“Ain’t It Funny How We All Seem to Look the Same?” [ENT 600 Week 4]

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.

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Resources:

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.

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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!

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12 Comments

  1. Hi Arjay! I knew I was going to enjoy reading your blog posts. I love your wry sense of humor and matter of fact presentation! I think the “bag of hammers” analogy is spot on and quite funny. Great post! JOY

    • Thanks Joy! This course has really forced me to rethink a lot of what I’m doing. Actually, think about it for the first time would be more accurate. Got more coming soon. Just have so many plates in the air to juggle….and once in a while someone thrown in a chainsaw.

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  3. Great Blog Arjay! It’s so true that we tend to be drawn to people most like us, but this is limiting our ability to build heterogeneous teams. Like Joy, I really enjoyed the hammer analogy. I guess we need to think about buying some screwdrivers early on in our business but then we’ll need to figure out whether to get Phillips Head or Flathead. Well, maybe Fathead wouldn’t be such a good business decision! In any event, when we expand our horizon’s related to our social capital, and seek out people with varying backgrounds and experience, then we’ll need to overcome possible conflicts related to communication or not seeing eye-to-eye. I guess there’s a balance we will all strive for as we build our teams and learn when friends and family work, and when it’s time to bring on some people with different ideas and viewpoints.

    • Thanks for the compliment! I love that this class makes me write so much. I need to do it more. I spent last week making a video ad for my music book business, which is the first time I’ve done that. I’m going to do that more….or better still, find someone to tell my vision to and have them do a much better job lol. (If you want to see it, check out http://www.facebook.com/gdsongbooks). Didn’t put a cent behind the post and it’s already reached 3386 with 1197 views. Those numbers are going to at least triple when I start boosting October 1. My next video will be from a band of 18-19 year old ladies in Louisville who learned to play out of my books and started a very successful quartet called the Mama Said String Band. We’ll be cross marketing and it will be a great Xmas for us indeed.

      The point of this ramble if there is one….never stop stretching that social capital. Peace!

  4. As more of of education changes to an approach similar to this program, I wonder if this problem will get better. It seems to me but there are two problems in the current educational paradigm.

    First of all the people that one interacts with in a classroom is probably not the full set of actual attendees. So there is already some self-selection going on even within a classroom and even if that classroom has a diverse population. I don’t see that as being relevant to the group’s I see in these courses.

    My second impression is that the traditional educational model is less group focused and more individual focused or more focused on teacher-student interaction. This model is more of a student-student interaction model. Thus, I think it would teach people to establish trust-based connections to a broader range of people than might happen otherwise.

    So perhaps my advice to the Harvard MBA curriculum committee would be to dump classrooms and complete the curriculum entirely online. Then to limit teacher-student interactions and foster student-student interactions. Then they might find that the problem isn’t quite so grave or difficult to overcome.

    • I see what you mean here. Harvard Business Professors studying Harvard MBA students for homogeneity feels a little superficial and problematic since that’s a fairly homogeneous group to begin with. Not a lot of struggling African Americans and Latinos…or struggling anyone…in that sample. There’s no getting around the fact that this is a privileged bunch, whether we’re speaking about their level of education or financial means.

      Moving to an online paradigm like this one levels the playing field since pretty much anyone with an internet connection can participate in an online course that promotes cooperative learning rather than dependence upon a single (we assume) well paid instructor, not to mention the attendant costs of going to Boston and setting up housekeeping while somehow paying $50,000+ in tuition. As a single working parent, this just isn’t happening.

      I like the studies in How to Hire A-Players where The Supplies Network figured out that single mother waitresses made the best sales people (22-23) and the accounting firm that recruited only Ivy League grads then figured out they were getting more effective workers who hung around and became partners when they recruited from second tier schools (24-25).

      In their defense, a lot of top tier schools now allow anyone to audit their courses online for free. You don’t get the degree, but these days, that just doesn’t seem to matter that much. For example, I’m making a very good living as an accountant…but my degree is in English. And there’s a lot of us out there. I’ve heard more than one person with a BS in Accounting complain that only the last 3 1/2 years of their education were a waste of time and money. Because unless you plan to work for a huge accounting firm, all you really need to learn is Quickbooks….and they’ll give you that degree for free.

      Thanks for the very illuminating comment…..

  5. That’s a great read, Arjay!

    Wasserman also provided suggestions to mitigate the almost inevitable effects of homophily, and he boiled it down to communication and agreement on how issues get resolved. Now that means accepting there will be issues in the future, though many homogeneous teams perhaps can’t fathom running into challenging situations when things are just starting out…but that’s the best time to address them. At the onset of a venture is when everyone has the least to lose and stress and negative emotions are likely relatively low. Suggestions Wasserman makes includes: avoiding reporting structures that have direct lines between family members; crafting ways to address those inevitable challenging situations; writing a disaster plan and perhaps even an executed exit contract (115); identifying who has the final say in important decisions; and/or creating a plan that keeps communication open and transparent.

    My plan is to bring in folks outside of my family/friends circle – mostly because I don’t know a lot of folks and my family members are all taking different paths. Seriously though, my plan is to keep my personal and business worlds separate. In part because I want work-life balance; I don’t want my work to become my life (been there, done that), or vice versa. Equally important, I want to surround myself with people who know more than I do and can creatively grow the company together…and I know I can’t do that with people just like me.

    • I feel you there Blanka! I’m lucky to have a best friend who I’ve successfully worked with before in different roles. The first time I was owner-manager of a club and she was my employee and the second time she was manager and I was assistant manager of an H&R Block office. I’m still developing a working relationship with my other potential founding partner, but I feel good about it because I’m basically just putting a mirror in front of her face and showing her she can actually do this thing. We all share the values of sharing and equality and none of us are going to stick a knife in anyone’s back.

      I’d never start a business with a family member. Yikes! I can’t believe anyone does that, right??

  6. Dina Khalilova

    Great post, Arjay! I like your writing style.
    I agree that having a homogeneous team is beneficial only at the very start. I’d say that it’s just the matter of convenience for partners who want to start a business. The outcomes of teamwork with the members of diverse backgrounds are the ability to create a strong dynamic within a group, diverse thinking, and better performance on complex tasks.

  7. Great post Arjay! The toolbox analogy really emphasizes the dilemma. The overlapping of roles because of skills and abilities within homogeneous structures can lead to founders and early employees having C and VP positions that they shouldn’t, in my opinion. Regardless of the startup structure, a strategic plan to mix up the “toolbox” is a necessity in most scenarios.

  8. Taisir El-Souessi

    I really enjoy your funny, engaging style. Lots of great comments and very accessible.

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