The founding penalty

The world of work is changing. Once upon a time having a job for life was very much the norm, but today switching roles, employers or even entire sectors is commonplace. The pandemic has only highlighted this shift further. The last 18 months has revealed that workers no longer want to compromise on issues like flexible and remote working: more people than ever are swapping the traditional 9-to-5 for a more agile and entrepreneurial way of working.

Going it alone is nothing new, of course, but with the barriers to setting up your own business so low, becoming an entrepreneur is more attainable than ever. So far so good. But what if you want to return to “traditional” paid employment? Well the skills you develop being your own boss – such as drive, initiative, and the ability to problem solve – surely makes you a very attractive prospect to future employers. Or do they?

Important new research suggests the contrary. In fact Olenka Kacperczyk, Professor of Strategy and Entrepreneurship at London Business School, and Peter Younkin, an associate professor at Lundquist College of Business, University of Oregon, have found that former founders attempting to return to paid employment are considerably less likely to make it through to interview than those who have never been their own boss. And more surprisingly still, it is male candidates who are most likely to be penalised.

The research, which has been four years in the making, was inspired by Professor Kacperczyk’s belief that the downside of being an entrepreneur is often overlooked. “We regularly glorify entrepreneurship and think about it as an ideal career move for a lot of people,” she admits. “We have all these initiatives pushing people towards becoming one but we actually know much less about the potential downsides or consequences of actually being an entrepreneur.”

With around a fifth of all new businesses failing each year, it also means that many of these people will be returning to the jobs market at some point. And while they may have an abundance of skills to offer, there is a strong argument that being self-sufficient and ambitious could be seen as negative when applying for a position within an established company.

It’s a theory that Professor Kacperczyk had long believed to have weight. “This seemed to make sense,” she said, “but the research to back this up just hadn’t been done,” she says. “So we set about doing it ourselves, to see exactly how employers would perceive and treat those workers who had previously been entrepreneurs.”

Testing the hypothesis

To do that the researchers trialled their hypothesis by submitting fictional applications for real job vacancies and waited to see who would be invited for an interview. The details of the applicants were kept consistent in terms of education and location, with the only one distinction: half of candidates had a founder background and the other half didn’t.

The extensive study involved over 1,200 applications being sent for marketing/HR roles being advertised by medium to large companies based in 12 cities across the United States. Careful consideration was given to the use of words such as “entrepreneurial”, “independence” and “leadership”, while also being cautious about the type of entrepreneur they presented. “We didn’t want entrepreneurship to mean people who are self-employed,” says Professor Kacperczyk “So we made sure on the CVs we created that we specified that the person was a founder of a company with a few other employees.”

The results confirmed Professor Kacperczyk’s suspicions, though she admits to being “quite surprised” by the extent to which entrepreneurs were penalised and called back at a lower rate. Crucially the research also revealed that the negative effect was also gender-specific, but not in the way that might be expected. Rather, men are more likely to be rejected on these grounds than women.

Behind the bias

Building on their findings, the researchers conducted a second study by surveying recruitment marketing managers to assess attitudes as opposed to actions. That involved recruiters being shown a series of applicant CVs, belonging to both founders and non-founders, and then being asked to rate each candidate on several factors. They included whether they were a team player or easy to manage. In every case, ex-founders were perceived ‘worse’ than those with a pure employment history – and, again, males were penalised the most.

“We find real evidence that employers avoid ex-founders, and pursuing entrepreneurship translates into a 35% reduction in the likelihood of receiving an interview,” reveals Professor Kacperczyk. “And then doing the survey experiment confirmed that the penalty is partially motivated by the perception held by employers that ex-founders are less willing or able to work at traditional firms, or simply that they will want to leave again in the future.”

Furthermore, the findings confirmed that the baseline penalty is highly gendered. “Female founders are almost twice as likely [13% vs. 7%] to receive a callback as their male counterparts,” says Professor Kacperczyk. “This gender discrepancy results from women generally not really being seen as very serious entrepreneurs. They are often perceived by stakeholders to be lifestyle entrepreneurs, who might choose that option while having a family for example, before returning to more traditional work.”

Future findings

She is quick to point out that while the results of their research are conclusive, the findings, like any academic work, aren’t applicable to all job-finding scenarios. “By no means are we saying that every single founder is going to face the penalty we documented,” she says, “but it's worth at least thinking about some negative signals that an entrepreneurial career history might send out when applying for a job.” The research findings are also significant for employers and businesses who may be using recruitment techniques which fail to truly tap into the skills and ability former founders possess.

For Professor Kacperczyk, the hope is that the research will help both potential employees and employers make better, more informed decisions on employment – something that every level of a supply chain can benefit from. Meanwhile, she and her team are busying themselves on the next strand of this story by assessing the role of race in this same scenario. “We are exploring how racial minority groups may be penalised in the same way that different genders are,” reveals Professor Kacperczyk. “We still need to look into it further, but that is where our current interest lies.”

So the work continues, and Professor Kacperczyk remains firmly focused on finding more answers: “Having new data helps to inform every decision we make, as founders, as business owners, and as human beings. And it is exciting to help forward that conversation.”

 

This article is provided by the Institute of Entrepreneurship and Private Capital, to receive our bi-monthly DeBrief newsletter, sign up here.