Diana M. Hechavarria University of Cincinnati Department of Management EMPLOYEE RECRUITMENT IN NASCENT START-UPS: EXPLORATORY ANALYSIS OF THE PANEL STUDY OF ENTREPRENEURIAL DYNAMICS Diana M. Hechavarria University of Cincinnati Department of Management

Agenda Overview of PSED I & II research initiative. What is nascent entrepreneurship Description of sample Discuss what we have learned about HRM in nascent firms. Limitations of PSED Directions for future research Questions

Why study new firms? Provide half of all net new job creation Contribution to improved sector productivity Major source of economic innovation Associated with economic growth Significant work career option for individuals Mechanism for immigrant social integration Route for upward social mobility for individuals

Panel Study of Entrepreneurial Dynamics (PSED) Cohorts of nascent entrepreneurs and nascent enterprises Longitudinal data that begins with firm conception and tracks start-up efforts until a new firm has been established Data that is fully documented and in the public domain: http://www.psed.isr.umich.edu Representative samples to facilitate extrapolation to the entire US population of adults and nascent enterprises

Panel Study of Entrepreneurial Dynamics PSED I Initial screening in 1998-2000 Tracked 830 nascent entrepreneurs enterprises over 4 years PSED II Initial screening in 2005-2006 Tracking 1,214 nascent entrepreneurs/ enterprises First follow-up data ready for analysis

Define conception the beginning ･ Exclude those with positive monthly cash flow for more than 3 months prior to first interview ･ Those that have completed 2 or more start-up activities ･ Those that completed 2 within a 12 month period ･ Identify the earliest of the two activities ･ Defined that a conception New Firm PSED I: ･ Is the start-up now an operating business? PSED II: ･ Income in 6 of past 12 months?･ Cover all monthly expenses? ･ Cover owners salaries and wages? Active start-up ﾐ PSED I ･ Still in active start-up phase? PSED II ･ Devoted more than 160 hours in past 12 months ･ Expect to spend more than 80 hours in next 6 months ･ A major focus of work career over the next 12 months･ Disengagement [Quit] PSED I ･ No longer being worked on by anybody PSED II ･ Not new firm, not active start-up･ Consider self disengaged from the business start-up

Identifying “Nascent” Entrepreneurs Screening Items: Are you, alone or with others, currently trying to start a new business, including any self-employment or selling any goods or services to others? Are you, alone or with others, currently trying to start a new business or a new venture for your employer, an effort that is part of your normal work? Are you, alone or with others, currently the owner of a business you help manage, including self- employment or selling any goods or services to others?

Additional Criteria Yes to any one or more screening item, must meet all following criteria: Admit to start-up activity in past 12 months Expect to own all or part of the new firm No positive monthly cash flow covering all expenses and salaries for 6 of past 12 months Those that pass are candidate nascent entrepreneurs Additional questions eliminate those with positive monthly cash flow in prior years, who appear to be reactivating a business

Conception to initial detailed interview (months) PSED I Minimum= 0.8 Average=19.8 Media=14.4 Maximum=114.1 PSED II Minimum =0.7 Average=16.4 Median=10.8 Maximum=114.3

Nascent Entrepreneurial Participation Estimates from PSEDII

Outcome Status @ 2nd Wave

Growth Orientation by Gender When asked about growth aspirations for the nascent venture: Men 75.3% Small business venture 24.7% High growth business venture Women 81.7% Small business venture 18.3% High growth business venture

Exploring Human Resource Activity in Nascent Start-ups Nascent ventures face volatile environments when attempting to organize. Limited resources and capabilities. So when is the appropriate time to hire? How do nascent ventures opportunistically exploit human resources to get up and running?

Literature on HRM and Nascent Entrepreneurship Findings suggest that first hire(s) are more likely weak ties. No pre-established HRM system More of a needs-fit and values-fit assessment for employee hiring. Limited scope of scholarly initiatives when unit of analysis is the nascent venture.

Start-up Team Participants Those expecting to own part of the new firm･ Non-owning founders Active participants in start-up Not expecting to own part of the new firm Responsible for a distinctive contribution to the founding of the new business Helpers: Not expecting to own part of the firm Not responsible for distinctive contribution Provided support, advice, or guidance on a regular basis Employees

Start-up Team Size, Composition, & Characteristics About 4% of all start-ups share ownershipw with some other legal or financial entity

Types of Start-ups 1 in 5 start ups are non-family firms

Start-up Activities within PSED I & II Respondent were queried on 36 possible start-up activities. On average within 11% of respondents reported hiring an employee. At the first interview, 23.9% of respondents reported that employees would be hired in the future. 4.3% of respondents had hired a specific employee to oversee human resources by first follow up. All new firms in PSEDII

Employee Hires Before First Interview, by Start-up Actions Sequence

Limitations Know when first person hired, but we don’t know how many employees are hired/fired at each subsequent wave. Don’t know specific functions for each employee. Do not know how nascents recruit employee(s).

Directions For Future Research Does conception date and date of initial hire influence outcome status? Relative to other actions within start-up sequence. What factors affect the number of non owner founders and helpers? Strong ties, weak ties, strangers. How do growth perceptions influence start-up actions? Are high growth oriented firms more eager to hire? What influences new firms to hire a specific HRM employee?

Entrepreneurial activity, all and high growth initiatives in selected global regions.

Questions?