Founders can influence joiners to become founders too

Vera Rocha, Mirjam van Praag 10 March 2018

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Policy debates about entrepreneurship often focus on how to encourage individuals – and women in particular – to become entrepreneurs. Despite increasing numbers of female entrepreneurs in most countries in recent years, women are still underrepresented in new venture creation. The need for, and lack of, female role models who can act as mentors and inspiring examples is repeatedly mentioned in the media, in policy reports, and among academics.

Previous research confirms that contextual influences such as social interactions influence the decisions of individuals to become entrepreneurs. While social interactions with peers (Nanda and Sørensen 2010) and family members (Lindquist et al. 2015) with entrepreneurial experience have been widely investigated, the influence of bosses on one’s entrepreneurship choices has been relatively overlooked. This is surprising, given that most entrepreneurs are paid employees before starting their own business (Bhide 1994), and bosses are likely to be at least as important as a co-worker or family member. According to a recent stream of research, bosses are indeed likely to be influential in various decisions and outcomes of their subordinates (e.g. Lazear et al. 2015, McGinn and Milkman 2013). We contribute to this literature by being the first to investigate the boss’s influence on employees’ future career choices. We are particularly interested in one mechanism behind ‘boss influence’, namely, the boss as role model. Bosses can serve several functions including mentoring, teaching, and motivating their employees (Lazear et al. 2015), which have been labelled as role modelling in a broad sense. Role models can play a vital role in promoting entrepreneurship (Bosma et al. 2012) and this is empirically supported in the case of parents as role models (e.g. Lindquist et al. 2015).

Bosses as role models: Evidence from Denmark

We use a particular identification strategy to address this research question (Rocha and van Praag 2016), based on the theory that homophily between superiors and their subordinates promotes social identification and role modelling (Shapiro et al. 1978), especially if both belong to an underrepresented group such as women in business environments (Cohen and Broschak 2013, McGinn and Milkman 2013). In the case of female founder-joiner pairs, the demand or need for role models may be greater than for any other gender combination, not only because women are often the minority, but also because of their lack of experience with, and relatively weaker exposure to, entrepreneurship.

Hence, we compare same gender founder-joiner pairs (particularly female pairs) to mixed gender pairs, within the realm of founders and joiners at start-ups. As a consequence of this empirical strategy, our study relates closely to the literature on homophily and career dynamics (e.g. McGinn and Milkman 2013). Given the gender focus of our identification strategy, it also relates to studies on how female leaders, possibly as a consequence of their distinct management styles, may have a different organisational impact than male leaders – one which, furthermore, is possibly heterogeneous across genders, either encouraging (or hindering) the careers of female subordinates (e.g. Cohen and Broschak 2013).

Our analysis is based on rich, matched employer-employee data maintained by Statistics Denmark. The sample comprises about 14,000 start-ups created between 2003 and 2007 (29% of which have a female founder) in a variety of industries. Over 89,000 joiners (i.e. full-time employees being hired at start-up or in later stages) are identified and followed over time in order to track their subsequent occupational choices. About 2,000 joiners founded new businesses immediately after leaving the start-up they had joined, of which about 30% were women.

Our results show that employees joining a founder of the same gender have a greater likelihood of going on to become founders themselves. The founder’s influence is especially pronounced among women – the predicted entrepreneurship probability of a woman with average characteristics (in terms of age or labour experience, for example) is 49% higher with a female founder than a male founder (and even 78% higher looking at those joiners who become entrepreneurs with employees). This influence is stronger than the impact of other social interactions, such as interactions with peers and family members who have entrepreneurship experience.

Consistent with our role model hypotheses based on social identification theory, we find that the influence of female founders is further strengthened (i) when they share a variety of attributes with their female joiners, (ii) in contexts (e.g. industries) in which women tend to be disproportionately underrepresented, and (iii) in start-ups that achieve higher performance than average. These findings seem to indicate that founders can, in a broad sense, be role models for their employees.

We discuss and test alternative mechanisms that might explain the higher entrepreneurship rates among female employees in start-ups with female leaders, such as selection effects and push mechanisms, but these are not empirically supported. The lack of evidence on female founders pushing out female joiners is based on the findings that female employees exhibit a lower propensity to move to another job, a lower risk of unemployment thereafter, and a narrower gender wage gap with a female boss versus a male boss. Based on these findings, we reject the alternative explanation that female joiners are more likely to become entrepreneurs to escape less friendly, or even discriminatory, firms led by female founder-bosses. While selective matching could be another confounding explanation, the econometric methods used, together with robustness checks and additional sensitivity analyses, mitigate this concern. Moreover, we find that founder’s gender is not significantly associated with future transitions to entrepreneurship among female joiners who stay relatively short periods in a firm with a female founder. This is the expected outcome where role modelling is the underlying mechanism, rather than sorting based on gender.

Concluding remarks

Overall, our study contributes to debates and organisational research that indicates that different organisational contexts might retard or stimulate a particular career outcome of employees, namely, entry into entrepreneurship. Within the population of start-ups, the influence of a specific element of organisational context is identified –  the founder-boss as role model. It appears that this influence can be quite strong and hinges on the similarity in characteristics of founders and joiners, as well as particular circumstances, such as being a minority, and founder’s business performance.

This approach also responds to recent calls for further research on entrepreneurship from a career perspective (Burton et al. 2016), by measuring and explaining the influence of founders on their employees’ career decisions to become entrepreneurs.

Finally, our study can be viewed as a contribution to the debate on the role of social interactions – in this case, within organisational boundaries – for closing the gender gap in entrepreneurship. By showing that working with a same-gender founder is one key influence on women’s future entrepreneurship choices, our study further contributes to understanding earlier theories of gender inequality in entrepreneurship through an organisational lens.

References

Bhide, A (1994), “How entrepreneurs craft strategies that work”, Harvard Business Review March-April: 150–161.

Bosma, N, J Hessels, V Schutjens, M van Praag and I Verheul (2012), “Entrepreneurship and role models”, Journal of Economic Psychology 33(2): 410–424.

Burton, M D, J B Sørensen and S D Dobrev (2016), “A careers perspective on entrepreneurship”, Entrepreneurship Theory Practice 40(2): 237–247.

Cohen, L E and J P Broschak (2013), “Whose jobs are these? The impact of the proportion of female managers on the number of new management jobs filled by women versus men”, Administrative Science Quarterly 58(4): 509–541.

Lazear, E, K L Shaw and C T Stanton (2015), “The value of bosses”, Journal of Labor Economics 33(4): 823–861.

Lindquist, M, J Sol and M van Praag (2015), “Why do entrepreneurial parents have entrepreneurial children?” Journal of Labor Economics 33(2): 269–296.

McGinn, K L and K L Milkman (2013), “Looking up and looking out: Career mobility effects of demographic similarity among professionals”, Organization Science 24(4): 1041–1060.

Nanda, R and J B Sørensen (2010), “Workplace peers and entrepreneurship”, Management Science 56(7): 1116–1126.

Rocha, V and M van Praag (2016), “How do entrepreneurial bosses influence their employees’ future entrepreneurship choices?”, CEPR Discussion Paper 11715.

Shapiro, E, F Haseltine and M Rowe (1978), “Moving up: Role models, mentors, and the ‘patron system’”, Sloan Management Review 6(1): 19–47.

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Topics:  Gender Productivity and Innovation

Tags:  Gender diversity, female underrepresentation, glass ceiling, social identity theory, role models, role modelling, entrepreneurship, start-ups, Denmark

Assistant Professor in Economics and Management of Innovation and Entrepreneurship, Copenhagen Business School,

Maersk Mc-Kinney Møller Professor of Entrepreneurship, Copenhagen Business School

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