Leaving Employment to Entrepreneurship: The Value of Co‐worker Mobility in Pushed and Pulled‐Driven Start‐ups

• Author: Vera Rocha,Anabela Carneiro,Celeste Varum
• Published date: 01 January 2018
• Date: 01 January 2018
• DOI: http://doi.org/10.1111/joms.12318

Leaving Employment to Entrepreneurship: The Value

of Co-worker Mobility in Pushed and Pulled-Driven

Start-ups

Vera Rocha, Anabela Carneiro and Celeste Varum

Copenhagen Business School; Universidade do Porto and CEF.UP; Universidade de Aveiro

ABSTRACT By combining insights from the widespread research on entrepreneurial spin-offs and

from the emerging literature on hiring choices in start-ups, we investigate the role of co-worker

mobility in pushed and pulled spin-off survival. Using rich register data and a multi-stage model

addressing self-selection and endogeneity issues, we cover 28,353 spin-offs launched between

1992 and 2007. We find that spin-offs hiring co-workers from the parent firm survive longer. This

survival bonus is greater in pushed-driven start-ups. We investigate two different mechanisms

through which co-worker mobility may improve spin-off survival – knowledge transfer and

reduced searching costs. While both mechanisms play a role in explaining the survival bonus in

pulled spin-offs, co-worker mobility seems to help pushed spin-offs to survive mostly by reducing

initial recruitment costs. This work provides novel insights on the role of context surrounding new

venture creation and inter-firm labour mobility.

Keywords: co-worker mobility, entrepreneurship, new venture survival, pushed and pulled

spin-offs, strategic human capital

INTRODUCTION

Most new firms are spawned by existing firms (Campbell et al., 2012; Sørenson and Fas-

siotto, 2011). Moreover, new firm founders rarely venture out alone, and often rely on

former co-workers to set up a team (Agarwal et al., 2016; Groysberg et al., 2008). That

was the case of James Wood Johnson and Edward Mead Johnson, who left their job at

Seabury & Johnson in 1886, together with fourteen employees recruited from their pre-

vious company, to found Johnson & Johnson (Agarwal et al., 2016). These former co-

workers helped the new venture to open its doors and become successful.

Inter-firm labour mobility has been investigated by scholars from different fields (including

economics, human resource management, strategic management, and sociology), and its

Address for reprints: Vera Rocha, Department of Innovation and Organizational Economics, Copenhagen

Business School, Kilevej 14A, DK-2000 Frederiksberg, Denmark (vr.ino@cbs.dk).

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C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 55:1 January 2018

doi: 10.1111/joms.12318

effects on key organizational outcomes (e.g., innovation, learning, productivity, survival) are

strongly acknowledged (Mawdsley and Somaya, 2015; Parrotta and Pozzoli, 2012; Song

et al., 2003; Wright et al., 2014). A large subset of this stream of research has analysed labour

mobility in the context of employee start-ups, interchangeably referred to as spin-outs or spin-

offs (Agarwal et al., 2004, 2016; Audretsch and Keilbach, 2007; Campbell et al., 2012;

Franco and Filson, 2006). Existing theory and empirical analysis have, however, looked pri-

marily at founders of spin-offs driven by the identification of a market opportunity. Two gaps

are, therefore, identified. First, few studies have paid attention to the founder’s role as a cata-

lyst who mobilizes an entire team, and, consequently, to the initial human resources beyond

the founder (Agarwal et al., 2016; Williamson and Robinson, 2008). Second, the heterogene-

ous context in which employee start-ups may be created (e.g., necessity versus opportunity)

has been relatively disregarded (Bruneel et al., 2013; Buenstorf, 2009; Clarysse et al., 2011).

We address these gaps by building and testing a theory on the role of co-worker

mobility in the survival of pushed (or necessity-driven) and pulled (or opportunity-

driven) employee start-ups. Our study builds on the extensive research on spin-offs and

on two emerging, yet separate, streams of work: a first one that investigates hiring

choices in start-up firms (Coad et al., 2014; Dahl and Klepper, 2015; Ouimet and Zar-

utskie, 2014), and a second one that acknowledges the different contexts surrounding

spin-off activity (e.g., Bruneel et al., 2013; Buenstorf, 2009; Rocha et al., 2015a, 2015b).

We test our hypotheses with rich register data covering virtually all private firms

employing at least one wage earner in Portugal. Empirically, we estimate a three-stage

model to address two empirical issues often neglected in prior studies, which may bias

the estimated effects of (co)worker mobility in the context of new firms: self-selection

into entrepreneurship and endogeneity in founders’ hiring choices. Our data offer a

great potential to study labour mobility in the context of entrepreneurship, by covering

entrepreneurs and employees, as well as their earlier interactions in work-related net-

works. Moreover, Portugal is an interesting setting to be studied, given the rising num-

ber of pushed and pulled-driven start-ups over the 1990s and 2000s, and its highly

regulated and rigid labour market (OECD, 2012) – a context that has implications for

entrepreneurs’ early recruitment decisions and the future performance of their ventures.

Our study contributes to developing theories on labour markets for entrepreneurship by

investigating the effects of hiring a particular kind of human resources (founders’ former co-

workers) and the moderating role of the context (necessity or opportunity) where new ventures

emerge. We also contribute to broader inter-firm labour mobility theories by analysing differ-

ent mechanisms through which mobile employees affect the outcomes of receiving firms, and

emphasizing the relevance of the heterogeneity of both origin and destination firms, and of

the quality of mobile employees. Finally, our study highlights the importance of considering –

theoretically and empirically – both the benefits and the drawbacks of inter-firm labour

mobility, as well as different outcomes of the receiving firms (survival and performance).

THEORETICAL FRAMEWORK AND HYPOTHESES

Spin-off activity is, itself, a labour mobility process, and has been the focus of most liter-

ature connecting entrepreneurship and labour mobility issues (Audretsch and Keilbach,

2007; Campbell et al., 2012). Despite the importance of employment mobility for

61Leaving Employment to Entrepreneurship

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C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies