Pre-Market Entry Experience and Post-Market Entry Learning of the Board of Directors: Implications for Post-Entry Performance

Research summary: We investigate how board directors’ expertise influences post-entry performance of start-ups and diversifying entrants in an emerging market. Empirical analysis based on firms in the U.S. wireless communications service industry from 1983 to 1998 reveals that post-entry growth increases with directors’ post-entry firm-specific board experience, but decreases with directors’ inherited pre-entry firm-specific board experience. In addition, outside directors’ intra-industry managerial experience stimulates post-entry growth while intra-industry directorial experience reduces it. We also find that firms benefit from having true industry outsiders who are experienced in other—not the focal—industries. Taking this evidence together, boards with a mix of directors with post-entry firm-specific board expertise and complementary other industry expertise are most suitable for the governance of post-entry venture growth. Managerial summary: Careful board composition design can facilitate post-entry performance of new entrants into an emerging industry. Specifically, entrants should retain some of the initial recruits to the board in order to steadily build firm-specific board expertise. They should also introduce genuine industry outsiders (with no experience in the focal industry) to the board in order to inject fresh thinking into board governance, which is critical for renewal of the firm's growth strategy and market positioning over time. For diversifying entrants, if the new market entry is a strategic investment for the parent firm, it is worth setting up a separate board of directors where directors are not linked with the parent firm board, as a preexisting board is likely to be too deeply engaged with existing businesses.