The Evaluation of Founder Failure and Success by Hiring Firms: A Field Experiment

Abstract

Organizations tout the importance of innovation and entrepreneurship. Yet, when hiring it remains unclear how they evaluate entrepreneurial human capital—namely, job candidates with founder experience. How hiring firms evaluate this experience—and especially how this evaluation varies by entrepreneurial success and failure—reveals insights into the structures and processes within organizations. Organizations research points to two perspectives related to the evaluation of founder experience: Former founders may be advantaged, due to founder experience signaling high-quality capabilities and human capital, or disadvantaged, due to concerns related to fit and commitment. To identify the dominant class of mechanisms driving the evaluation of founder experience, it is important to consider how these evaluations differ, depending on whether the founder’s venture failed or succeeded. To isolate demand-side mechanisms and hold supply-side factors constant, we conducted a field experiment. We sent applications varying the candidate’s founder experience to 2,400 software engineering positions in the United States at random. We find that former founders received 43% fewer callbacks than nonfounders and that this difference is driven by older hiring firms. Further, this founder penalty is greatest for former successful founders, who received 33% fewer callbacks than former failed founders. Our results highlight that mechanisms related to concerns about fit and commitment, rather than information asymmetry about quality, are most influential when hiring firms evaluate former founders in our context.

Are entrepreneurs penalized during job searches? It depends on who is hiring

“…This finding contrasts with the experimental finding of Kacperczyk and Younkin (2022), which reported women post‐entrepreneurs incur less penalty when compared to men post‐entrepreneurs. Yet, our finding of a nonsignificant gender effect is consistent with the experimental finding of Botelho and Chang (2023). We suspect that differences in experimental setups (e.g., resume templates, experimental procedure) may explain the difference in our finding and in Kacperczyk and Younkin's (2022).…”

“…Additional personal qualities we asked study participants to compare job applicants on pertain to qualities for which we lacked a clear pattern‐expectation—namely, applicants' trustworthiness and commitment to their organization. We included these partly to make Study 2's purpose less obvious to participants and partly because concerns about post‐entrepreneurs' commitment to organizations, hence also their trustworthiness (e.g., reliability), have been documented in prior research (Botelho & Chang, 2023; Kacperczyk & Younkin, 2022).…”

“…Baptista et al's (2012) study of Portuguese labor force have shown that post‐entrepreneurs are more likely to be placed at a higher level in organizational hierarchies though at smaller‐sized firms. Three recent experiment‐based studies that compared the odds of getting an interview contact from potential employers for post‐entrepreneurs versus non‐entrepreneurs have consistently observed an entrepreneurship‐experience‐penalty in obtaining a call‐back interview (the gateway for getting hired) when they return to the wage labor market (Botelho & Chang, 2023; Kacperczyk & Younkin, 2022; Koellinger et al, 2015).…”

“…A second limitation of past studies of the entrepreneurship‐experience penalty on which we aim to improve pertains to these studies' lack of measures associated with individual job recruiters' qualities , even in recent experimental studies focusing on variations in demand‐side factors (Botelho & Chang, 2023; Kacperczyk & Younkin, 2022). We overcome this limitation by focusing on individual recruiters' entrepreneurial aspiration as a key influence on how positively or negatively they evaluate job candidates with versus without entrepreneurship in past work experience—and, as such, as a key moderator of the entrepreneurship‐experience penalty.…”

“…Studies of the return to entrepreneurship experience have by and large shown that upon re-entering the wagelabor market, post-entrepreneurs suffer a penalty in terms of: obtaining call-back job interviews (Botelho & Chang, 2023;Kacperczyk & Younkin, 2022;Koellinger et al, 2015), their probability of getting a new job (Bruce & Schuetze, 2004;Failla et al, 2017;Sorenson et al, 2021), and their short-term and, to some extent, long-term wage earnings (Kaiser & Malchow-Møller, 2011;Mahieu et al, 2021Mahieu et al, , 2022Merida & Rocha, 2021). This "entrepreneurship-experience penalty" has also been observed for individuals who have worked as employees of entrepreneurial firms (Fackler et al, 2021;Sorenson et al, 2021).…”