This paper explores the relationship between cognitive abilities and team performance in a start-up setting in a field experiment in which 573 students in 49 teams started up and managed real companies. Performance in this setting hinges on three tasks: opportunity recognition, problem solving, and implementation. Cognitive ability at the individual level has a positive effect on opportunity recognition and problem solving but no clear effect on implementation. Within teams, a combination of higher and lower cognitive ability levels may be productive insofar as some individuals can be assigned to mundane tasks (that are often involved in implementation), while others can be assigned to tasks that impose a greater cognitive load (problem solving or opportunity recognition). Exogenous variation in otherwise random team composition was ensured by assigning students to teams based on their measured cognitive abilities. Each team performed a variety of tasks, often involving complex decision making. The key result of the experiment is that the performance of start-up teams first increases and then decreases with ability dispersion. Strikingly, average team ability is not related to team performance.
Business performance was operationalized by four measures: sales, profits, a binary indicator for positive profits, and profits per share.
Keeping average ability constant, teams with medium levels of ability dispersion outperformed both teams with low and high ability dispersion. Keeping ability dispersion constant, the average ability of the team did not improve team performance.