Fire in the belly? Employee motives and innovative performance in start‐ups versus established firms

• DOI: http://doi.org/10.1002/sej.1267
• Author: Henry Sauermann
• Date: 01 December 2018
• Published date: 01 December 2018

RESEARCH ARTICLE

Fire in the belly? Employee motives and

innovative performance in start-ups versus

established firms

Henry Sauermann

1,2

1

ESMT Berlin, Berlin, Germany

2

National Bureau of Economic Research,

Cambridge, Massachusetts

Correspondence

Henry Sauermann, ESMT Berlin, Schlossplatz

1, 10178 Berlin, Germany.

Email: henry.sauermann@esmt.org

Funding information

Ewing Marion Kauffman Foundation

Research Summary: We examine whether start-ups attract

employees with different pecuniary and non-pecuniary motives

than small or large established firms. We then explore whether

such differences in employee motives may lead to differences in

innovative performance across firm types. Using data on more

than 10,000 U.S. R&D employees, we find that start-up employees

(“joiners”) place lower importance on job security and salary but

greater importance on independence and responsibility. Start-up

employees have higher patent output than employees in small and

large established firms, and this difference is partly mediated by

employee motives—especially joiners’greater willingness to bear

risk. We discuss implications for research as well as for managers

and policy makers concerned with the supply of human capital to

entrepreneurship and innovation.

Managerial Summary: Start-ups and established firms play different

roles in the economy and differ with respect to their organizational

features. Recent research has started to also explore differences in

their human capital. While prior work focuses on employees’skills

and experience, we broaden the notion of human capital to include

motivational characteristics. We find that start-up employees differ

from thoseworking in establishedfirms with respect to theirmotives,

most notablya weaker concern withjob security. Moreover,such dif-

ferences can partly explain higher innovative performance in start-

ups. Our findingssuggest that founders may derive significant bene-

fits from hiring “joiners”with entrepreneurial motives. Our findings

also have implications for corporate managers who seek to acquire

start-upsor who consider creatingentrepreneurial unitsthat replicate

featuresof young and small organizations.

KEYWORDS

entrepreneurial firms, human capital, innovative performance,

motives, start-up joiners

Received: 17 May 2016 Revised: 17 June 2017 Accepted: 26 June 2017 Published on: 23 October 2017

DOI: 10.1002/sej.1267

Copyright © 2017 Strategic Management Society

Strategic Entrepreneurship Journal. 2018;12:423–454. wileyonlinelibrary.com/journal/sej 423

1|INTRODUCTION

At least since Schumpeter (1942), scholars have studied what role start-ups and established firms play in generating

technological advance and what advantages some types of firms may have over others in generating innovation

(Acs & Audretsch, 1990; Agrawal, Cockburn, Galasso, & Oettl, 2014; Arora, Gambardella, Magazzini, & Pammolli,

2009; Gans, Hsu, & Stern, 2002; Lowe & Ziedonis, 2006; Zenger, 1994). This research has made considerable pro-

gress by studying firm-level factors such as differences in resources, coordination costs, or economies of scale

(Cohen, 2010). Even though individual employees are typically responsible for a large part of the innovative activity

inside firms, little work has examined whether start-ups and established firms differ with respect to the characteris-

tics of their human capital, especially employees’motives (Cohen & Sauermann, 2007). The lack of attention to

employee motives is particularly surprising given that entrepreneurship research has highlighted important differ-

ences in the motives and incentives of founders compared to those of managers and employees working in large

established firms (e.g., Amit, MacCrimmon, Zietsma, & Oesch, 2001; Astebro & Thompson, 2011; Shane, Locke, &

Collins, 2003). Moreover, there is increasing evidence that these founder motives have important implications for

outcomes such as entry decisions, strategic choices, firm survival, and competitive dynamics (Arora & Nandkumar,

2011; Ding, 2011; Morton & Podolny, 2002). It seems natural to extend this line of research and ask if start-up

employees also differ from their counterparts in established firms and whether such differences may lead to differ-

ences in performance.

We begin to address these questions by comparing employees’pecuniary and non-pecuniary motives between

start-ups and established firms and by examining whether differences in employee motives lead to differences in

innovative performance across types of firms. To ground our inquiry, we outline a conceptual model that integrates

three building blocks. First, we draw on work in organizational theory and economics to consider structural charac-

teristics and constraints that condition the job attributes different types of firms are able to provide to their

employees. While prior work has examined such attributes focusing on either firm size or age, start-ups may have

unique profiles since they are both small and young (see Burton, Dahl, & Sorenson, forthcoming; Haltiwanger, Jar-

min, & Miranda, 2013). Second, the literature on labor market sorting argues that firms offering different types of

job attributes should attract workers with different motives (Agarwal & Ohyama, 2013; Rosen, 1986), suggesting

that start-up employees may differ systematically from those joining small or large established firms. Finally, we

relate employees’motives to innovative performance within and across firms. In doing so, we draw on research sug-

gesting that motives may condition not only levels of effort, but also the productivity of that effort in generating

innovative outcomes (Amabile, 1996; Ouimet & Zarutskie, 2014; Sauermann & Cohen, 2010). Taken together, we

suggest that start-ups offer different job attributes than established firms and, thus, attract employees with different

sets of motives. These differences in employee motives, in turn, may mediate differences in innovative

performance.

We examine these relationships using the National Science Foundation’s Science and Engineering Statistical

Data System (SESTAT). Drawing on data from more than 10,000 U.S. scientists and engineers working in start-ups

and established firms, we find significant differences across firm types with respect to employees’pecuniary as well

as non-pecuniary motives. Differences in security motives emerge along both the firm size and firm age dimensions,

while differences with respect to other motives such as autonomy and salary emerge primarily along firm size.

Start-up employees have more patent applications than employees in small or large established firms, a difference

that is associated with firm age rather than firm size. Using a series of regression analyses, we find evidence that

employee motives partially mediate the relationship between firm types and innovative performance. Rather than

intrinsic motives or the quest for money, however, employees’willingness to bear risk seems to play the most

important role. We conduct robustness checks to address endogeneity concerns and alternative explanations.

This article makes several contributions. First, we contribute to the entrepreneurship literature by providing

unique insights into the motives of start-up employees and how they compare to those of employees in small and

424 SAUERMANN

large established firms. While a large body of work has examined the characteristics of founders (e.g., Amit et al.,

2001; Eesley & Roberts, 2012; Hamilton, 2000; Hsu, Roberts, & Eesley, 2007; Shane et al., 2003), little work has

studied the characteristics of those individuals who join founders in their entrepreneurial efforts. This lack of atten-

tion to “joiners”is particularly problematic in the context of technology-based ventures, where early employees are

critical for firm success but founders often face difficulties attracting the right human capital (Burton, 2001; Neff,

2012; Roach & Sauermann, 2015; Roberts, 1991). By showing significant differences in employee characteristics

between start-ups and established firms, our study highlights the value of future research on start-up joiners as a

distinct group of employees and as important entrepreneurial actors.

Second, we contribute to the literature on human capital in knowledge-intensive settings. Most of the existing

work in this domain focuses on ability or experience as key individual characteristics (Agarwal, Ganco, & Ziedonis,

2009; Braguinsky, Klepper, & Ohyama, 2012; Campbell, Ganco, Franco, & Agarwal, 2012; Toole & Czarnitzki, 2009).

We add to this literature by examining employee motives, which are typically hard to observe but may have impor-

tant implications for labor market choices and performance, even controlling for ability (see also Agarwal & Ohyama,

2013; Stern, 2004). Our results suggest that a broader conceptualization of human capital as encompassing both

ability and motivational factors may result in a more complete understanding of individuals’role in shaping impor-

tant processes and outcomes within and across organizations.

Finally, our discussion contributes to a large body of innovation literature that has examined performance dif-

ferences across firms of different size or age (see Cohen, 2010). Most of the existing work has focused on firm-level

correlates of size and age such as resources or coordination costs, yet little attention has been paid to characteris-

tics of the individuals who actually perform innovative activities in firms. Scholars have recently begun to examine

differences in the ability of employees across the firm size distribution (Elfenbein, Hamilton, & Zenger, 2010;

Zenger & Lazzarini, 2004), and we add unique insights into employees’pecuniary and non-pecuniary motives. More-

over, our results suggest that firm age and size have different relationships with motives and innovative outcomes,

highlighting the need to consider both firm size and age in future work.

2|CONCEPTUAL BACKGROUND

2.1 |Job attributes and sorting based on motives

We start from the premise that different types of organizations offer different bundles of pecuniary and non-

pecuniary job attributes such as pay, intellectual challenge, or job security. Prospective employees, in turn, differ

with respect to their preferences for these job attributes, whereby a stronger preference (“motive”) increases the

utility they derive from a unit of the corresponding attribute (Stern, 2004). In line with prior research, we consider

motives to be relatively stable and “trait-like,”i.e., heterogeneity in motives exists even before workers join particu-

lar employers (Cable & Edwards, 2004; Halaby, 2003; Hwang, Mortensen, & Reed, 1998; Killingsworth, 1987).

Given heterogeneity in job attributes and motives, different types of organizations should attract employees

with different motives (Agarwal & Ohyama, 2013; Stern, 2004). We illustrate this sorting mechanism using a simple

example. Consider two jobs (j = 1 and 2) that offer different levels of pay and a non-pecuniary attribute

(e.g., freedom). Assume that job 1 is high on pay but low on freedom (e.g., pay

1

= 2, free

1

= 1), while job 2 is low on

pay and high on freedom (e.g., pay

2

= 1, free

2

= 2). Now consider two job seekers (i = 1 and 2) who differ in their

motives such that individual 1 has a strong preference for pay and a weak preference for freedom

(e.g., prefpay

1

= 2, preffree

1

= 1), while individual 2 has a weak preference for pay and strong preference for free-

dom (e.g., prefpay

2

= 1, preffree

2

= 2). Assuming a simple weighted additive utility function (Stern, 2004), the

respective (expected) utilities are U

ij

= prefpay

i

*pay

j

+ preffree

i

*free

j

. Job 1 is relatively more attractive than job

2 for individual 1 (U

11

=5vs. U

12

= 4), while job 2 is more attractive for individual 2 (U

21

=4vs. U

22

= 5). Thus, the

individual with a strong preference for pay is likely to sort into the job that offers higher pay, while the individual

SAUERMANN 425