This article identifies the effect of team dynamics in the context of software development teams and its impact on software process improvement (SPI) activities in very small companies, in order to understand the relationship between these two variables. Most software development work is done by teams of software engineers working together in a collaborative manner to execute a software development process. Although there is much literature examining software process and how to improve it, less attention has been paid to the issues of team-working and specifically the impact of team dynamics on the software development process. Team dynamics is the term used to define how people work and interact together in teams. Teamwork is more effective with the existence of positive team dynamic, as it encourages a better working environment with satisfied, fulfilled employees who will in turn be more productive. This paper presents the results of a research study of team dynamics in very small software development companies and its impact on the software development process and software process improvement activities. Copyright © 2012, IGI Global.