Excerpts From Ongoing Entrepreneurship Research

Small Firms as Sources of Employee Entrepreneurship: The Moderating Effect of Immigration Status

Shweta Gaonkar, University of Maryland and Martin Ganco, University of Minnesota

The existing evidence shows that entrepreneurs are more likely to have prior work experience in small relative to large firms. Similarly, the studies suggest that such effect is stronger for higher ability individuals. The prior experience in small firms also appears to have a positive impact on performance of entrepreneurs. The researchers theorize that employee entrepreneurs obtain relevant knowledge and skills through prior employment in small firms. At the same time, the future entrepreneurs self-select into employment at these small firms to gain such experience. The evidence, however, shows that a significant proportion of highly skilled individuals are immigrants. The anecdotal evidence indicates that immigrant entrepreneurs play a prominent role in the national economy. We ask the question of how does the immigration status affect the propensity of employee entrepreneurs to originate from small relative to large firms and what are the performance implications. Our central premise is that potential immigrant entrepreneurs may prefer larger firms as their employment prior to transitioning to entrepreneurship due to immigration process considerations – even though small firms may provide opportunities to acquire superior skills. Further, we examine whether such sub-optimal choice has implications in the form of entrepreneurial performance. We test our predictions using the SESTAT dataset of the U.S. scientists and engineers. Our preliminary results indicate that employee entrepreneurs who previously held temporary work visa status were more likely to choose larger firm as a place of employment prior to transiting to entrepreneurship relative to other workers. Such choice has also penalized them in terms of entrepreneurial performance. Our results underscore the fact that the constraints imposed by the immigration policy may negatively impact the employment choices of immigrants who consider future entrepreneurship and their post-entry entrepreneurial performance.

 

Who Leaves, Where To, and Why Worry?: Employee Mobility, Entrepreneurship and Effects on Source Firm Performance

Benjamin A. Campbell, Ohio State University; Martin Ganco, University of Minnesota; April M. Franco, University of Toronto; Rajshree Agarwal, University of Maryland

We theorize that the value provided by the firm’s complementary assets has important implications for the exit decisions of employees and their subsequent effects on the firm’s performance. Using data from the U.S. Census Bureau on legal services, we find that employees with higher earnings are less likely to leave relative to employees with lower earnings, but if they do leave, they are more likely to create a new venture than join another firm. We also find that employees who leave to start a new venture have a larger adverse impact on the source firm performance than moves to established firms, even controlling for observable employee quality and other characteristics. We explain this effect through the ability and incentives of high ability individuals leaving established firms to create a new firm to transfer core and complementary assets including focal employee’s colleagues, clients and knowledge. From a practitioner perspective, our evidence that employee entrepreneurship has a significant negative impact on source firms relative to employee moves to established firms suggests that firms should tailor their micro level human capital strategies to reduce employee entrepreneurship more than traditional employee mobility. The most valuable employees appear to be the ones most likely to move to entrepreneurial firms. These employees are also very likely to take the entire bundles of resources including other employees, knowledge and client relationships. To avoid the loss of those who generate the most value, managers need to identify and assess which employees are most able to replicate or transfer a firm’s complementary assets and then strengthen their incentives to stay, or weaken their ability to replicate the complementary assets.

 

New Argonauts Versus Indigenous Entrepreneurs: Location of Knowledge and the Success of Employee Entrepreneurship

Pao-Lien Chen, National Tsing Hua University; Rajshree Agarwal, University of Maryland; Martin Ganco, University of Minnesota

The anecdotal evidence and recent research suggest that “New Argonauts” -- individuals who start businesses in their native countries after working for leading firms abroad -- are drivers of knowledge spillovers, and regional and global growth. Nevertheless, the performance outcomes of such international employee entrepreneurship are less clear. Individuals starting businesses across national boundaries face unique challenges. Even though working for a leading incumbent firm may equip future entrepreneurs with advanced knowledge of technologies and developed markets, applying this knowledge within a different national context requires knowledge of local conditions. Entrepreneurs without or with an outdated local knowledge may suffer from the “liability of foreignness” which has been shown to be detrimental to firm performance. Are “New Argonauts” better performers than local entrepreneurs? What type of knowledge -- local or non-local industry-specific knowledge -- is more important for startup success? To answer these questions, we examine performance outcomes of 132 Taiwanese (TW) semiconductor startups over the period 1990-2009 -- within the context of the mature semiconductor industry. Our preliminary results indicate that ventures started by founders who have both non-local (US) and local (TW) prior work experience outperform other startups. We also find that firms started by founders with only local experience (TW) survive longer than firms founded by founders with only non-local (US) prior work experience. However, firms started by founders with only non-local (US) experience produce more patents and generate more citations than startups founded by founders with only local (TW) experience. Our results are consistent with prior studies suggesting that “New Argonauts” are a potential source of regional growth and knowledge spillovers. Nevertheless, our results highlight that innovativeness does not necessarily translate into survival for which the local knowledge is critical.

 

Professor Martin Ganco is leading ongoing academic research projects analyzing factors that drive entrepreneurial activity around the world.

Martin Ganco

 

 

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