In most startups, there is usually a lack of manpower to cover all of the tasks that need doing, so it’s an inevitable case of all hands to the pump as people chip in where they can. Such a scenario lends one to imagine that generalists would be favorable to have in any startup, and that’s exactly what a recent study from the University of Notre Dame set out to discover.
The researchers looked at matters through the lens of a VC looking to back a startup. The analysis found that whilst generalists can be a distinct advantage in a founding team, in certain market environments they aren’t looked on so favorably.
Generalist or specialist?
Previous research on the topic suggests that backers typically demand experience, with inexperienced founders subsequently struggling to raise money to get going. These past studies have tended to examine the depth of experience within the industry however.
“What our work does is to look more closely at the specific types of experience founders bring to their venture,” the authors say. “In addition to experience depth, some founders have quite broad experiences prior to launching a new business, having worked in a wide range of industries, in different companies or in a variety of job roles. Our research shows that although investors always love deep experience, they tend to be much more mixed in their views of broad experience and apply what we describe as a ‘liability of breadth,’ or choosing not to invest due to concerns about the founder’s ability to stay focused and execute quickly.”
The team examined over 150 new startups over nearly 100 different industries over an eight year period. They found that how investors view experience is very subjective.
“On the one hand, we find that when a new business launches into a crowded or highly competitive marketplace, a perceived liability of breadth leads potential investors to evaluate businesses with broadly experienced founders significantly more negatively,” they explain. “However, when a new business launches into a fast-growing or turbulent marketplace, potential investors love founder breadth, likely because such breadth is believed to benefit these businesses through a wider Rolodex of network contacts, a more creative approach to innovation and the ability to identify more novel opportunities. Importantly, we find these positive and negative effects regarding experience breadth regardless of whether or not the founding team has a lot of prior industry experience.”
Through a different lens
The study suggests that generalists with a broad experience base are also capable of seeing the world differently to their specialist peers. As a result, they can often build very different startups, with a wider range of revenue sources. What’s more, their businesses tend to be further upstream in the value chain.
“If a founding team does have a wide range of prior experiences, they can improve their odds by launching their new business in faster growing or highly turbulent marketplaces where data shows that potential investors will strongly value their background,” the authors say, “but avoid crowded or intensely competitive markets where their history will be held against them.”
They hope that by providing greater insights into the various strengths and weaknesses of generalists versus specialists, it will allow investors to understand biases and take a more balanced view of the potential of a founder.