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A double-edged sword? Founder Teams’ Prior International Experience and INV International Scale-up

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Niron Hashai discusses the effect of international new ventures’ (INVs) congenital knowledge inherited from their founding teams vs. their experiential knowledge gained through learning by doing on the initiation vs. continuation of their international growth.

Image courtesy of interviewee. May 30, 2024

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This video discusses the dynamics of startups in Israel, which is often referred to as the "startup nation" due to its high technology startups. The speaker emphasizes the importance of founders' knowledge in driving startup growth, particularly through their industry-specific international experience, which can significantly influence the success of these ventures.

The paper explores the challenges faced by international new ventures, especially in scaling up and competing in foreign markets. It introduces concepts of "congenital knowledge" (inherent knowledge from founders) and "experiential knowledge" (knowledge gained through experience and learning by doing). While congenital knowledge can facilitate initial success, it may also hinder the development of experiential knowledge as the firm grows, leading to potential inertia where founders may resist incorporating new perspectives from other team members.

The research suggests that while founders should initially lead their startups using their specialized knowledge, as the organization matures, incorporating diverse perspectives from experienced non-founder managers can mitigate the limitations imposed by the founders' viewpoints. Additionally, the role of business agents or venture capitalists can be complex; they may provide critical funding but can also interfere with a founder's vision, particularly early on when their unique insights are crucial.

The overall conclusion stresses the importance of balancing founder-led innovation with openness to new ideas and experiences as startups evolve, encouraging a dynamic organizational environment that is responsive to market changes. The speaker mentions the potential generalizability of these findings beyond Israel, underlining the need for further studies in different contexts.

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00:00.285 --> 00:01.205
I reside in Israel.

00:01.265 --> 00:04.565
Israel is well known to be, the startup nation.

00:05.465 --> 00:08.605
Uh, and meaning that, there are lots of,

00:09.235 --> 00:11.845
high technology startups, coming out of Israel.

00:11.915 --> 00:13.165
It's not the place

00:13.225 --> 00:15.605
and time now to explain why it is, but this is the case.

00:16.065 --> 00:18.605
By the way, even today with all the war

00:18.605 --> 00:21.565
and everything, we see lots of startups being,

00:21.925 --> 00:23.605
ra being established in Israel.

00:24.225 --> 00:26.885
Uh, these, because of the fact

00:26.885 --> 00:30.125
that the Israel is a relatively small market, many

00:30.125 --> 00:34.205
of these startups go abroad at the very, very young age.

00:34.205 --> 00:37.205
So they don't even consider the domestic market as something

00:37.205 --> 00:40.645
that they, should be, looking into.

00:41.225 --> 00:43.565
And they go, the internationals very,

00:43.565 --> 00:46.445
very early at their, lifespan.

00:46.745 --> 00:49.685
We call such companies that e exist all over the world,

00:50.075 --> 00:52.445
born global firms or international new ventures.

00:53.145 --> 00:57.205
And, while these, companies,

00:57.465 --> 01:00.745
in many cases, you know,

01:01.255 --> 01:02.985
stop quite nicely in foreign markets,

01:03.325 --> 01:04.745
we always see that oral.

01:04.745 --> 01:07.105
Almost always, we see that they face some kind

01:07.105 --> 01:09.385
of a problem when it comes to scale up

01:09.605 --> 01:10.905
and hence the title of the paper.

01:11.605 --> 01:16.105
And in this paper, we wanted to study what are part

01:16.125 --> 01:17.665
of the obstacle that,

01:18.175 --> 01:21.745
international new ventures face when they go abroad, start

01:21.745 --> 01:22.945
to grow internationally,

01:23.605 --> 01:26.465
but want to do it not just, you know, tap into some markets

01:26.525 --> 01:28.665
and start selling, but really start,

01:28.685 --> 01:29.785
growing their sales.

01:30.045 --> 01:32.825
So we wanted to look at, their challenges.

01:32.885 --> 01:37.105
Me and Shara, who is my co-author of this paper in my field,

01:37.105 --> 01:38.825
which is Strategy International Business.

01:39.605 --> 01:42.505
Uh, we really, believe that,

01:43.165 --> 01:46.665
the company's competitive advantage lies at,

01:46.775 --> 01:49.545
what we call, the knowledge based view of the firm.

01:50.125 --> 01:54.905
So, there are, this is the name of the theory,

01:55.055 --> 01:57.585
basically claiming that the strength

01:57.605 --> 01:59.105
of the co a company in general,

01:59.285 --> 02:02.825
not only international ventures, its ability to,

02:02.845 --> 02:06.305
out compete its rival, is based on its ability

02:06.445 --> 02:08.785
to develop some kind of, unique

02:08.845 --> 02:10.785
and how to imitate knowledge.

02:12.405 --> 02:15.905
Now then comes the question, how is this type

02:15.905 --> 02:17.585
of organizational knowledge created?

02:18.165 --> 02:19.545
And it's very, very different.

02:19.545 --> 02:21.585
You know, when we talk about large multinationals

02:21.585 --> 02:24.305
or large corporations where there are many things

02:24.305 --> 02:28.145
that contribute to the development of some kind of,

02:28.145 --> 02:29.265
organizational knowledge

02:29.925 --> 02:33.865
and looking on startups where we actually,

02:34.535 --> 02:37.105
believe that there are several sources of knowledge.

02:37.485 --> 02:41.265
Two important ones are what they call congenital knowledge,

02:41.265 --> 02:43.705
which is the knowledge that founders bring

02:43.705 --> 02:45.145
with them to the startup.

02:45.325 --> 02:49.665
And as long as they are part of the startup, is something

02:49.665 --> 02:53.425
that is inherited to the startup that they had established.

02:54.205 --> 02:55.625
But of course, there is also

02:55.655 --> 02:57.385
what we call experiential knowledge,

02:57.385 --> 02:58.465
which is learning by doing

02:58.705 --> 02:59.925
Startups develop.

03:00.135 --> 03:03.805
There are other people joining the top management team,

03:03.815 --> 03:06.245
other employees that take part in activities.

03:06.265 --> 03:08.965
And so by doing also startups learn.

03:08.985 --> 03:12.285
And, so the knowledge base view is the main pillar upon

03:12.285 --> 03:16.685
which we base our study and we look on two complementary

03:16.785 --> 03:18.165
or sometimes conflicting.

03:18.165 --> 03:19.365
We can talk about this in a moment.

03:20.065 --> 03:22.925
Uh, types of such knowledge, congenital knowledge

03:22.945 --> 03:24.165
and experiential knowledge.

03:24.725 --> 03:27.445
I think one of the important things of,

03:27.715 --> 03:30.485
that we are trying to claim in this, study is

03:30.485 --> 03:33.365
that founders are immensely important for their startups,

03:33.465 --> 03:35.125
and they have lots of influence there.

03:36.185 --> 03:40.595
So, the main argument is that early on, founders

03:40.905 --> 03:44.075
that come with industry specific international knowledge

03:44.185 --> 03:47.315
will be very beneficial for startup growth and scale up.

03:47.415 --> 03:50.275
Why is that? Because if I'm from the industry,

03:50.795 --> 03:53.355
I have good knowledge, intimate knowledge of customers,

03:53.545 --> 03:57.515
competitors, suppliers, I know the, you know, ta, things

03:57.515 --> 04:00.235
that make the industry revolve.

04:00.655 --> 04:02.635
And this is something that is extremely important.

04:02.875 --> 04:04.115
I may have international knowledge

04:04.115 --> 04:06.155
that is not related to the industry.

04:06.415 --> 04:09.235
It is helpful, but less, and we show that in the study,

04:09.815 --> 04:13.555
but it has to be industry specific international knowledge,

04:13.555 --> 04:15.155
which in many cases come

04:15.155 --> 04:18.235
because founders have been part of, I don't know,

04:18.645 --> 04:21.515
other companies from this industry and work globally.

04:21.985 --> 04:24.515
Well, usually this is the main, main,

04:24.575 --> 04:25.595
source of knowledge.

04:26.885 --> 04:28.345
The issue is though, that

04:29.445 --> 04:32.535
because of the fact that founders are extremely influential,

04:33.395 --> 04:36.855
at some point, their knowledge can be,

04:37.085 --> 04:40.175
also a stumbling block for the development

04:40.175 --> 04:41.375
of experiential knowledge.

04:41.435 --> 04:44.215
So after some time when we have more

04:44.215 --> 04:47.135
and more people involved in a company gaining experience,

04:47.355 --> 04:51.695
having firsthand experience in working with the very same,

04:52.075 --> 04:54.255
customers of the, startup

04:54.315 --> 04:56.255
of the international venture, not other

04:56.935 --> 04:59.215
customers from the semi side, very same suppliers,

04:59.215 --> 05:00.335
very same competitors.

05:00.705 --> 05:04.335
There is development of, much more current,

05:04.335 --> 05:07.575
knowledge about the international, environment

05:07.595 --> 05:10.255
and industry of where the, the company competes.

05:10.595 --> 05:14.695
And what we are actually arguing that, it's to,

05:14.755 --> 05:17.295
to some extent, the founders that come

05:17.295 --> 05:21.375
with their own views, with own experience are almost blind.

05:21.375 --> 05:26.015
There is some kind of inertia where they, like, if

05:26.515 --> 05:31.135
as long as they're there, they may interrupt the processes

05:31.555 --> 05:33.375
of learning of their founders

05:33.375 --> 05:35.895
because they always have this tendency, I know better.

05:36.015 --> 05:37.935
I know I'm, from the industry I've experienced,

05:38.125 --> 05:39.695
they impose a point of view,

05:39.695 --> 05:41.415
and this is what we are trying

05:41.415 --> 05:42.695
to claim is bad for companies.

05:42.695 --> 05:45.495
No, you want to be open to hear other views,

05:45.955 --> 05:49.015
to get people insights from the, you know, from the field,

05:49.085 --> 05:51.615
from, from a, a specific deals

05:51.615 --> 05:53.695
that they have been doing specific transaction,

05:54.115 --> 05:56.695
and let them allow the company to

05:57.035 --> 05:58.845
Kind of change and adapt itself

05:58.905 --> 06:01.525
to the current situation in the market.

06:02.225 --> 06:06.005
We ask, ourselves not only what is the influence

06:06.005 --> 06:07.965
of the founders as long as they're part

06:07.965 --> 06:10.805
of the top management team, but first, what is the influence

06:10.985 --> 06:12.645
of other top management teams

06:13.025 --> 06:16.165
and of their background ex experience.

06:16.505 --> 06:20.325
So one thing that we found that as long as we have,

06:20.645 --> 06:24.735
a bunch of, managers that were, are not founders,

06:24.875 --> 06:26.215
but were recruited at some point,

06:26.235 --> 06:28.055
and they have good experience of the industry,

06:28.315 --> 06:29.975
the international industry from the, the, the,

06:30.325 --> 06:33.975
from the past, they can kind of counterbalance the,

06:34.005 --> 06:37.055
this negative effect, of, of,

06:37.215 --> 06:38.375
founders as startups grow.

06:38.435 --> 06:40.655
So they compliment the founders

06:41.335 --> 06:43.135
industry specific knowledge initially,

06:43.515 --> 06:45.095
but they're not, subject

06:45.195 --> 06:47.255
to the same inertia that I just mentioned.

06:47.275 --> 06:49.415
And, you know, being, blended

06:49.435 --> 06:51.655
by experiential knowledge, they, they're more open.

06:51.655 --> 06:54.375
Maybe this is something that relates to ownership

06:54.435 --> 06:57.295
and the fact that it's not their own ugly baby if you,

06:57.395 --> 06:58.415
you know, the sort of thing.

06:58.805 --> 07:01.855
They're kind of, they're balancing the negative effect of,

07:01.875 --> 07:04.855
founders industry specific international

07:04.855 --> 07:05.895
knowledge in later stages.

07:05.965 --> 07:07.015
This is one important thing.

07:07.395 --> 07:09.815
The other, issue is, the issue of funding.

07:10.555 --> 07:13.415
Uh, so it's not so much about the funding itself,

07:13.435 --> 07:15.335
but the fact that funding typically comes

07:15.765 --> 07:17.695
with the involvement of business agents

07:17.795 --> 07:20.215
or venture capitalists in the top management team.

07:20.835 --> 07:22.815
And these guys, you know, they put a lot

07:22.815 --> 07:24.855
of their money on the international new venture,

07:24.875 --> 07:26.815
and they want to see returns and they have their voice.

07:27.555 --> 07:31.215
And what we are showing is the following early on,

07:31.965 --> 07:34.255
they can be detrimental to the startup growth

07:34.255 --> 07:39.165
because in indeed, early on, it should be the founder's own

07:39.765 --> 07:41.805
industry specific knowledge that should be,

07:41.805 --> 07:44.365
should take primacy because they know what they're doing.

07:44.395 --> 07:47.845
It's their, their view of the future. It's their idea.

07:48.075 --> 07:50.445
They understand the industry, let them run with the company.

07:50.505 --> 07:52.525
And sometimes when venture capitalists are there

07:52.705 --> 07:55.565
and saying, no, these things should be different,

07:55.665 --> 07:59.125
and maybe they also, you know, take the founders

07:59.265 --> 08:01.805
and put them, instead of being CEOs, put them at the

08:01.985 --> 08:03.765
as chief technology officer, stuff like that,

08:03.765 --> 08:08.075
they can interfere later in the development of,

08:08.075 --> 08:09.155
international venture.

08:09.295 --> 08:11.315
As we said in this, in the phase where,

08:11.315 --> 08:14.475
the industry specific knowledge of founders can be kind of,

08:14.495 --> 08:18.835
detrimental, then they can be a positive effect.

08:18.895 --> 08:21.555
And their presence, their managerial experience,

08:21.935 --> 08:23.195
can actually help.

08:23.475 --> 08:27.835
I think they also sort of, a mitigator that can help,

08:28.015 --> 08:31.475
other employees, other managers that are not founders

08:31.615 --> 08:35.315
to raise their voice, to help their voice to be sound,

08:35.385 --> 08:36.875
against the, the founders that,

08:36.875 --> 08:38.875
that I say are more kind of pushing back.

08:39.445 --> 08:42.395
First we have to remember that this is a study about,

08:43.575 --> 08:46.355
international ventures from one specific country.

08:46.355 --> 08:49.435
Yeah. And, you know, there are so many cultural,

08:49.435 --> 08:51.715
characteristics of Israeli therapies

08:51.715 --> 08:53.715
that may influence the results.

08:53.735 --> 08:54.835
And hence, I, I think it

08:54.835 --> 08:58.045
Is important to try and replicate the study elsewhere.

08:58.305 --> 09:01.765
But I think the, grand conclusions are

09:02.355 --> 09:05.965
initially you should let founders, you know,

09:06.275 --> 09:10.565
live their dream, give them the ability to run the startup,

09:10.665 --> 09:11.725
to take it forward.

09:12.425 --> 09:15.925
Uh, and, and, you know, what is entrepreneurship all about?

09:16.035 --> 09:17.805
It's about a, a group of people

09:17.985 --> 09:22.045
or individuals that say, Hey, I see the world in a different

09:22.785 --> 09:24.245
way than anybody else is.

09:25.255 --> 09:26.915
And, and if they have merits,

09:26.915 --> 09:28.595
and what are our argument is

09:28.595 --> 09:30.835
that if they come from the industry, they have experience,

09:31.115 --> 09:32.355
probably they know what they're talking about,

09:32.975 --> 09:34.795
let them run the show.

09:34.985 --> 09:39.795
They will do well much more than, professional managers.

09:39.895 --> 09:43.075
So professional managers, we, in the Israeli case for sure,

09:43.075 --> 09:47.155
they have not done well at all yet at some, some,

09:47.265 --> 09:49.155
some stage they need to be replaced.

09:49.155 --> 09:53.235
At some stage, you need to bring in other forces, probably,

09:53.455 --> 09:57.155
other managers from the company

09:57.615 --> 09:59.755
or maybe outside the company that are not founders,

10:00.175 --> 10:02.275
and let them run the company more professionally.

10:02.295 --> 10:05.035
But also think this is not the, our main point,

10:05.055 --> 10:09.395
our main point is be more open in the industry,

10:09.535 --> 10:11.835
in competition with customers, with suppliers, and,

10:11.835 --> 10:15.555
and not be kind of, like a blocked,

10:15.735 --> 10:20.235
or a, a like, like obstacle able, able to,

10:20.235 --> 10:23.435
to take decisions that are current, that are relevant,

10:23.775 --> 10:26.315
not being prisoners of their own views of the world.

00:00 - I reside in Israel. Israel is well known to be, the startup nation. and meaning that, there are lots of, high technology startups, coming out of Israel. It's not the place and time now to explain why it is, but this is the case.

00:16 - By the way, even today with all the war and everything, we see lots of startups being, ra being established in Israel. these, because of the fact that the Israel is a relatively small market, many of these startups go abroad at the very, very young age. So they don't even consider the domestic market as something that they, should be, looking into. And they go, the internationals very, very early at their, lifespan.

00:46 - We call such companies that e exist all over the world, born global firms or international new ventures. And, while these, companies, in many cases, you know, stop quite nicely in foreign markets, we always see that oral. Almost always, we see that they face some kind of a problem when it comes to scale up and hence the title of the paper. And in this paper, we wanted to study what are part

01:16 - of the obstacle that, international new ventures face when they go abroad, start to grow internationally, but want to do it not just, you know, tap into some markets and start selling, but really start, growing their sales. So we wanted to look at, their challenges. Me and Shara, who is my co-author of this paper in my field, which is Strategy International Business. we really, believe that,

01:43 - the company's competitive advantage lies at, what we call, the knowledge based view of the firm. So, there are, this is the name of the theory, basically claiming that the strength of the co a company in general, not only international ventures, its ability to, out compete its rival, is based on its ability to develop some kind of, unique and how to imitate knowledge. Now then comes the question, how is this type

02:15 - of organizational knowledge created? And it's very, very different. You know, when we talk about large multinationals or large corporations where there are many things that contribute to the development of some kind of, organizational knowledge and looking on startups where we actually, believe that there are several sources of knowledge. Two important ones are what they call congenital knowledge, which is the knowledge that founders bring

02:43 - with them to the startup. And as long as they are part of the startup, is something that is inherited to the startup that they had established. But of course, there is also what we call experiential knowledge, which is learning by doing Startups develop. There are other people joining the top management team, other employees that take part in activities. And so by doing also startups learn.

03:08 - And, so the knowledge base view is the main pillar upon which we base our study and we look on two complementary or sometimes conflicting. We can talk about this in a moment. types of such knowledge, congenital knowledge and experiential knowledge. I think one of the important things of, that we are trying to claim in this, study is that founders are immensely important for their startups, and they have lots of influence there.

03:36 - So, the main argument is that early on, founders that come with industry specific international knowledge will be very beneficial for startup growth and scale up. Why is that? Because if I'm from the industry, I have good knowledge, intimate knowledge of customers, competitors, suppliers, I know the, you know, ta, things that make the industry revolve. And this is something that is extremely important. I may have international knowledge that is not related to the industry.

04:06 - It is helpful, but less, and we show that in the study, but it has to be industry specific international knowledge, which in many cases come because founders have been part of, I don't know, other companies from this industry and work globally. Well, usually this is the main, main, source of knowledge. The issue is though, that because of the fact that founders are extremely influential, at some point, their knowledge can be,

04:37 - also a stumbling block for the development of experiential knowledge. So after some time when we have more and more people involved in a company gaining experience, having firsthand experience in working with the very same, customers of the, startup of the international venture, not other customers from the semi side, very same suppliers, very same competitors. There is development of, much more current,

05:04 - knowledge about the international, environment and industry of where the, the company competes. And what we are actually arguing that, it's to, to some extent, the founders that come with their own views, with own experience are almost blind. There is some kind of inertia where they, like, if as long as they're there, they may interrupt the processes of learning of their founders because they always have this tendency, I know better. I know I'm, from the industry I've experienced,

05:38 - they impose a point of view, and this is what we are trying to claim is bad for companies. No, you want to be open to hear other views, to get people insights from the, you know, from the field, from, from a, a specific deals that they have been doing specific transaction, and let them allow the company to Kind of change and adapt itself to the current situation in the market.

06:02 - We ask, ourselves not only what is the influence of the founders as long as they're part of the top management team, but first, what is the influence of other top management teams and of their background ex experience. So one thing that we found that as long as we have, a bunch of, managers that were, are not founders, but were recruited at some point, and they have good experience of the industry, the international industry from the, the, the,

06:30 - from the past, they can kind of counterbalance the, this negative effect, of, of, founders as startups grow. So they compliment the founders industry specific knowledge initially, but they're not, subject to the same inertia that I just mentioned. And, you know, being, blended by experiential knowledge, they, they're more open. Maybe this is something that relates to ownership

06:54 - and the fact that it's not their own ugly baby if you, you know, the sort of thing. They're kind of, they're balancing the negative effect of, founders industry specific international knowledge in later stages. This is one important thing. The other, issue is, the issue of funding. so it's not so much about the funding itself, but the fact that funding typically comes with the involvement of business agents

07:17 - or venture capitalists in the top management team. And these guys, you know, they put a lot of their money on the international new venture, and they want to see returns and they have their voice. And what we are showing is the following early on, they can be detrimental to the startup growth because in indeed, early on, it should be the founder's own industry specific knowledge that should be, should take primacy because they know what they're doing. It's their, their view of the future. It's their idea.

07:48 - They understand the industry, let them run with the company. And sometimes when venture capitalists are there and saying, no, these things should be different, and maybe they also, you know, take the founders and put them, instead of being CEOs, put them at the as chief technology officer, stuff like that, they can interfere later in the development of, international venture. As we said in this, in the phase where, the industry specific knowledge of founders can be kind of,

08:14 - detrimental, then they can be a positive effect. And their presence, their managerial experience, can actually help. I think they also sort of, a mitigator that can help, other employees, other managers that are not founders to raise their voice, to help their voice to be sound, against the, the founders that, that I say are more kind of pushing back. First we have to remember that this is a study about, international ventures from one specific country.

08:46 - Yeah. And, you know, there are so many cultural, characteristics of Israeli therapies that may influence the results. And hence, I, I think it Is important to try and replicate the study elsewhere. But I think the, grand conclusions are initially you should let founders, you know, live their dream, give them the ability to run the startup, to take it forward. and, and, you know, what is entrepreneurship all about?

09:16 - It's about a, a group of people or individuals that say, Hey, I see the world in a different way than anybody else is. And, and if they have merits, and what are our argument is that if they come from the industry, they have experience, probably they know what they're talking about, let them run the show. They will do well much more than, professional managers. So professional managers, we, in the Israeli case for sure,

09:43 - they have not done well at all yet at some, some, some stage they need to be replaced. At some stage, you need to bring in other forces, probably, other managers from the company or maybe outside the company that are not founders, and let them run the company more professionally. But also think this is not the, our main point, our main point is be more open in the industry, in competition with customers, with suppliers, and, and not be kind of, like a blocked,

10:15 - or a, a like, like obstacle able, able to, to take decisions that are current, that are relevant, not being prisoners of their own views of the world.

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