Piyush Lariya

PIYUSH LARIYA  Indian Institute of Technology Bombay  Indian Institute of Management Lucknow
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THE PRACTICAL & THEORETICAL APPROACH TO
WHY STARTUP FAILS ?
Piyush Lariya
Indian Institute of Management Lucknow
Supervisor:
Prof. Sabyasachi Sinha

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INDEX
 ABSTRACT ........................................................................................................... 3
 PRACTICAL APPROACH
 TIMING………………………………………………………………………………………………..4
 TEAM…………………………………………………………………………………………………..4
 BUSINESS MODEL…………………………………………………………………………………5
 FUNDING……………………………………………………………………………………………..6
 MARKETING………………………………………………………………………………………….6
 LEGAL PROBLEMS…………………………………………………………………………………7
 LOCATION…………………………………………………………………………………………….7
 THEORETICAL APPROACH
 THEORETICAL FRAMEWORK & TYPOLOGY…………………………………………….9
 THE EXPLORATION-EXPLOITATION DILEMMA……………………………………….12
 STATISTICAL AND PSYCHOLOGICAL EXPLANATIONS………………………………15
 CONFLICT BETWEEN VENTURE CAPITALISTs AND CEOs…………………………19
 THE EFFECT OF TOP MANAGEMENT TEAM SIZE
& INTERACTION NORMS ON COGNITIVE AND
AFFECTIVE CONFLICT……………………………………………………………………………21

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ABSTRACT
In this work, we are focused on the insight stories and causes of entrepreneurial failure. We started
with the analysis of over 300 world-wide startup failure stories or startup post-mortem. We have
concluded many frequent reasons which lead to startup failure. It is classified as a practical approach
towards entrepreneurial failure in this paper. Afterwards we jumped into the literature part. We have
analysed and expertise various literature related to entrepreneurial failure. We have also concluded
the results and data calculation obtained from the literature analysis or experiments. This paper help
us to relate the practical approach with literature approach which significantly helps entrepreneurs
and researchers to reduce entrepreneurial failure.

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 PRACTICLE APPROACH
The following conclusions were made after analysing over 300 world-wide startup failure
stories or also called “Startup Post-mortem”. The most frequent reasons are listed below:
1. TIMING
Over the years a pattern emerged and I noticed a paradox. Every startup succeeds
for a different reason, or set of reasons. Yet, Most of the startup failed for the exact
same reason: “Timing”. There are many reviewed cases showing the effect of
“timing” in different senses. One most seen case was: “Market is not ready”. The
most of the failed startups didn’t validate their Idea in the market. Lastly they found
that there were not enough resources through which they could deliver their service
or the customers were not ready for their product or not that something people
wanted. One of the startup called “KOLO” whose idea was to build a “First IPad racing
wheel” got funding, build product, but at last came to know that this was not the real
problem to be solved or not that something people wanted.
Time delay in Product development, early hires, early useless expenses etc. could
also be the other sense with respect of effect of timing. Like many startup did, one
of them was eCrowds. They spent way too much time in building product and not
getting feedback from prospects. As the product became more and more complex,
the performance degraded.
If you release your product too early, users may write it off as not good enough and
getting them back may be difficult if their first impression of you was negative. And
if you release your product too late, you may have missed your window of
opportunity in the market. As a Calxeda employee said, “In [Calxeda's] case, we
moved faster than our customers could move. We moved with tech that wasn't really
ready for them – i.e., with 32-bit when they wanted 64-bit. We moved when the
operating-system environment was still being fleshed out - [Ubuntu Linux maker]
Canonical is all right, but where is Red Hat? We were too early
2. TEAM
A diverse team with different skill sets was often cited as being critical to the success
of a starting a company. Failure post-mortems often lamented that “I wish we had a
CTO from the start, or wished that the startup had “a founder that loved the business
aspect of things”. Standout Jobs wrote in their post-mortem, “…The founding team
couldn’t build an MVP on its own. That was a mistake. If the 8 founding team can’t
put out product on its own (or with a small amount of external help from freelancers)
they shouldn’t be founding a startup. We could have brought on additional co-
founders, who would have been compensated primarily with equity versus cash, but
we didn’t.” In some cases, the founding team wished they had more checks and
balances. As Nouncers founder wrote, “This brings me back to the underlying
problem I didn’t have a partner to balance me out and provide sanity checks for
business and technology decisions made.

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The most failure cases found:
Incomplete team: Most of the startups did not have their complete team. In some
cases startup did not have CTO or in some cases startup was consisting of only
founder. This imbalance in team sometime creates lack of vision, lack of traction, less
motivation etc.
Unskilled Team: It is said that stronger is the team, stronger is the product. Some
cases arose in which founder hired unskilled member. Although execution of startup
is consist of pillars maintained by every team member with respect of their role. If
pillars are not equally strong, then eventually startup falls. In fact they don’t know to
price their product. Due to weak team, startup won’t be able to scale up and the
revenue growth rate become too slow.
Team Members Exceed the limit: If the members in the startup exceed the certain
limit, then cases of conflict between them have seen. For example: If there are too
many cofounders in a startup then the possibility of mismatch of thought increases
that leads to conflicts. Also Unnecessary Incremental in team leads to dilution of
stakes.
CTO or CEO quits: Few cases aroused in which the startup pursuing the vision of any
specific CTO or CEO surprisingly quits. These effect the growth of startup and also
Investors interest turns out to move away in further rounds of funding. Also
sometimes employees also left due to the poor performance of the startup.
Relation with Investor/VC: It was seen that the investor could act as a good mentor.
Their guidance can benefit startups.
3. BUSINESS MODEL:
Sometimes business model was crappy, sometimes complex & not sustainable. It
takes longer time to customers to understand the “what is innovative & unique
about the product?” In some cases team was not clear themselves about their own
vision. Can’t able to pivot as per the customer or market need.
Lack of focus on the initial main vision. Vision gets easily distracted as the startup
executes which lead to loss of traction & Vision without traction is merely
hallucination.
Failed founders seem to agree that a business model is important – staying wedded
to a single channel or failing to find ways to make money at scale left investors
hesitant and founders unable to capitalize on any traction gained. As Tutorspree
wrote, “Although we achieved a lot with Tutorspree, we failed to create a scalable
business….Tutorspree didn’t scale because we were single channel dependent and
that channel shifted on us radically and suddenly. SEO was baked into our model 7
from the start, and it became increasingly important to the business as we grew and
evolved. In our early days, and during Y Combinator, we didn’t have money to spend
on acquisition. SEO was free so we focused on it and got good at it.”

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4. FUNDING:
It is the backbone of startup. Lack of fund can immediately shut down any startup.
In some cases startup got too late to secure significant funding initially causes them
a market failure. Due to bad reflection of execution, like too late in product
development, loss of customers due to bad service etc. move away investors from
next rounds of funding. Early hires, Useless early expenses, destructive financing
strategy lead to early burn out cash. If then the start-up didn’t get funded in next
rounds, its productivity becomes slow & scale down. Then the revenue automatically
comes down & the startup may suffers financial crisis. Funding for the project must
be compatible with the demands and constraints that occur during the project's life
span.
Tying to the more common reason of running out of cash, a number of startup
founders explicitly cited a lack of investor interest either at the seed follow-on stage
(the Series A Crunch) or at all.
Money and time are finite and need to be allocated judiciously. The question of how
should you spend your money was a frequent conundrum and reason for failure cited
by failed startups (29%). As the team at Flud exemplified, running out of cash was
often tied to other reasons for startup failure into product-market fit and failed
pivots, “In fact what eventually killed Flud was that the company wasn’t able to raise
this additional funding. Despite multiple approaches and incarnations in pursuit of
the ever elusive product-market fit (and monetization), Flud eventually ran out of
money — and a runway.”
5. MARKETING / PRODUCT-MARKET FIT:
It is observed that many startups don’t get sparkling start due to lack of marketing.
Startups were not able to engage and retain their customer from their bad marketing
strategy. Market acceptance and adoption did not happen anywhere fast enough to
allow startup to scale. Sometimes cofounders underestimate marketing and focus
more on innovation.
In many cases Idea or product of startup was not accepted by customers due to lack
of information about it.
Also, some startups suffered market failure due to fake market survey. During survey
people said they’ll take their service for sure but after nobody wanted that service.
Knowing your target audience and knowing how to get their attention and convert
them to leads and ultimately customers is one of the most important skills of a
successful business. The inability to market was a function of founders who liked to
code or build product but who didn’t relish the idea of promoting the product and
came up in 14% of the startup post-mortems. As Overto wrote, “Thin line between
life and death of internet service is a number of users. For the initial period of time
the numbers were growing systematically. Then we hit the ceiling of what we could
achieve effortlessly. It was a time to do some marketing. Unfortunately no one of us
was skilled in that area. Even worse, no one had enough time to fill the gap. That

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would be another stopper if we dealt with the problems mentioned above.”
6. LEGAL PROBLEMS:
Startups didn’t get the police permit/ Legal issues with location. One startup Twitpic
faced the same issue. Twitter contacted their legal demanding that they abandon
their trademark application or risk losing access to twitter API. They did not have the
enough resources to fend off a large company like Twitter to maintain their
trademark.
Sometimes a startup can evolve from a simple idea to a world of legal complexities
that can prove to be a core cause of shutting a startup down. As Decide.com wrote
in their post-mortem, “We received a notice from them informing us we weren’t
compliant and unless we removed it they’d suspend our affiliate account. We 4
weren’t making a lot of money but that account probably represented more than
80% our revenue.” A couple music startup post-mortems also associated the high
costs of dealing with record labels and legal headaches as a reason for startup failure.
High-profile startup Turntable.fm wrote, “Ultimately, I didn’t heed the lessons of so
many failed music startups. It’s an incredibly expensive venture to pursue and a hard
industry to work with. We spent more than a quarter of our cash on lawyers, royalties
and services related to supporting music. It’s restrictive. We had to shut down our
growth because we couldn’t launch internationally.”
As the startup guys are naive, they are unaware of many legal policies and faces many
serious problems while executing. Different countries also have different lawsuits.
7. LOCATION:
Location was an issue in a couple different ways. The first was that there has to be
congruence between your startup’s concept and location. As Meetro wrote, “We
launched our product and got all of our friends in Chicago on it. We then had the
largest papers in the area do nice detailed write-ups on us. Things were going
great…The problem we would soon find out was that having hundreds of active users
in Chicago didn’t mean that you would have even two active users in Milwaukee, less
than a hundred miles away, not to mention any in New York or San Francisco. The
software and concept simply didn’t scale beyond its physical borders.” Location also
played a role in failure for remote teams. The key being that if your team is working
remotely, make sure you find effective communication methods; else lack of
teamwork and planning could lead to failure. As Devver wrote, “The most significant
drawback to a remote team is the administrative hassle. It’s a pain to manage payroll,
unemployment, insurance, etc. in one state… for a small team, it was a major
annoyance and distraction.”

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 THEORETICAL APPROACH:
1) THEORETICAL FRAMEWORK & TYPOLOGY
1.1) Integrative theoretical framework
Research on business failure and survival has focused on a single theoretical approach
ranging from the population ecology of organizations and the resource-based view to
threshold theory, and it has reflected a clear divide between the determinist and the
voluntarist perspectives.
TABLE 1: The constitutive dimensions of entrepreneurial failure and its theoretical
foundations.
1.2) The typology of entrepreneurial failure
FIGURE 1: Development of theoretical typology of entrepreneurial failure.

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1.2.1) Total Failure {Ee,d}: Total failure refers to entrepreneurial exit caused by resource destruction and the
entrepreneur's disappointment.
1.2.2) Persistence with an economically failing firm {Pe}: Despite the poor economic performance of the new
venture, the entrepreneur is satisfied because maintaining its continuity has allowed him or her to achieve his
or her initial aspirations. This configuration can refer to entrepreneurs who are essentially motivated by
noneconomic goals such as power, status or social acceptance.
1.2.3) Persistence with an entrepreneur's disappointment {Pd}: Although the entrepreneur leads a surviving
and well-performing firm, he or she is disappointed because he or she failed to meet his or her initial
expectations, which are essentially related to a non-economic motivation such as the following: (1) the need for
achievement, (2) the wish to achieve work-family balance or (3) the desire for independence.
1.2.4) Persistence with economic and psychological failure {Pe,d}: This configuration describes a situation in
which entrepreneurs, despite their disappointment with their new venture's performance, choose to maintain
the continuity of their economically failing businesses. Given their considerable personal investment in terms of
financial resources, energy, time, effort and emotion, these entrepreneurs may develop strong commitments to
their new ventures and be more likely to persist with underperforming firms.
1.2.5) Exit caused by the new venture's economic failure {Ee}: Despite the discontinuity-provoking economic
failure of their new ventures, these entrepreneurs are satisfied because they have successfully reached their
initial expectations, which are related to extrinsic goals concentrated in personal wealth acquisition. This
configuration can be associated with entrepreneurs who use organizational resources, including financing from
family and friends (i.e., love money), subsidies, bank loans, etc., for personal reasons rather than to ensure the
survival of their new ventures.
1.2.6) Exit caused by the entrepreneur's disappointment {Ed} : This configuration refers to a situation in which
a newly created firm has the ability to generate sufficient resources to ensure its survival under the control of
its owner-manager. Because the entrepreneurs are disappointed that they failed to achieve their initial
expectations, they choose to give up well-performing firms.
1.2.7) Exit to avoid failure {E0}: This profile describes a situation in which an entrepreneur, to avoid
accumulating additional losses, searches for a planned exit strategy to facilitate a transfer to other activities that
he or she judges to be more satisfactory. Wennberg et al. (2010) suggests that entrepreneurial exit may be a
preferred alternative to bankruptcy or to liquidating a poorly performing firm.
1.2.8) “Zero” failure {Ø}: The entrepreneur is able to create a business with large growth potential. The business
generates sufficient economic returns both to ensure its development and to satisfy the entrepreneur's
expectations.
1.2.9) Toward a more nuanced approach: The proposed typology provides a more nuanced approach of
entrepreneurial failure that goes beyond the traditional success versus-failure dichotomy. This approach
illuminates the multifaceted nature of entrepreneurial failure through the development of a theoretical
classification. In addition to the theoretically deduced typology and to portray the “conceptual configurations”
described above, this paper develops an empirical classification of failing entrepreneurs.

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TABLE 2: The Identified five “empirical” configuration and their interpretation according to descriptive and
clustering variables.
FIGURE 2: Failing entrepreneur’s profiles.

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2.) THE EXPLORATION-EXPLOITATION DILEMMA
The metaphor of ambidexterity has been used by researchers to refer to the ability of the
organization to maintain dual attention on exploration and exploitation activities in order
to survive and excel the present, and secure the future, by creating potential for
sustainable growth in future. Managing this duality is a challenge as often the needs of
both these activities are contradictory. With business environment becoming increasingly
dynamic, it is becoming more essential for start-up firms to balance their attention and
resource allocation for exploration and exploitation activities. In our interaction with
several start-up founders for another research, we found that at times start-ups were too
focused on exploring the new, and engaged in too much experimentation, and in the
process lost the scope of exploiting the outputs of their exploration activities. At the same
time, we found start-up firms which seemed to be getting over-engaged in exploitation.
However, it is unclear how start-ups cope with the dilemma of exploration and
exploitation. In this article, we raise the need for investigating the mechanisms of how
ambidexterity is managed in the growth phase of start-up firms.
2.1) MANAGING AMBIDEXTERITY: MECHANISMS OF BALANCING EXPLORATION AND
EXPLOITATION
The term ambidexterity was first used by Duncan (1976). Ambidexterity can be defied as
an organization’s capability to simultaneously pursue and balance exploration and
exploitation. This is a complex capability and is a source of an organization’s competitive
advantage. Prior research suggests two basic mechanisms of managing the conflicting
demands of exploration and exploitation activities. These mechanisms are referred to as
sequential ambidexterity and simultaneous ambidexterity.
Sequential ambidexterity: Exploration and exploitation are pursued in sequential cycles.
It refers to managing exploration and exploitation by temporally separating the two
activities. Thus exploration and exploitation can be pursued by the same organizational
unit but at two different points in time.
Simultaneous ambidexterity refers to the simultaneous perusal of exploration and
exploitation in an organization.
Existing research of ambidexterity identifies three modes through which the simultaneous
perusal of exploration and exploitation is made possible. These are structural separation,
domain separation, and contextual ambidexterity.
Structural ambidexterity: The balance of exploration and exploitation attained by
‘developing structural mechanisms to cope with the competing demands faced by the
organization for alignment and adaptability.
The idea is to design units for pursuing exploration and exploitation as per specific needs
of its respective task environments.

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Units pursuing exploitation are usually less decentralized, are large sized and have less
flexible processes. Alternately, exploration units are usually smaller in size, have relatively
loose processes and are more decentralized.
Conflicting demands of these antagonistic activities are carried out in separate units. Two
units are separated from each other physically and culturally.
The integration of these two units is either by loose coupling of tightly coupled subunits
or through a strong shared organizational culture and coordination by the Top
Management Teams (TMT).
Domain separation: It is comparatively a recent idea and assumes that exploration and
exploitation activities can be perused in multiple domains; firms may not try for a balance
within a domain but the balance is maintained the organizational level across domains.
The idea was identified and suggested by Lavie and Rosenkopf (2006), demonstrating how
the US software firms maintain specific domains of alliance formation. Research on this
mode of balancing is rare.
Contextual ambidexterity: It is attained by building the behavioural capacity to
simultaneously balance exploration and exploitation across an entire business unit. It
defines context as the set of systems, processes and beliefs, which influences individual-
level behaviour in organizations. The leadership’s role is to create such a supportive
context that enables and motivates individuals to design for themselves the way they
would address the conflicting demands of exploration and exploitation. A combination of
stretch, discipline, support and trust facilitates contextual ambidexterity.
Empirical evidence suggests that it is possible to attain contextual ambidexterity, and it
positively influences firm performance.
2.2) EXPLORATION–EXPLOITATION DILEMMA FOR START-UP FIRMS IN THE GROWTH
PHASE
Compared to large established firms, it was more challenging for SMEs to cope with the
dilemma of managing exploration and exploitation. If the founder or the founding team
recognizes the need to pursue both exploration and exploitation, it may be beneficial for
early commercialization, and survival and growth thereafter.
Conflicts between exploration and exploitation arise due to their conflicting demands for
resources. Start-up firms operate in relatively more resource constraint contexts (money,
time, manpower, etc.) compared to stablished and mature firms. They also have the
pressure of performing for survival in the present and sustainably grow in future (at least
for those who aspire to grow). Thus, start-up firms have to balance their exploration and
exploitation activities.
The founder’s ambidextrous orientation and multi-tasking abilities positively influence
organizational ambidexterity in the growth phase of start-up firms/new ventures.
TMT’s ambidextrous orientation and complementary abilities positively influence
organizational ambidexterity in the growth phase of start-up firms/new ventures.

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Attention on both exploration and exploitation activities in the growth phase of new
ventures influences better performance (sustainable growth) of the new ventures.
2.3) ROLE OF LEADERSHIP IN FACILITATING THE BALANCE BETWEEN EXPLORATION AND
EXPLOITATION
TMT’s ability to recognize the needs for exploration and exploitation activities, and further
to create the context to support both types of activities, influences the process of
exploration and exploitation in the growth phase of new ventures.
The ability to pursue both exploratory and exploitative activities in the TMT and TMT’s
behavioural integration positively influences the recognition of the need of exploration
and exploitation, and further in designing the context to support the process of balancing
exploration and exploitation in the growth phase of new venture.
2.4) EFFECT OF AMVBIDEXTERITY ON THE FIRM PERFORMANCE
Organizational ambidexterity positively affected organizational performance. Subsequent
studies also found empirical evidence to further strengthen this premise and concluded
that organizational ambidexterity directly improved performance. Gibson and Birkinshaw
(2004) conceptualized ambidexterity as a multi-dimensional construct, and collected
responses to measure it using six Likert-scale items, three items each for exploration
(adaptability) and exploitation (alignment); and then used a multiplicative index of
exploration and exploitation (i.e., considering that they are non-substitutable). He and
Wong (2004) conceptualized exploration and exploitation as two distinct dimensions, and
they used eight Likert scale items designed to measure how important it was for an
organization to have innovation for entering a new product-market domain, versus
innovation for improving the existing product-market efficiency.
Exploitation enables tackling current competition and exploration enables tackling future
competition; ambidexterity ensures current as well as future viability of an organization.
Thus, ambidexterity positively influences a firm’s operational as well as strategic
performance. However, differences in firm size, its resource endowments and its
environmental dynamism moderate the relationship between ambidexterity and firm
performance. Ambidexterity has been found to be positively influencing firm
performances in the context of SMEs as well.
The concept of balancing exploration and exploration has received attention from
researchers from multiple domains, but the phenomenon of ambidexterity is yet to be
studied in the context of start-up firms, especially, in their growth phases. Studies
conducted on this specific context would enrich the discussions on the ambidexterity
theme. Also, it would add an interesting lens to view start-up firms’ growth phenomenon.
The findings of such studies would also be beneficial to start-up firm managers and could
provide some guidance on managing the dual challenges of survival and growth
aspirations.

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3. STATISTICAL AND PSYCHOLOGICAL EXPLANATIONS
3.1) OVERVIEW OF THE EXPERIMENTAL STUDY
 Distinguish entrepreneurial markets from other types of markets and test statistical
and psychological hypotheses for all market types.
Find that excess entry is significantly greater in small, risky markets than in other
market types, and that confidence levels account for excess entry, over and above the
effects of unbiased statistical errors.
3.2) HYPOTHESIS
 Hypothesis 1: Entrepreneurial markets attract more excess entry than other market
types.
 Hypothesis 2: Unbiased statistical errors explain a significant proportion of excess
entry in entrepreneurial markets.
 Hypothesis 3: New entry in entrepreneurial markets is systematically biased toward
excess entry (and away from under-entry), and the bias is explained by entrepreneurial
overconfidence.

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3.3) RESULTS
3.3.1) Excess entry:
(Figure 3)
 Hypothesis 1 posited that entrepreneurial attract excess entry.
 Figure 3 shows :
i) Results for the four most extreme market types in the first block of experiments.
ii) The percentage of excess entry or under-entry relative to market capacity c, average
profit per round for entrants in each market.
The results show that Entrepreneurial market attracted a significantly higher proportion
of excess entry than any other market studied. This can be seen more clearly in Figure 4,
which compares the mean number of entrants for known and risky demand for all market
sizes.
(Figure 4)

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3.3.2) The statistical hypothesis:
Hypothesis 2 posited that random statistical errors explain a significant proportion of
observed excess entry. To test this hypothesis, a statistical null model of our
experimental markets is developed. Following Hogarth and Karelaia (2012), we
assume that subjects based their entry decisions on unbiased judgments.
As summarized in Figure 5, the results suggest that the errors committed by market
entrants were systematic rather than statistically biased.
(Figure 5)
3.3.3) The overconfidence hypothesis
The overconfidence hypothesis makes two claims: that entry decisions are not
random but biased toward excess entry, and that excess entry can be explained by
overconfidence. The previous analysis supports a hypothesis of biased entry decisions
but does not prove overconfidence. Subjects were more likely to enter large markets
than small markets, and more likely to enter risky markets than known markets.
Confidence effect is driven more by the overconfidence of excess entrants than by the
under confidence of under-entrants.
The overconfidence hypothesis argues that people facing market entry decisions tend
to focus on their own abilities while neglecting the contingent moves of competitors.
Entrepreneurial markets attract more excess entry than other markets. Why do
entrepreneurial markets attract so much excess entry? The results suggest that the
causes are both statistical and psychological. The unbiased statistical model
accurately predicted the rate of correct market entry and explained 68 percent of
excess entry in risky markets and 60 percent of excess entry overall.
On the other hand, the statistical model did not predict the systematic bias toward
excess entry or the deficit of under-entry. Overconfidence plays a significant role in
excess market entry. The psychological construct of overconfidence—that is,
construing information to support an over-belief in one’s prospects for success—and

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captures key aspects of overconfidence that drive excess entry, such as “overplacing”
one’s abilities in relation to competitors.
They did not study the traits of real-world entrepreneurs—for example, whether
entrepreneurs are more or less susceptible to overconfidence than the general
population
4. CONFLICT BETWEEN VENTURE CAPITALISTs AND CEOs
Prior research has established that venture capitalists (VCs) and CEOs of their portfolio
companies often disagree on venture policies. Such disagreements can escalate into cognitive
conflicts. Relationship-based, or affective, conflict may also arise between VCs and CEOs. This
section examines the antecedents and dynamics of such VC-CEO conflicts and their effects on
CEOs’ expectations as to what financial intermediaries they would like to choose for their new
ventures.
4.1) TABLE 3: The principal causes of VC-CEO Conflicts Identified in the Literature.

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FIGURE 6: Research Model

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4.2) RESULTS
 H1 and H2 posited respectively that the cognitive conflict between the CEO of a VC-
backed company and the lead VC will be associated with insufficient VC attention, and
the percent of equity owned by the lead VC. H1 received strong support. In contrast,
H2 received only marginal support. However, the two hypothesized effects explain
together 33% of the variation in cognitive conflict.
 As conjectured, cognitive conflicts were also strongly associated with affective
conflicts explaining 59% of the variation in affective conflict.
 H4 and H5 posited that the consequences of affective conflict can be (1) increased
intention to switch to other funding sources, and (2) augmented intention to modify
one’s behaviour and prevent or resolve conflicts with VCs, respectively. Affective
conflict explained 30% of the variation in financing intentions and 31% of the variation
in CEOs’ intention to improve their relationship with VC, respectively.

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5. THE EFFECT OF TOP MANAGEMENT TEAM SIZE & INTERACTION NORMS ON COGNITIVE AND
AFFECTIVE CONFLICT
There is mounting evidence that effective top management teams engage in cognitive conflict
but limit affective conflict. Cognitive conflict is task-oriented disagreement arising from
differences in perspective. Affective conflict is individual-oriented is agreement arising from
personal disaffection. While team size was also associated with greater affective conflict, when
teams had high levels of mutuality, greater openness led to less affective conflict. The findings
have implications for improving strategic decision making through the use of conflict.
5.1) The Effects of Size, Openness, and Mutuality on Cognitive Conflict
 The larger the TMT, the more cognitive conflict the TMT will experience.
The greater the TMT’s openness, the more cognitive conflict the TMT will experience.
 The greater the mutuality among TMT members, the less cognitive conflict the TA4T will
experience.
Mutuality and openness will interact such that the greater the level of mutuality, the stronger
the stronger the positive association between openness and cognitive conflict.
5.2) The Effects of Size, Openness, and Mutuality on Affective Conflict
 The larger the TMT, the more affective conflict the TMT will experience.
 The greater the TMT’s openness, the less affective conflict the TMT will experience.
The greater the mutuality among TMT members, the less affective conflict the TMT will
experience.
Mutuality and openness will interact such that the greater the level of mutuality, the stronger
the negative association between openness and affective conflict.

Piyush Lariya

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