Digitalization in Startups and the Proclivity to Professionalize:Ignorance is Bliss?

The determination of an organizational design is a major milestone in the evolution of successful startups. In particular, the introduction of middle management frees up scarce founder attention for processing important information and making strategic decisions. However, digitalization, i.e. the use digital tools and technologies, changes the volume and nature of information to process in startups. We theorize based on information processing theory that startups respond to these new, digital information challenges with an increased proclivity to professionalize and introduce middle management, especially when founder attention is scarce and other startup activities demand attention. We test our hypotheses using a sample of 1,438 startups founded in Germany between 2010 and 2015. The results show that increasingly digitalized startups rely relatively early on middle management in their lifecycle. This effect is stronger when founders lack prior management experience and the startup is comparatively large. Our findings have important implications for theory on the emergence of organizational design in startups and the consequences of digitalization for the allocation of entrepreneurial attention.