When a start-up terminates, its founder faces the choice of applying for a regular job or starting another enterprise. Many recruiters fear that former entrepreneurs only take a job while they wait for another entrepreneurial opportunity. Siran Zhan, Liwen Zhang, Xueheng Li and Yu Wu argue that not all ex-founders are risky hires. In their research, they found a way to predict who is more likely to quit the job for another start-up.
Between 50 and 70 per cent of start-ups worldwide terminate (Tian, 2018). The recent pandemic has both spurred and killed more startups than before (Bartik et al., 2020; Casselman, 2021). Consequently, an increasing number of former entrepreneurs are returning to wage employment. Meanwhile, organisations worldwide, particularly in rapidly aging societies, are facing a growing talent shortfall, making it more important than ever to procure talent from previously neglected pools. Among these, former entrepreneurs stand out as a valuable talent source. Their creative and entrepreneurial skills (Distel et al., 2022; Marshall et al., 2019) are potentially critical to organisations seeking competitive advantages in today’s innovation-driven business environment (Cohen et al., 2019; Powell & Snellman, 2004). However, the prevalent belief that all former entrepreneurs are more likely to leave their jobs voluntarily has led recruiters to routinely overlook this group, despite their potential to enhance organisational innovation and entrepreneurial performance.
In our recent research, we challenged this prevalent assumption recruiters hold against former entrepreneurs. We argued that not all of them would pose a higher quitting risk than regular recruits. Instead, we proposed that the timing of prior entrepreneurial experience relative to the current wage employment (for instance, entrepreneurial experience in the most recent versus the second most recent job) serves as a simple yet effective marker that separates the risky quitters from non-quitters among former entrepreneurs.
Imagine two employees: John, who has just exited an entrepreneurial venture, and David, who has worked as an employee in one previous job since exiting his start-up. Although entrepreneurial exits likely caused financial and emotional damages to both, we reasoned that John (who was an entrepreneur immediately prior to the current job) would suffer the damages more intensely than David (who was an entrepreneur in the second most recent work experience). The difference lies in the recovery time each has had. The recent financial and emotional damages from entrepreneurship would likely prevent John from developing subsequent entrepreneurial intention. This would lessen his quitting risk. In comparison, David would likely have recovered from the damages and would go on to develop new entrepreneurial intention, which increases his quitting risk.
We examined our ideas by deriving a sample of 12,606 wage job spells from the nationally representative Household, Income, and Labour Dynamics in Australia (HILDA) dataset spanning from 2001 to 2020. We used the timing of individuals’ entrepreneurial activity (the most or second most recent job experience) to predict their intention to start a new business in three years. The intention to quit their current job and their labour market record indicating whether and how soon they voluntarily left their current job.
Our results supported our hypothesis that the timing of prior entrepreneurial activity is key in predicting post-entrepreneurship employment attitudes and behaviours. People who were entrepreneurs immediately prior to the current job were less likely to quit their jobs to found a start-up. Those for whom the current job was the second work experience after exiting their venture were more likely than other recruits to develop entrepreneurial intentions and quit.
Although natural time (years, days, hours, etc.) is more commonly used when considering individual work and life experiences in general, we found that neither duration nor duration away from entrepreneurship was a significant predictor of subsequent entrepreneurial intention, turnover intention and voluntary turnover.
Interestingly, we also found important gender differences: men, but not women, who were entrepreneurs immediately prior to the current job, were more likely to decrease subsequent entrepreneurial intention and voluntary turnover. However, men (but not women) with entrepreneurial experience in their second most recent job spell were more likely to develop subsequent intention to found a business and engage in voluntary turnover.
Our article, which conceptualises prior entrepreneurial experience through a timing lens, offers three novel insights and implications for practice:
First, our finding challenges the prevalent stereotype that all entrepreneurs are risky quitters in wage employment. It highlights the important role of entrepreneurial experience timing in predicting and explaining their employment attitude (intention to leave the job/create a business) and behaviour (voluntary turnover). Moreover, it suggests that hiring recent former entrepreneurs may be a highly beneficial strategy because their fresh entrepreneurial skills might not come at the cost of a quicker turnover.
Second, our study suggests that time spent in at least one employment post-entrepreneurship may help people recover financially and emotionally from their start-up exit and get ready for starting a new business venture. Former entrepreneurs, especially those who failed, may consider giving themselves time by taking a job to heal from their exit experience before rushing into another venture. Doing so may help them separate from their past imperfections and reset themselves for future entrepreneurial goals, leading to better outcomes in the next attempt.
Third, our research presents a novel female advantage: unlike their male counterparts, women do not suffer a dip in entrepreneurial intention after they exit their start-up. The factors that disadvantage them at earlier stages of entrepreneurship might paradoxically spare them from the liability of failure or exit. Their sustained entrepreneurial intention immediately after exit might allow them to capitalise on their prior entrepreneurial experience to enhance performance in a subsequent venture. Policymakers and investors may consider providing women sufficient opportunities (via policy setup and training) to promote entrepreneurial attempts right after they exit a venture. In contrast, men experience a temporary dip in entrepreneurial intention post exit. Policymakers and investors may consider providing male former entrepreneurs resources (such as psychological support) and time to assist their recovery and motivate future entrepreneurial attempts.
Overall, in the present paper, we examined whether, when and which prior entrepreneurial experience affects voluntary turnover in subsequent wage employment. Our findings underscore the importance of timing in understanding how prior entrepreneurial experience influences employment job attitudes and behaviours. The study challenges the prevalent recruitment stereotype that all former entrepreneurs pose a high risk of quitting and are thus unsuitable for hiring. This stereotype is shown to be partially inaccurate and may lead to the premature exclusion of former entrepreneurs from consideration.
- This blog post represents the views of its author(s), not the position of LSE Business Review or the London School of Economics and Political Science.
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