Organizational design choices of high‐tech startups: How middle management drives innovation performance

Research Summary
Innovative products and services are the inspiration for many startups. However, founders find that the management of existing operations competes with the attention that they can devote to innovation. We investigate whether and how establishing a middle management level frees up attention for innovation when firms are newly started. We argue that middle management is positively related to introducing product innovations and that the effect is stronger when founders have larger stocks of pre-existing knowledge and when the startup's industry provides more innovation opportunities. These hypotheses are supported by an analysis of 2,431 German high-tech startups founded between 2005 and 2012.

Managerial Summary
Most high-tech entrepreneurs acknowledge that an overload of managerial tasks keeps them from advancing innovation in their startups. However, they are often times reluctant to introduce middle management because of a fear that the resulting bureaucratization will stifle innovation. Our study shows that these fears are not justified. Instead, we find for 2,431 high-tech startups in Germany that startups with middle managers are significantly more innovative than those without. While middle managers might be a roadblock for innovation in large firms, startups benefit from having them. Founders are the central decision makers in startups and can easily be overburdened with management tasks. Middle managers can alleviate parts of this workload and allow founders to focus on creating innovative products and services.