Homophily describes our tendency to associate with people who look and act like us. Look at your own social circle and consider how many of your friends come from other countries, other cultures, have a different skin tone, hold starkly different political views from yours, listen to different music, practice a different religion than yours, have a different sexual orientation than yours, or even come from a different socioeconomic stratum than you.
I won’t throw stones from my personal glass house. Almost every friend I hold close to me comes from a suburban white middle class American family, supported (and probably volunteered for and donated to) Bernie Sanders in the 2016 election, listens to the Grateful Dead, and dates the opposite sex. I do have some friends and acquaintances who fall outside these parameters and certainly no one would call me intolerant of anything other than intolerance, but how and with whom we choose to spend our very limited time says a lot about us.
But should we make the same decisions about who to involve when it comes to founding a business? Noam Wasserman in The Founder’s Dilemmas says it depends largely upon timetable. Homogeneity in a founding team encourages speed because finding and working with like minded people is easier because they are all around us already and because we already share a common language and cultural differences don’t interfere with effective communication. “Heterogeneous cofounders may run into early problems if their incompatible working and communications styles and if they have trouble appreciating the value that the other person brings to the startup.”(92)
Of course, over the long term, homogeneous teams lead to overlapping social and work capital, since everyone comes from the same place, knows the same people, and performs the same type of tasks. The best teams, according to Wasserman, are comprised of individuals from various social and work backgrounds so that more bases get covered and no one has to step too far out of their comfort zone. So if you have time to get your startup off the ground, you are better served by making a detailed list of what types of skills are needed, determining which ones you fill with your own work and social capital. After that, seek founders or just hire employees who can fill those positions rather than grabbing the person next to you who probably knows the same people you do and possesses a similar skill set to yours. It might be faster and easier, but you will find your business missing pieces as you move forward.
Harvard Business Professors Paul Gompers, Kevin Huang and Sophie Wang conducted a homophily study on the Harvard MBA Class of 2013 and determined “that ethnic homogeneity reduces the likelihood of bad outcomes, but does not increase the likelihood of extremely positive outcome” and “that demographic homophily is stronger than homophily in acquired characteristics” (25) like educational and previous work backgrounds. They consider their study significant because much of the Harvard MBA Class of 2013 will become the movers and shakers who will shape entrepreneurship formation and the course of great deals of venture capital, which feels pretty reasonable to assume.
The Economics, Sociological, and Business literature agrees most emphatically on these two points: 1) People form businesses with people who look and act like themselves and while that works great at first; and 2) over time the likelihood of failure increases because creating a team without diversity (especially in skill set and social capital) is like having a tool box with nothing but hammers, but now the business is presented with a problem requiring a screw driver. Do you trade one of the hammers for a screw driver, go buy a screw driver even though purchasing one is not exactly in the budget? Or do you just hammer away at that screw? Put that metaphor in human terms (especially if any of those hammers is close friend, spouse, or family member) and you see the problem.
Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton University Press, 2012.
Gompers, Paul; Huang, Kevin; and Wang, Sophie; Homophily in Entrepreneurial Team Formation, Harvard Business School, 2017.
Title: Townsend, Peter. “The Dirty Jobs,” Quadrophenia, The Who, Decca Records, 1973.
This is not only my Professional Blog where I post my assignments for my Master of Entrepreneurship program at Western Carolina University, it’s also my Professional Blog on my actual business web site for my actual functioning business! Since they overlap so neatly in my personal Venn Diagram, I think clients, potential clients, or just idle passersby will find some value in my analysis as much as my classmates and instructors. Enjoy!