Hiring entrepreneurs for innovation

Abstract

Research Summary: What human capital do established organizations need to bring new ideas to market? Combining Danish registry and Community Innovation Survey data, we document a robust positive relationship between hiring former founders and firms' sales from innovation. Entrepreneurs join smaller, younger firms (which exhibit larger effects), managerial skills and external industry founding experience matter, while other selection or human capital-based explanations appear muted. Founder hires especially enhance innovation when given middle management decision rights, for incremental offerings, and in innovation-active firms. Our collective findings indicate startup experience equips founders with a generalist ability to acquire and mobilize resources around new ideas. By clarifying the nature of entrepreneurial human capital, we highlight a novel innovation input that helps firms unlock its commercial value. Managerial Summary: As entrepreneurial careers proliferate, former founders represent a growing pool of potential employees with expertise in bringing new products and services to market. Can hiring entrepreneurs help established organizations enhance innovation? Using data from Denmark, we answer this question affirmatively and offer several explanations. Former founders gravitate towards younger, smaller established firms, where effects are stronger; they also bring valuable managerial skills and external industry founding experience. Notably, they generate more value when given broader authority as middle managers, for less obvious resource combinations, firms already active in innovation or research and development, and higher uncertainty contexts. Taken together, our findings suggest former founders' distinct combination of skills helps firms marshal resources around new offerings.