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Forget the Jockey, Bet on the Horse! by Thomas Thurston |


startup reportA MICRO-EXPERIMENT

Framework in Question: Great management leadership is predictive of superior firm performance. (i.e. ‘bet on the jockey, not the horse’)

Framework Background: Venture capitalists and angel investors cited the “quality of the management team” as a top indicator of likely startup success in a 2009 poll. Indeed, few people would prefer bad, dysfunctional teams to good, effective teams. There are numerous empirical studies supporting the view that good leadership can, indeed, make a positive difference in company performance. But is it predictive?

First, it should be noted that there have been many studies around this general topic. For example, a study of 132 Methodist churches over 20 years found that new ministers with a history of growing membership and donations made similar improvements to new churches after being transferred (Pfeffer & Blake). A study of major league baseball coaches found that better managers boosted team performance (Kahn). A 40-year study of labor and capital productivity in the automobile industry found that leadership had an impact on firm performance (Lieberman, Lau & Williams).

Landmark research by psychologist Dean Keith Simonton similarly concluded that approximately 10% of contributors frequently account for 90% of contributions (Simonton). This is analogous to the “80/20 rule” where 80% of work is typically done by 20% of those involved. Similarly, one study found that only 16 composers out of 251 had produced roughly 50% of the classical music that is now performed and recorded (Sackman, Erikson & Grant). The best and brightest have a disproportionate impact.

Our Analysis: Great teams are, by definition, better than bad teams. This is not in dispute. However it is quite another thing to assert that great teams are predictive of superior firm performance. Are startups with great leaders statistically more likely to survive than startups without great leaders?

To test the predictive validity of the “great leadership” variable, 100 startups were separated into two categories (50 that survived, and 50 that were shut down). A number of leadership-related classification schemes were then tested against the sample.

Conclusion 1: Highly subjective. The most obvious challenge in attempting to make predictions on the basis of “great” or “bad” leadership is the inherent subjectivity within the classification scheme itself. After all, what makes a great team “great”? Experience? Education? Track record? Intellectual horsepower? Intra-industry expertise? Extra-industry expertise? Height? Weight? Eye color? Animal spirit? Other? What is “great”? Leadership can be largely intangible. Therefore a relatively limited number of easily measured factors were tested in this study. Considerations beyond these factors were not tested and therefore will not be addressed here.

Conclusion 2: Not predictive. Acknowledging the challenges of this subjectivity, the following potentially leadership-related attributes were tested in this sample (with their obvious limitations):

  • Total years of higher education held by the leadership team (Bachelor’s degree or higher): No statistically significant correlation to firm survival or failure
  • Years of work experience post-higher education: No correlation
  • Years in same industry: No correlation
  • Years in “big companies” ($500 million in annual revenue or more): No correlation
  • Years in “startups” (0-3 year old firms): No correlation
  • Years in professional consulting industry: No correlation
  • Number of team members with MBA degrees: No correlation
  • Number of team members from Ivey League schools: No correlation
  • Total team age: No correlation
  • Age of CEO/Leader: No correlation

Secondary Research: As stated earlier, this analysis was a limited attempt to address a much broader question. To more fully explore the issue, other external studies were reviewed.

An analysis of intelligence quotient (IQ) found that IQ is the most powerful predictor of job performance across studies, but still seldom correlated more than 0.4 with performance. In other words, IQ did not account for approximately 84% of performance (Pfeffer & Sutton).

The impact of changes in leadership was studied across 167 companies over a 20-year period and concluded that company and industry have far larger effects on sales and profits than leadership (Lieberson & O’Connor). Leadership studies of large samples of CEOs, University Presidents and Managers of sports teams showed that organizational performance was largely determined by factors beyond a leader’s control (Pfeffer). Several studies have also shown that changing CEOs has no statistically significant impact on organizational survival or death (Carroll and Hannan).

A wide review of leadership studies as far back as 1977 found that, while leaders have some impact, their actions rarely explain more than 10% of the difference in performance between the best and worst organizations and teams (Pfeffer & Sutton).

Summary: Bad, dysfunctional teams can have an infinite ability to destroy any business. No argument there. However this experiment found that the tested factors did not create statistically higher likelihoods of firm survival, and secondary research suggests that teams can have an impact - but less than you might think.

We conclude that teams with the tested qualities may indeed be nice to have, but they were not significantly predictiveof survival or failure in our sample. While a seemingly anticlimactic finding, it does suggest that betting on the "jockey" (leadership team) and not the "horse" (business itself) can easily lead to bad decisions by managers and investors alike. Good and bad teams - as defined in our samples - failed at the same rate. Perhaps the horse deserves a second look after all.


  1. Pfeffer & Blake, Administrative Succession and Organizational Performance: How Administrative Experience Mediates the Succession Effect, Academy of Managemnet Journal 29 (1986)
  2. Kahn, Managerial Quality, Team Success, and Individual Player Performance in Major League Baseball, Industrial and Labor Relations Review 46 (1993)
  3. Lieberman, Lau & Williams, Firm-level Productivity and Management Influence: A Comparison of U.S. and Japanese Automobile Producers, Management Science 36 (1990)
  4. Simonton, Greatness: Who Makes History and Why, Guilford Press (1994)
  5. Sackman, Erikson & Grant (1968), republished by Brooks Jr., The Mythical Man Month, Addison-Wesley (1995)
  6. Pfeffer & Sutton, Hard Facts, Dangerous Half-Truths & Total Nonesense; Profiting from Evidence-Based Management, Harvard Business School Press (2006)
  7. Lieberson & O’Connor, Leadership and Organizational Performance: A Study of Large Organizations, American Sociological Review 37 (1972)
  8. Pfeffer, The Ambiguity of Leadership, Academy of Management Review 2 (1977)
  9. Carroll & Hannan, The Demography of Corporations and Industries, Princeton University Press (2000)


Thomas Thurston is President of Growth Science International, LLC, a research firm that predicts if businesses will survive or fail. A former venturing professional at Intel, Thomas serves on multiple boards including the Revenue Capital Association. He holds an MBA, JD, was an Attorney for startups (OSB#044359) and was honored as a Research Fellow at the Harvard Business School.

How Does Your Startup Business' Management Team Measure Up?


Startup business management teamOn Wednesday, September 29th, at an event sponsored by the Phoenix Chapter of the Thunderbird Alumni  Network entitled “The Capital Process,”  the formation of the Thunderbird Angel Network was announced to an enthusiastic group of Phoenix area Thunderbird alumni and other interested professionals.

As he announced the group's formation, Dee Harris, President of the Thunderbird Angel Network and long-time Angel investor,  spoke to the group about the importance of having a solid management team.

“I have seen, time and again, management teams that have three people – all with the same skill set, that’s not what an investor wants to see.”  

Fellow investor panelists Brian Burns of Grayhawk Capital, a venture capital firm, and Rick Deavila of Alerion Capital, a private equity firm, both echoed Dee’s position and expressed the importance of having a solid management team regardless of what level of capital a business is seeking. DeAvila said that the management team is often the most important feature of a company an investor looks at when evaluating a deal. 

Build Your Management Team,” a recent article by Steven Robbins in Entrepreneur Magazine, endorses the panelists position. The article emphasizes the need to build a senior team that's able to manage all the critical areas of your business to take it to the next level. Building your team demands matching jobs to people's strengths. That means giving people responsibilities according to skill level, not based on how close a friend they are, or how closely related they are to you, or whether you just like their sunny personality.  The article covers the topic in great detaill, and is well worth the read.

If you are the founder, keep in mind that this advice applies to you as well.  Don't give yourself an impressive title and job unless you're truly the right person for the job. The fact is, many smart entrepreneurs hire their own boss when they realize their skills lie elsewhere in the company.

KEY MESSAGE:  Giving the proper weight to the importance of selecting a management team based on necessary strengths, and allocating critical roles in the business based on skills experience is perhaps the most critical facet of a business plan,  but is often underplayed or overlooked.  You can have the best new product or service idea , but if you lack a solid management team to execute upon it the idea has less value.

The Thunderbird Angel Network would like to thank all those who attended this event, and offers a special thanks to Brian Burt of Snell & Wilmer, who skillfully moderated the panel.

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