Leadership Behaviour of Start-up Founder-CEOs

Table of Contents

Personal declaration:

Acknowledgements

Executive Summary

List of figures and tables

1 Introduction
1.1 Background
1.2 Objectives of this study
1.3 Layout

2 Literature Review
2.1 Introduction
2.2 Entrepreneurship in the New Venture Context
2.3 Bridging Entrepreneurship and Leadership
2.4 Leadership behaviours in the new venture context
2.4.1 Transactional Leadership within the New Venture Context
2.4.2 Transformational Leadership within the New Venture Context
2.4.3 Empowering Leadership within the New Venture Context
2.4.4 Directive Leadership within the New Venture Context
2.4.5 Vertical and Shared Leadership within the New Venture Context
2.5 A Case for Further Research

3 Methodology
3.1 Research Approach
3.2 Research Design
3.3 Research Strategy
3.4 Analysis of Qualitative Data
3.5 Research Limitations

4 Findings and Discussion
4.1 Introduction
4.2 Founder's duties in the new venture process
4.3 Shared & Vertical Leadership
4.4 Transformational Leadership
4.5 Transactional Leadership
4.6 Empowering Leadership
4.7 Directive Leadership
4.8 Situational Leadership Behaviour
4.9 Summary

6 Conclusion

7 References

Appendices

Appendix 1

Appendix 2

Appendix 3

Personal declaration:

Word count: 11,000 (Excluding Executive Summary)

I confirm that this piece of work is a result of my own work. Material from the work of others not involved in the project has been acknowledged and quotations and paraphrases suitably indicated. Furthermore, I confirm that I understand the definition of plagiarism that is used by Durham University, and that all source material has been appropriate cited and referenced. I understand that only the content in the main body of the work will be marked, and that the content in the Appendices will be checked, but will not contribute to the marking of my assignment. Research ethics issues have been considered and handled appropriately within the Durham University Business School guidelines and procedures.

Acknowledgements

Firstly, I would like to thank Dr. Paul Burrows, BSc, MSc, Dip Management, MBA, PhD for all his support and feedback throughout the progress of this dissertation.

Next, I would like to thank all the (Co-)Founder-CEOs that gave me their time to help me collect the necessary data for this study.

Finally, I would like to thank my family, especially my mum and my dad, who have always supported me and given me strength throughout my life and especially during my time in Durham.

Executive Summary

Scholars only recently recognised the fact that new entrepreneurial ventures (i.e. start-ups) cannot be created and grown without the leadership of founders who initially formulate the vision and strategy of their organisations, set particular goals, and motivate and manage the efforts of their employees. Present research has mainly focused on quantitatively relating specific types of leadership behaviours to positive or negative new venture performance outcomes while neglecting to understand how the new venture context influences the initial choices of entrepreneurs to lead in a certain way.

To close this research gap, this study examined the leadership behaviour of start-up founder-CEOs and the reasons for the practised styles through qualitative research. Transcripts of semi-structured interviews with 17 entrepreneurs who obtain the CEO (Chief Executive Officer) position in their start-ups were analysed using narrative interpretation. The study was conducted over a period of three months and sought to identify the participants' leadership behaviour by asking them specific indirect and direct questions that would reveal patterns of their leadership behaviour. The entrepreneurs’ leadership behaviour was then examined across the dimensions of vertical and shared leadership before identifying transactional, transformational as well as empowering and directive behaviours.

This study yielded evidence that the founder-CEOs' choices of leadership behaviours indeed relate to certain influencing factors in the new venture context as well as to the specific tasks of founder-CEOs. The stage of the firm, different employees and the duties that CEOs have influence the choices of leadership. Moreover, the results illustrate that founder-CEOs predominantly practise shared leadership with their co-founding members or top management team members. This was explained by the shared responsibilities that each of the co-founders or management team members have as well as the need of the CEO to work more on the business, instead of in the business.

Further, empowering leadership was the most commonly demonstrated behaviour. This can be explained by a start-up’s need to innovate and to bring in new perspectives, not only from co-founders or top management team members but also from employees. Since talented employees in start-ups bring in new knowledge and expertise, it makes sense to give them the freedom and flexibility to work autonomously, rather than constantly telling them what to do. Further, founder-CEOs have a variety of tasks to handle and cannot spend too much time on actively managing and leading people. This is why taking over lots of responsibility by ambitious employees is encouraged. Transformational leadership was identified a few participants, mainly to communicate the new venture’s values and vision while also providing inspiration and encouraging new ideas of employees.

While empowering leadership was found to be predominant especially at early stages of new ventures, the bigger and more structured the organisation becomes, the more transactional and directive behaviours can be identified, too. This can be explained by the fact that as start-ups grow and establish structures and departments, processes can be improved, tasks articulated more clearly and rewards set out more easily. However, transformational, transactional and directive leadership behaviours were found to be rather complements to empowering behaviour than replacements.

With the findings of this study, it is hoped that scholars, students as well as professionals can gain a better understanding of leadership practices in start-ups and why shared and empowering leadership behaviours are predominant. For future research, the results of this study highlight the importance of qualitatively examining entrepreneurs' leadership behaviour as well as further investigating the relationship between the new venture context and the demonstrated leadership behaviours.

List of Figures and Tables

Figure 1 Opportunity recognition sequences in entrepreneurial new venture creation

Figure 2 Process model of new venture creation

Table 1 Perspectives of Leadership

Table 2 Representative Behaviours of Four Types of Leadership and their Theoretical Foundations

Table 3 Previous studies of the four leadership behaviours in a new venture context

Table 4 Interview Participants

Table 5 Founder-CEOs about the start of their new venture

Table 6 Changing duties of CEOs over time

Table 7 Shared decision making

Table 8 Shared leadership within the co-founding or management team

Table 9 Transformational leadership findings

Table 10 Transactional Leadership Findings

Table 11 Empowering Leadership Findings

Table 12 Directive Leadership Findings

1 Introduction

The aim of this study is to examine the leadership behaviour of start-up founder-CEOs. Focus will be put on relating different leadership outcomes to factors of the new venture context that enable or require certain leadership behaviours. In this chapter, a rationale for choosing this research topic will be provided. Further, an overview of the following chapters will be provided by briefly outlining their contents.

1.1 Background

Due to new technological possibilities and new markets, starting a business has become easier and more attractive than ever for entrepreneurs (Smagalla, 2004) who strive to bring innovative products and services to the market (Giardino, Wang & Abrahamsson, 2014).If successful, entrepreneurial new ventures, i.e. start-ups, can bring financial wealth as well as intangible benefits such as self-fulfilment, independence and job satisfaction to its founders (Berthold, & Neumann, 2008). However, entrepreneurial success does not come from innovative ideas alone. For a new start-up firm, it can be a very long and complex path from the idea stage to a profitable and scalable business (Gartner, Starr & Bhat 1999).

A new venture does not have a viable, operating, organised business in which people know where they are going, what they are supposed to do and what the results should be. Unless a new firm develops into a business and makes sure that it is properly led and managed, it will not survive no matter how great the business idea, how much investment it attracts, how good its products or services are, or how great the demand is for them (Drucker, 2007, p.170). In order to execute through chaos and to produce social and economic benefits through job creation and scaling up the business, effective leadership at all stages of the business is essential (Freeman & Siegfried, 2015).

Since entrepreneurs cannot successfully develop new firms without displaying effective leadership behaviour, leadership has recently garnered more attention in the entrepreneurship literature (Cogliser & Brigham, 2004). Within the intersection of leadership and entrepreneurship, different leadership behaviours have been studied in a new venture context regarding new venture performance outcomes (e.g. Ensley, Hmieleski & Pearce, 2006; Ensley, Pearce & Hmieleski, 2006; Hmieleski & Ensley, 2007; Hmieleski, Cole, & Baron, 2012). Present studies have only focused on examining leadership behaviour towards new venture performance outcomes through quantitative analysis while neglecting to investigate qualitatively why entrepreneurs demonstrate certain leadership behaviours in the first place. Therefore, this paper's purpose is, to take the first step in closing this research gap.

1.2 Objectives of this study

The aim of this research is to explore why certain leadership styles are more prevalent than others and what factors could mediate the choices of leadership style. This paper will further explore how the leadership behaviour of founder-CEOs might change from time to time. After analysing and discussing the findings of this study concerning existing literature, recommendations, implications as well as future directions of research can be made. The objectives will be achieved by evaluating four previously studied leadership behaviours (transformational, transactional, empowering, directive) across the spectrum of vertical and shared leadership within the new venture context, as well as by answering the following research sub-questions:

- How do key activities at certain stages relate to the demonstrated leadership behaviour of founder-CEOs?
- What role does shared and vertical leadership play in start-ups?
- How and why does leadership vary over time?

To provide a clear overview of this dissertation, the layout of the following chapters will be presented next.

1.3 Layout

Following the introduction chapter, this dissertation consists of the following chapters:

Chapter 2: Literature Review

The literature review presents theories on leadership, entrepreneurship as well as reviewing leadership behaviours that have been studied in a new venture context. The theory is used as a base to conduct the study and to analyse the findings.

Chapter 3: Methodology

This chapter explains how the qualitative study was conducted. Moreover, it provides an understanding of the motivation for the chosen research method, the chosen sample as well as the data collection and analysis process.

Chapter 4: Findings

This chapter is the central part of the dissertation and comprises the results of the conducted study as well as subsequent interpretation and discussion of the analysed data.

Chapter 6: Conclusion

In this chapter, conclusions of the analysis will be made and reflected back to the purpose of the study. Further, theoretical and practical implications, limitations and recommendations for future research will be provided.

After having outlined the background, the research significance and the research objectives of this study, next an overview of the literature, necessary as a theoretical foundation for this study, will be provided in Chapter 2.

2 Literature Review

2.1 Introduction

As stated in Chapter 1, this study aims to gather findings that reveal how founder-CEOs practice leadership in the new venture context. Therefore, the theoretical background which is provided in this chapter draws mainly from literature about entrepreneurship, new venture creation and leadership. Following a brief overview of both entrepreneurship and leadership, the domains will be bridged to present current literature about leadership behaviours in a new venture context before making a case for further research.

2.2 Entrepreneurship in the New Venture Context

Entrepreneurship is a relatively young research field compared to other management disciplines (Hitt & Ireland, 2000) and still an emerging, rapidly growing, and vibrant area (Kuckertz & Mandl, 2013; Cogliser & Brigham, 2004, Busenitz et al., 2003; Dean, Brown, & Bamford, 1998). Entrepreneurship has been recognised as a leading driver of development in local, regional, and national economies and can equally be considered an important factor in the development of established firms (Gupta, MacMillan & Surie, 2004). Whether defined as the creation of new products or processes (Schumpeter, 1934), new venture creation (Gartner 1985) or the entry into new markets (Lumpkin & Dess, 1996), entrepreneurship typically involves "a process by which individuals - either on their own or inside organizations - pursue opportunities without regard to the resources they currently control." (Stevenson, Roberts, and Grousbeck, 1989). Therefore, an entrepreneur is someone who acts on an opportunity identified as worth pursuing (McMullen & Shepherd, 2006) and puts together necessary resources that help him/her to exploit it (Choi & Shepherd, 2004). This entrepreneurial opportunity is usually tied to a new service or product, which creates or adds value for its customer (Shane & Venkataraman, 2000).

Accordingly, the core components of entrepreneurship involve discovering and exploiting business opportunities (Cole, 1965, Vesper, 1980), based on either external or internal stimulation of opportunity recognition until the commitment to physical creation (Bhave 1994), as seen in figure 1.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1. Opportunity recognition sequences in entrepreneurial new venture creation. Reprinted from "A process model of entrepreneurial venture creation" by M. P. Bhave, 1994,Journal of Business Venturing, 9, p. 229. Copyright (1994) by Elsevier. Reprinted with permission.

There are many contexts in which entrepreneurship can be applied. Arguably, for a given study, entrepreneurship needs to be defined within a certain setting or context and regarding actions taken by an individual within such a particular setting (Vecchio, 2003). Apart from applying entrepreneurship to large corporations, i.e. intrapreneurship or corporate entrepreneurship (e.g. Stevenson & Jarillo, 1990), or in social enterprises, i.e. social entrepreneurship, in which social value is more important than capturing economic value (e.g. Mair & Marti, 2006), one of the contexts comprises new scalable ventures, i.e. start-ups (e.g. Van de Ven, Hudson & Schroeder, 1984).

Similar to other researcher's categorisations of new venture creation (e.g. Eisenhardt and Schoonhoven, 1990; Sandberg and Hofer, 1987; Van de Ven et al. 1984; Vesper, 1990), Gartner (1985) developed a framework of new venture creation based on four dimensions, namely:

- individual(s) - the individual(s) involved in starting a new organisation
- organisation - the kind of firm that is started
- environment - the situation surrounding and influencing the new organisation
- new venture process - the actions taken by individual(s) to start the venture

While the dimensions "individuals" (e.g. traits, demographics), "environment" (e.g. availability of venture capital and labour) and "organisations" (e.g. legal form, industry) (Gartner 1985) may greatly differ from venture to venture, entrepreneurs typically go through a similar "new venture process" (Gartner, 1985; Bhave, 1994).

Figure 2.Process model of new venture creation. Reprinted from "A process model of entrepreneurial venture creation" by M. P. Bhave, 1994,Journal of Business Venturing, 9, p. 229. Copyright (1994) by Elsevier. Reprinted with permission.

As seen in Bhave's (1994) process model of new venture creation (figure 2), after committing to the physical creation of the business opportunity, entrepreneurs gather necessary resources (Leibenstein, 1968; Schumpeter, 1934) and use them towards technology set-up (Bhave 1994), organisation creation (Kilby 1971) and marketing (Peterson & Berger, 1971). Once the idea is converted into a product or service, it can be sold within the supply and demand boundary to customers (Maidique, 1980; Vesper, 1980). Subsequently, customers directly evaluate the product or service and generate feedback which is used to continuously improve both operational and strategic aspects of the business towards firm growth (Bhave, 1994).

Since researchers recognised the fact that entrepreneurs need to display effective leadership behaviour to successfully develop new ventures, leadership has recently begun to garner increased attention in the entrepreneurship literature (Bryant, 2004; Cogliser & Brigham, 2004). Hence, he next section will provide an overview of the relationship between the two research domains.

2.3 Bridging Entrepreneurship and Leadership

A number of opportunities exist for new research directions in the study of entrepreneurship. One of the neglected topics is tying entrepreneurship to leadership (Vecchio, 2003). Thus, a recognition of common trends and common threads of thought is encouraged (Vecchio, 2003; Cogliser & Brigham, 2004.). Gartner, Bird, and Starr (1992) proposed that a combination of entrepreneurship and leadership research has a lot of potential for the entrepreneurship field. Some have even argued that entrepreneurship is merely leadership in a unique context (Czarniawska-Joerges & Wolff, 1991; Vecchio, 2003).

Leadership has more models than any other area in the behavioural sciences (Hunt & Dodge, 2000). Concepts of leadership were traced back to ancient times, with leader traits, behaviours, and processes discussed in ancient writings of Egypt, China, Greece, Israel, India, Iraq, and Italy (Rindova & Starbuck, 1997a,b). Leadership research has been traced as far back as ancient civilisations (Peterson & Hunt, 1997). Leaders served as symbols in the Old and New Testaments, the Upanishads, the classics of Rome and Greece, and the Icelandic sagas (Bass, 1997). However, systematic scholarly research of leadership evolved in the 20th century (Cogliser & Brigham 2004).

As Spicker (2012) mentioned, there are too many definitions of leadership to fit into one paper since leadership has been defined from various perspectives, as seen in Table 1. However, a commonly accepted general definition of leadership is the ability to influence others toward a goal (Hunt, 2004). Therefore, most of the leadership literature focuses on the ability of leaders to influence a group of followers and emphasises the relations among three key factors: the leader, the followers, and the landscape. (Gupta, MacMillan & Surie, G., 2004). Efforts to influence others and gain advantage from entrepreneurial opportunities can be justifiably aligned with the established areas of leadership and interpersonal influence. That is why the continued treatment of entrepreneurship as a separate area of study that is distinct from other broader domains, like leadership, is questioned (Vecchio, 2003). The research history of leadership and entrepreneurship literature have several similarities (Vecchio, 2003). For instance, one of the most discussed approaches to leadership and entrepreneurship are the trait & behavioural approaches (Cogliser & Brigham, 2004).

Table 1

Perspectives of Leadership

Abbildung in dieser Leseprobe nicht enthalten

The initial weak results of what was termed "the traits approach" in leadership research led to a fragmentation of research programmes split between leadership and entrepreneurship are the trait & behavioural approaches (Cogliser & Brigham, 2004). The initial weak results of what was termed "the traits approach" in leadership research led to a fragmentation of research programmes split between studies of the effect of the situation on leadership (Wofford & Liska, 1993) and studies investigating the behaviour of leaders (Bass, 1990). Similarly, researchers in the entrepreneurship field divided studies between considering the effect of the environment on entrepreneurship (Kirzner, 1997) and studies examining the behaviour of entrepreneurs (Shaver & Scott, 1991).

In entrepreneurship, the trait studies focused mainly on identifying specific personality variables that would distinguish entrepreneurs from other groups. The variables were then presumed to lead to the founding of new organisations (Cogliser & Brigham, 2004). The variables considered in these types of studies comprise: need for achievement (Ahmed, 1985; McClelland, 1967), locus of control (Brockhaus, 1982; Venkatapathy, 1984), risk-taking propensity (Ahmed, 1985; Brockhaus, 1980), and tolerance for ambiguity (Dollinger, 1983; Sexton & Bowman, 1985). However, concentrating only on traits and demographic characteristics as predictors of entrepreneurial behaviour and performance has largely been discarded for more prosperous paths of research (Herron & Robinson, 1993).

Both, leadership and entrepreneurship, faced challenges looking exclusively at personality characteristics and other individual differences for predicting leader or entrepreneur emergence. The trait approach to leadership was contested in the mid-20th century with Stogdill’s (1948) critical review questioning the universality of traits across leadership studies. Stogdill’s (1948) review launched the leadership field's first major crisis while also providing the catalyst for moving leadership from the focus on what leaders are to what leaders do (Antonakis et al., 2004). The majority of the behavioural theories that developed from the 1950s through the 1980s focused on two categories of leader behaviour: consideration and initiating structure (or their variants such as supportive vs. instrumental leadership or employee-centred vs. production-centred leadership). While there was a large effort to explore the relationship of these leader behaviours with outcomes of leadership effectiveness, results continued to be inconclusive (Antonakis et al., 2004; Yukl, 2002). Thus, leadership faced its second big crisis (Antonakis et al., 2004). A movement toward a contingency approach as a means for describing these ambiguous findings ensued, followed by a situational approach as well as transformational and transactional approaches (Cogliser & Brigham, 2004).

Similar to Stogdill’s (1948) critical review about leadership traits, entrepreneurship also had a clear demarcation point from the trait to the behavioural approach (Cogliser & Brigham, 2004). Gartner’s (1985) review of the field concluded that differences among entrepreneurs and their firms are as big as the differences between entrepreneurs and non-entrepreneurs and between new and established firms. He also called for a fundamental shift away from individual trait perspectives and towards a behavioural approach to studying entrepreneurship (Gartner, 1985, 1988). Mirroring Stogdill, Gartner (1988) proposed that future exploration of entrepreneurs should move away from what they are, and instead focus on what they do. Thus, the need of adopting a behavioural approach ensued (Low & MacMillan, 1988).

Having bridged leadership and entrepreneurship as two symbiotic fields of study, a selection of leadership behaviours studied previously in a new venture context will be reviewed next.

2.4 Leadership behaviours in the new venture context

In the new venture context, founders must lead because there are not any standard operating procedures or organisational structures to fall back on when creating a venture (Ensley, Pearce, & Hmieleski, 2006). For instance, founders of new ventures must create a vision for their company and influence others to buy into their dreams. Subsequently, they must attract co-founders or management team members, employees, and acquire necessary resources to develop their new firms (Baum, Locke, & Kirkpatrick, 1998). Moreover, entrepreneurs must set the initial objectives and reward structures for their workers (Williamson, 2000). This distinction differentiates entrepreneurs from corporate managers who often have more well-defined goals, work processes, and structures to guide them (Ensley, Pearce, & Hmieleski, 2006). Therefore, while there may be substitutes or blockers of leadership in larger and more established organisations (Kerr & Jermier, 1978), there are far fewer impediments or alternatives to leadership in new firms (Ensley, Pearce, & Hmieleski, 2006).

Although the importance of leadership in the development of new ventures has been emphasised in recent years (Bryant, 2004; Cogliser & Brigham, 2004; Vecchio, 2003), much has still to be learned about which forms of leadership behaviour are most effective in this context. Moreover, the literature on entrepreneurship addressing leadership has mostly been one-sided, predominately concentrating on empowering leadership behaviours (Covin & Slevin, 2004; Gupta, MacMillan, & Surie, 2004; Ireland, Hitt, & Sirmon, 2003; McGrath & MacMillan, 2000), while usually failing to recognise situations in which other behaviours such as directive or transactional leadership may be beneficial. Generalising models of entrepreneurial behaviour fail to consider the full complexity of the new venture context (Gartner, 1989; Shaver & Scott, 1991). Thus, four fundamental leadership behaviours (Pearce, 2004) (Table 2) that have been studied in a new venture context in the past (Ensley, Hmieleski & Pearce, 2006; Ensley, Pearce & Hmieleski, 2006; Hmieleski & Ensley, 2007) will be reviewed next.

Table 2

Representative Behaviours of Four Types of Leadership and their Theoretical Foundations

illustration not visible in this excerpt

2.4.1 Transactional Leadership within the New Venture Context

Although transactional leadership has typically been characterised as the leadership of the past (Bass, 1996), it certainly is still a viable leadership strategy in ongoing organisational operations (Cox et al., 2003; Pearce, 2004). For instance, Bryant (2003) suggests that transactional leadership is likely to be most effective for exploiting knowledge at the organisational level. Transactional leadership behaviour can generate positive new firm outcomes as it sets the scene for what most leadership development experts would regard rational, effective maintenance leadership. For[SM1] instance, early in the life of a new company, transactional leadership aids coordination by setting performance expectations and clarifying reward contingencies. Over time, transactional behaviour can be used to leverage performance monitoring and send signals that enable continuous coordination and adjustment of individual behaviour to achieve new venture objectives (Ensley, Pearce, & Hmieleski, 2006). The counterpart to transactional leadership would be transformational leadership, which will be discussed next.

2.4.2 Transformational Leadership within the New Venture Context

Transformational leadership is a participative process which enables leaders and followers to coordinate their efforts to reach objectives that lead to significant change (Burns, 1978). In contrast to transactional leadership, transformational leaders recognise the morals and ideals of their followers to motivate them to attain their greatest levels of performance and to take control of group objectives (Bass, 1985). Hence, transformational activities stimulate the intrinsic, rather than the extrinsic, motivation of followers. Thus, followers are principally driven by the achievement of the objective, rather than rewards or punishments that might be linked to performance outcomes. Primary behaviours of transformational leadership comprise providing inspiration and vision, as well as challenging the status quo (Pearce et al., 2003).

Conger (1999) sheds light on the potential importance of transformational leadership as an initiating factor in new venture development. This proposition is consistent with Baglia and Hunt (1988) who view transformational leadership most important during the growth of an organisation. This might be, partly, because of the effect that transformational leaders have on their followers' innovativeness. Sosik (1997) demonstrated this effect in a study on idea generation, which identified a positive relationship between transformational leadership and the number of unique solutions reported by followers. Similarly, Pearce and Sims (2002) found transformational leadership to be an important predictor of change management and team effectiveness.

However, Ensley, Pearce, and Hmieleski (2006) suggested that the lack of structure within new ventures might also hyper-sensitise them to the effects of transformational leadership, more so than for large organisations. As such, transformational leadership behaviour might distract followers from carrying out important maintenance functions - since the structure and culture for carrying out these functions has yet to be fully developed in these new ventures (ibid.). Another leadership behaviour that rather stimulates the intrinsic motivation of followers would be empowering leadership, which will be discussed next.

2.4.3 Empowering Leadership within the New Venture Context

Empowering leadership behaviour encompasses the encouraging of self-rewards, self-leadership, opportunity thinking, participative goal-setting, and independent behaviour by subordinates, group members or followers (Pearce et al., 2003). This leadership behaviour has been found to affect perceptions of meaning, self-efficacy, team potency, and self-determination in a positive way (Spreitzer, 1996). By providing empathic emotional support and encouragement, empowering leaders tend to improve the confidence and motivation of subordinates toward the achievement of individual and organisational goals (Conger, 1989). To this end, empowering leadership should be a particularly useful behavioural tactic for entrepreneurs who have to gain exceptional commitment from their top management teams and employees to compete against more established and resource-rich incumbents (Ensley, Pearson, & Pearce, 2003). Also, by providing freedom and autonomy, leaders can facilitate the generation of new ideas within the firm (Mumford et al., 2002.)

Moreover, empowering leadership behaviour is likely to be especially important within dynamic environments. For instance, Nicholls-Nixon (2005) proposed that entrepreneurs trying to lead their start-ups toward high growth while working under dynamic conditions are likely to benefit from adopting an empowering leadership style. He noted that rather than deciding on the direction of growth and the organisational structures and systems that are needed to manage it, the leader’s task is to create the conditions that allow self-organising behaviour to emerge (Nicholls-Nixon, 2005). This judgment is corresponding with complexity theories of leadership, which examine how leadership behaviours enable, rather than guide, organisational effectiveness under uncertainty (Marion & Uhl-Bien, 2001).

The paper will next discuss directive leadership, which is almost diametrically opposite to empowering leadership as it relies heavily on delegation of duties by leaders as opposed to a system that intrinsically motivates its employees by giving them more responsibilities (Pearce et al., 2003).

2.4.4 Directive Leadership within the New Venture Context

Directive leadership behaviour is a method through which leaders guide and command followers to accomplish designated tasks, assign precise non-negotiable objectives, and use contingent reproaches to facilitate collaboration from group members, subordinates, or followers (Pearce et al., 2003). The literature on leadership has primarily focused on the negative, rather than positive, outcomes of directive leadership (e.g., Cruz, Henningsen, & Smith, 1999; Moorhead & Montanari, 1986). There are, however, several remarkable benefits of directive leadership behaviour (Muczyk & Reimann, 1987). Especially within start-ups that lack structure and operate in dynamic industry environments, directive leadership can provide clear guidance to employees and allows the leader to obtain control in the business (ibid.).

Having provided an overview of four different leadership styles, the next section will take a wider perspective on leadership, i.e. vertical and shared leadership.

2.4.5 Vertical and Shared Leadership within the New Venture Context

Studies have shown that, although new firms are often created by founding teams, one individual usually emerges as the main leader (Ensley, Carland, & Carland, 2000). The vision and inspiration of this individual have often been cited as the driving power behind the performance of new companies, highlighting the effect of transformational leadership behaviour within start-ups (Baum et al., 1998). Additionally, the importance for the principal entrepreneur to effectively demonstrate empowering leadership behaviours, such as promoting opportunity thinking and participative objective setting amongst his or her followers, has also been emphasised within the entrepreneurship literature (McGrath & MacMillan, 2000).

In fact, it has become the majority held belief within the entrepreneurship literature that empowering and transformational types of vertical leadership are vital for leading new firms toward high growth (Covin & Slevin, 2004; Gupta et al. 2004). This view is grounded in the fact that top management team leaders of new ventures have to gain exceptional focus and commitment from their followers to overcome the liability of newness that they meet and to face the competition of more well-established and resource-rich incumbents (Bryant, 2004).

On the other hand, the case has also been made that transactional and directive behaviours are relevant forms of vertical leadership within new businesses (Muczyk & Reimann, 1987). This position stems from the necessity for clear objectives and reward contingencies to be introduced during the initial stages of the start-up process. Most likely there are circumstances in which each of the directive, transactional, transformational and empowering facets of vertical leadership vary regarding their relative effectiveness on new firm performance (Ensley, Hmieleski, & Pearce 2006).

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