When you should (and shouldn't) hire former entrepreneurs

Former entrepreneurs can bring a wealth of experience and skills to your organisation. New research has shed light on how to best hire and retain them

Many organisations around the world are facing a growing talent shortfall. Demand for skilled workers in developed economies is growing faster than supply, with predictions of a 13 per cent shortfall of urgently needed tertiary-educated workers and a further 15 per cent of secondary-educated workers worldwide. Labour growth is also forecast to diminish in the United States and China, and worse, to shrink in Western Europe over the next decade, which could result in a $5.4 trillion GDP shortfall by 2030 in Organisation for Economic Co-operation and Development (OECD) countries.

Organisations have adopted a range of strategies in a bid to both widen and deepen their search for talented job candidates. Former entrepreneurs are an overlooked but potentially valuable source of talent. There is a ready supply of talent to be found in former entrepreneurs. Despite the growing number of entrepreneurs, 50–70 per cent of start-ups worldwide fail and up to 85 per cent of entrepreneurs return to salaried positions. The recent pandemic also spurred (and killed) more startups than in the past.

Overcoming hiring manager stereotypes

“Societies are seeing an increasing number of former entrepreneurs returning to wage employment, making the re-employment of former entrepreneurs a highly relevant and timely issue,” said Dr Siran Zhan, Senior Lecturer in the School of Management and Governance at UNSW Business School.

Despite the prevalent stereotype that former entrepreneurs are undesirable employees due to a high likelihood of quitting, little research has empirically verified its accuracy, according to Dr Zhan, who recently co-authored There's no going back? The influence of prior entrepreneurial experience timing on voluntary turnover in post-entrepreneurship wage employment.

“Former entrepreneurs’ creative and entrepreneurial skills are potentially key to organisations’ competitive advantages in today’s innovation-driven business environment,” said Dr Zhan, who co-authored the paper which was published in Personnel Psychology. However, she said entrepreneurs struggle to return to wage employment due to hiring discrimination on the part of recruiters who tend to stereotype former entrepreneurs as being a higher turnover risk than employees without prior entrepreneurial experience.

If this stereotype were at least partially flawed, Dr Zhan said that relying on it for hiring decisions would lead companies that are already competing in a dwindling talent pool to rule out promising talent prematurely. “Despite its prevalence and critical implications, little research has empirically verified this stereotype,” said Dr Zhan. Together with her co-authors Liwen Zhang from the University of Macau, Xueheng Li from Sun Yat-sen University and Yu Wu from The University of Newcastle, Dr Zhan aimed to test this stereotype by asking whether, when, and which former entrepreneurs may or may not be likely to quit their post-entrepreneurship employment.

Read more: Novelty vs commercial viability: what makes entrepreneurs successful?

Former entrepreneurs: who will (and won’t) quit?

Using a sample of nationally representative 20-year data from Australia to examine how the timing of prior entrepreneurial experience relative to a focal wage job relates to voluntary turnover, Dr Zhan said there were key findings that came out of the research. “Not all former entrepreneurs have the same tendency when it comes to voluntary turnover in their post-entrepreneurship wage jobs,” she said.

Those who were entrepreneurs in their second most recent job spell were more likely to resign from paid employment, but she said those who were entrepreneurs in their most recent job spell were not. “In other words, the timing of their prior entrepreneurial experience is key, when trying to predict the work attitudes and behaviours of job candidates in their post-entrepreneurship employment,” she said.

Another key finding was that, compared to those without entrepreneurial experience, entrepreneurs in their second most recent job spell tended to develop greater entrepreneurial intention and turnover intention – which she said increased their likelihood of quitting their role. This difference was not found for those who were entrepreneurs in their most recent job spell, Dr Zhan noted.

There was also a difference in intentions between genders, according to the research. Being entrepreneurs in their most recent job spell decreased men’s – but not women’s – entrepreneurial intentions. In contrast, Dr Zhan further explained that being entrepreneurs in their second most recent job spell increased men’s entrepreneurial intention more than women’s.

Implications for hiring managers and former entrepreneurs

For hiring managers working with HR personnel or recruiters, Dr Zhan said the above research findings suggest that the commonly held stereotype that all former entrepreneurs quit sooner than their salaried counterparts may be overly simplistic, and can potentially lead recruiters to count them out prematurely. “Instead, hiring recent former entrepreneurs may present a highly beneficial strategy because their fresh entrepreneurial skills might not come at the cost of a quicker turnover,” she said.

Employees whose entrepreneurial experience was more distant to the current job (but not in the last job spell) are more likely to develop entrepreneurial intention, turnover intention, and eventually quit. Dr Zhan said this finding suggests that time spent in at least one employed role (post-entrepreneurship) may help former entrepreneurs to recover financially and emotionally from their prior entrepreneurial exit, and get ready for re-entering entrepreneurship.

“Former entrepreneurs, especially those who failed, may consider giving themselves time by taking up a job to heal from prior entrepreneurial experience before rushing into another venture. Doing so may help them separate from their past imperfections and reset themselves for future entrepreneurial goals, which may lead to better outcomes in the next entrepreneurial attempt,” she explained.

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The business case for hiring former entrepreneurs

With an increasing number of former entrepreneurs returning to salaried employment, the research paper noted that this trend is a highly relevant and timely one for a diverse range of scholars, practitioners, and policymakers. Former entrepreneurs’ creative and entrepreneurial skills can play a key role in organisations’ competitive advantages in today’s innovation-driven business environment. As such, Dr Zhan said the research indicates that hiring recent entrepreneurs seems to be an effective yet counterintuitive and overlooked strategy.

“At a fundamental level, organisations worldwide are facing a growing talent shortfall,” she said. “Thus, securing former entrepreneurs can help companies source for talents from previously neglected pools to overcome the increasing talent crunch. Moreover, organisations can potentially gain fresh innovative and entrepreneurial skills brought in by recent entrepreneurs without the cost of a quicker turnover.”