knowledge and skills are important, temporary employees
might be best.

Where commitment and retention are more important, permanent employees should be
considered.

Some Concluding Thoughts

Knowledge, skills, talents, and commitment supplied by employees are the most
important ingredients in the company’s success.

People are a crucial factor in determining the success of any business.

Devote careful attention to the issues of hiring excellent employees.

ANSWERS TO END OF CHAPTER DISCUSSION QUESTIONS

1. In general, we tend to like people who are similar to ourselves in various ways. Why can
this sometimes be counterproductive for entrepreneurs when choosing partners?

Answer: Understanding people is a critical element to successfully starting and running a

business. The people with whom we form agreements and those we hire set the tone of the
business. Explain to students that great care must be taken in this area. Many times,
entrepreneurs spend more time with their partners than they do with their spouses. Selecting the
right business partner can be just as important as selecting a spouse. The success of the new
company depends, in large part, on the knowledge, skills, talents, abilities, reputations, and social
networks of its founders and early employees. The more people are similar, the more likely their
knowledge, skills, training and aptitudes overlap. It may well be that additional skills,
knowledge, training and aptitudes are needed for the venture to be successful. By hiring only
those people who are similar to ourselves, we may come up lacking in other essential skills and
knowledge necessary for the company to be successful. The better route is to take a balanced
approach. Focus primarily on complementarity with respect to knowledge, skills and experience,
but bring similarity into the picture with respect to personal characteristics and motives.

2. Do you think that because of their relative standing on the “Big Five” dimensions of
personality, some persons are more suited to become entrepreneurs than others? What
characteristics would qualify someone to become an entrepreneur? What characteristics
might make someone unsuited to becoming an entrepreneur?

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Answer: Walk students through the importance of understanding human relations. The “big five
dimensions” of personality are conscientiousness, extraversion/introversion, agreeableness,
emotional stability, and openness to experience. These dimensions are strongly related to many
aspects of behavior in business settings. Some of the characteristics required for a successful
entrepreneur include strong commitment, extraversion, conscientiousness, , emotional stability,
and openness to new experience and change. Among the traits which might make someone
unsuited to becoming an entrepreneur would include: sluggishness, disorganization, unreliability,
reserve, timidity, quietness, an uncooperative personality, disagreeableness, belligerence,
insecurity, anxiety, depression, being overly emotional, or interests which are exclusively
practical and narrow.

3. What tactics of impression management do you use? Which are most successful? Why?

Answer: Answers will vary. The student should be able to objectively assess his or her own
approaches to working with people. Some ways in which people manage impressions are: self-
enhancement (style of dress, personal grooming, etc.) and other-enhancements (flattery,
expressing agreement with the target person’s views, showing high interest in that person, etc.).
The student should be able to accurately state which method works best for her or him and why.

4. How good are you at recognizing attempts at deception by other persons? What clues do
you use to try to determine whether others are telling the truth or lying?

Answer: Answers will vary. Being able to recognize when someone is telling the truth or not is
important. Businesses exist on relationships. Recognizing when someone is less than honest can
have untold implications for the success or failure of a business. There are five major nonverbal
cues people exhibit when they are attempting to deceive another person. Microexpressions are
fleeting facial expressions lasting only a few tenths of a second. An example would be that a
person shows one expression (a frown) quickly followed by another expression (a smile), which
can be an indication of a lie. Interchannel discrepancies are inconsistencies between nonverbal
cues from different channels. Someone lying has difficulty controlling these channels at the same
time. An example would be a person who, while lying, manages his facial expressions well, but
cannot look you in the eye. Nonverbal aspects of speech include changes in the pitch of
someone’s voice, or they change their manner of speech. Eye contact cues could include people
who are lying tend to blink more often than people who are not lying. And, they can show
unusually low or unusually high levels of eye contact. Finally, exaggerated facial expressions
such as people lying may smile more than usual, or show greater sorrow than is typical in a given
situation, may indicate dishonesty. Students should be aware of these five major nonverbal
cues.

5. Everyone wants to be treated fairly. Can you think of factors other than the share of
available rewards you receive that could lead you to conclude that you were being treated
fairly or unfairly by others? (Hint: Do the procedures used to distribute rewards matter?)

Answer: Here are some guidelines in helping students understand this principle. People have
different tendencies that affect their perception of how they are being treated. Most people tend
to accentuate their own contributions and minimize those of others. We tend to believe we have
contributed more than others and/or are receiving less than we deserve, particularly when things
are going badly for the venture. Receiving negative feedback in an informal context, rather than a
formal context, and conflict focusing on personalities, rather than issues, can lead one to believe
he is being treated unfairly.

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 6. Do you ever criticize other people for any reason aside from a desire to help them?
When? What effects does this produce?

Answer: Answers will vary. We are asking students to again look at themselves objectively.
Learning to be rational and objective in evaluating ourselves is difficult. Deal with the students’
perceptions, not things in general. Show them how to properly and objectively evaluate
themselves. There are two kinds of criticism: constructive and destructive. Destructive criticism
is often an attack on the recipient’s personality which generates strong negative reactions in
recipients and can cause a vicious cycle of anger, desire for revenge and subsequent conflict. We
should all emphasize positive criticism, which is truly designed to help the recipient improve.

7. In general, entrepreneurs tend to hire people they know when first increasing the size of
their new ventures. Can you think of any potential problems that could result from
following this strategy?

Answer: Help the student to look ahead to future potential problems that may start in the
beginning. We want students to understand that every action taken today may have consequences
(good or bad) in the future. Rather than hiring people with complementary skills, knowledge,
contacts, etc, entrepreneurs may hire people they know who are like them (having similar skills,
knowledge, etc.). Entrepreneurs may also find it more difficult to discipline or terminate the
employment of a “friend” than they would someone who was not closely associated with them.

ANSWERS TO INFOTRAC EXERCISES

1. Resource complementarity in business combinations: Extending the logic to
organizational alliances. (Technical) Jeffrey S. Harrison; Michael A. Hitt; Robert E. Hoskisson;
R. Duane Ireland.

Journal of Management, Nov-Dec 2001 v27 i6 p679(12)

SOLUTIONS

1. Complementarity. A successful team of entrepreneurs requires a wide range of information,

skills, aptitudes, and abilities.

2. To assess resource similarity versus complementarity, the authors measured differences

between the firms in their levels of R&D intensity, capital intensity, administrative intensity, and
debt intensity. They controlled for industry and found that resource complementarity was
positively associated with performance for all four variables. No support was found for the
hypothesis that resource similarities produced synergy (i.e., were positively related to
performance).

3. While two firms with highly similar resources may be able to achieve economies of scale and
greater market power from an acquisition, these companies may not be able to develop other
valuable potential synergies as a result of their integration. Integrating different, yet
complementary resources presents opportunities for synergy derived from economies of scope.

2. Offer constructive criticism ... without sounding like a Jerk.

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Info-Tech Advisor Newsletter, Sept 3, 2002 pNA

SOLUTIONS

1. To help him or her improve.

2. Destructive criticism generates strong negative reactions in recipients that can lead to
anger, conflict, and a desire for revenge. It can dishearten staff and undermine a
manager’s reputation as an effective communicator.
3. Steps include consider the recipient’s feelings, be timely, relax before a meeting, make
sure the critique is justified, be specific, be brief, don’t be condescending, don’t be
threatening, focus on improvement, and invite a dialog.

ANSWERS TO SMALL BUSINESS SCHOOL VIDEO DISCUSSION

TOPICS
Sundance Catalog with Harry Rosenthal
This episode of Small Business School visits Robert Redford’s Sundance community in Utah,
and the catalog company that bears the same name. Redford used his money to purchase the land
to preserve it, and his status as a well-known actor to establish a film festival in the area. But
when he wanted to start a catalog company to help support local environmental causes, he knew
he didn’t have the skills and resources to make the catalog a success. So Redford sought a
partner with the experience and talent to start the catalog and nurture it to success. You might ask
your students to consider what qualities made Harry Rosenthal an ideal fit for the catalog. How
important was it for the Sundance catalog to have someone other than Robert Redford at the
helm, overseeing day-to-day business? What comments do students have regarding Harry’s
interaction with other employees?

Topic for Discussion: What is the difference between a brand and a product?
Answer: A brand is a big idea and a product is a specific item that in a way represents the brand.
Think of IBM. It is a very big brand. It has been making products for decades and some of those
products have been marketplace hits and others haven't. However, through the years, the brand of
IBM continues to stand for the same thing. It stands for the biggest technology company; it stands
for reliability, consistency and ethical business practices. An IBM employee could be fired for
talking negatively about a competitive product.
The ThinkPad, as a product, is sold as light, easy, convenient and flexible. With the IBM
brand, the ThinkPad gets the rub-off of reliability. By promoting the brand of IBM, the company
then develops products that are sold under that banner, but that serve a very specific need.

Topic for Discussion: What is the Sundance brand known for?

Answer: To some people, Sundance is 6,000 acres of land with a luxurious yet rustic lodge. To
others it is a film festival. To several million on the catalog list, Sundance means lovely home
accessories, clothing and jewelry all designed by American artists with an eye on quality and
value.
Robert Redford bought the land in Provo Canyon to protect it, and then to provide a place for
artists to develop their craft. With these goals at the root of his company, the catalog taps into
what he has already established: he is not just another pretty face. He is an environmentalist, an
artist and an impresario. When customers order from Sundance Catalog, they are ordering
products, but they also are buying into Robert Redford's dream of saving the West and cultivating
good designers.

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 Harry says, "Sundance stands for a blend of environmental responsibility, creativity and
support of the arts and responsible business. And the Sundance concept is for all of these entities
to support themselves, to support the arts, to support the environment."

Topic for Discussion: Why does using Robert Redford as a spokesperson work for Sundance
Catalog?
Answer: Harry said, "The use of a spokesperson is a really complex topic. If it's perceived as
nothing more than an advertising gimmick, it can actually bounce back and harm you after the
early going. If depth and reality are to be considered part of the image as with Robert Redford,
and you live up to that, then it can be very, very helpful. But in all cases, I think the advice I
would give to people is that a spokesperson or a famous name or a famous brand gets people to
try your product or service once. It's really all it gets you. If you deliver a good quality product or
service at a good price and people are satisfied with the experience they have, then they will come
back. And I don't know about all other businesses, but I can tell you that in the catalog business,
all of the profitability really is based upon repeat customers. If they don't have a good experience,
you won't have a successful business."

Topic for Discussion: Why did Harry say this to Robert Redford?
Answer: When Robert Redford discovered that Harry had launched a successful catalog of
children's items, he sought advice from Harry. In fact, Redford wanted to hire Harry, but Harry
turned him down. Harry offered to write a business plan for the new business. He then told
Redford that the current company did not have the right top executive in place to make the
catalog a success. The reason is that one person has to live, eat, and sleep the business when it is
born, just like a newborn baby has to be watched carefully. You can't just leave the baby for a few
hours when you feel like going to a movie. A new business is vulnerable and needs minute-by-
minute leadership. Employees who work a regular schedule can run a mature business like the
lodge or the film festival but they could not nurture a new company.

Topic for Discussion: What experience taught Harry this lesson?

Answer: He went to college, then the law school, and then made a living doing the thing he was
trained in school to do: practice law. When he decided to leave law to become an entrepreneur
and create a catalog business to sell children's items, he had to admit he didn't know anything in
order to learn.
Had he been too arrogant to seek advice about the mail order business, in a very short time he
would have wasted his money and shut down the business before it had a chance to succeed.
Harry said the sooner you admit to not knowing anything, the sooner you'll succeed. He
learned this fact from practicing law.

Topic for Discussion: Did Harry fly by the seat of his pants when he practiced law?
Answer: Apparently not. He said that the skills that make an entrepreneur succeed are the ability
to work hard, react quickly to the marketplace, and to be able to fly by the seat of your pants. In
professions such as law and accounting, your customers don't want you taking risks or guessing
what you should do with their finances or legal situation. You are paid to research and come up
with the accurate and best solution for a problem. As a business owner, you often have to invent
solutions and this may feel as if you're driving without a map. That is ok. It is normal.

VIDEO PROFILES IN ENTREPRENEURSHIP NOTES (See

http://baron.swlearning.com to download video segments for chapters 1, 4, 5, 6, 10, 12, & 14).

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Profiles in Entrepreneurship: Management Practices—Employees

Herb Kelleher talks about the corporate culture at Southwest Airlines and how the quality of
relationships with employees directly impacts the quality of work and success of the firm. Other
entrepreneurs discuss leading by example, developing expectations of excellence, and
compensation. Thomas Meredith, CFO of Dell Ventures, gives characteristics he seeks in
interviewing job candidates. Some questions to consider for class discussion include: how do the
experiences of these entrepreneurs relate to the chapter material on choosing a founding team, as
well as other employees? What are some decisions prospective entrepreneurs should make
regarding the organization of their companies and employees right from the start?

52