Founder matching frictions reduce business output by 36 percent
Firms founded by partners with diverse skills and matched talent generate higher sales and survive longer, according to Bank of England research by Edoardo Acabbi and co-authors. Search frictions in founder matching leave aggregate output 36.5 percent below its optimal allocation.
Complementarity drives the top decile
Analyzing Portuguese administrative records from 1991 to 2018 covering 453,636 founders, Edoardo Acabbi, Andrea Alati, Luca Mazzone, and Marta Morazzoni show that team-founded firms generate 39.8 percent of sales and 39.1 percent of employment despite comprising only 28.7 percent of private businesses.
In the top decile of firm sales, teams account for 43 percent of enterprises.
Teams that pair co-founders with similar latent talent but diverse occupational skills achieve superior survival rates and higher productivity from entry onward.
An unexpected departure of a founder cuts firm sales by 4.5 percent on average, rising to 9.0 percent among teams with high skill dissimilarity, confirming that operational complementarities drive firm resilience.
The heavy toll of local search
The model attributes matching frictions to exposure bias and random search.
In the calibrated economy, potential founders disproportionately encounter individuals with similar skill backgrounds rather than productive complements.
Eliminating the co-founding penalty from skill distance reallocates workers from solo ventures into teams, raising output per capita by 4 percent and wages by 5.8 percent.
Moving to an optimal assignment benchmark reveals that baseline output is 36.5 percent below the surplus-maximizing frontier.
Allocation trumps volume
Policymakers routinely obsess over startup subsidies rather than founder matching.
By showing that mismatched co-founders cause massive output losses, this research rightly shifts focus from startup volume to match quality.
Yet breaking real-world networking silos is far harder than solving an optimal transport model.
Source: Sorting into entrepreneurial teams
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