The FINANCIAL -- Why do some start-ups thrive, while others fail? New research suggests that one reason could be the quality of advice entrepreneurs receive from their peers. Informal advice can be of particular significance in emerging economies like India where entrepreneurs often lack formal management training and capabilities.
The findings come from a National Bureau of Economic Research working paper by Aaron Chatterji and Sharique Hasan of Duke University, Solene Delecourt of Stanford Graduate School of Business and Rembrand M. Koning of Harvard Business School.
According to HBS, the results are based on a field experiment with 100 growth-stage start-up founders in India. As part of a three-day retreat, the founders were randomly selected as pairs and made to exchange management advice with each other.
The authors find that two years after the retreat, founders paired with ‘active managers’ had seen their start-ups grow by 28% and were 10 percentage points less likely to fail than those who got advice from ‘passive managers’.
Active management implies goal-setting, providing feedback, and coordinating employees across various tasks, while passive managements are rarely involved in any of these tasks.
Unsurprisingly, founders with formal training in business (for example, via an MBA or an incubator programme) were less in need of and, therefore, less affected by advice.
For India, these findings highlight the importance of start-up ecosystems such as Silicon Valley, which can be critical in spreading good business advice.