The challenge for solo entrepreneurs to add their first employee is arguably the single biggest growth event facing any growing firm. To understand how this event affects performance, and the antecedents of hiring, we analyse Danish matched employer-employee data. Those who hire enjoy superior sales outcomes in subsequent years, while the dispersion in profits increases. Furthermore, those that hire enjoy faster sales growth in the previous year, suggesting that sales growth precedes the first hire.Finally, we show that founders with a stronger profile in terms of education and previous income are more likely to increase profits, while the characteristics of the employee are less important. The latter finding is important from a job creation perspective, in light of the suggested sorting of more marginalized employees into new and established firms.

Extant literatures on serial and habitual entrepreneurship contain inconclusive findings about the differential impact of learning from success and failure. Yet, there are no published studies combining both the restart decision and restart performance after previous failure or success with a first venture. Using a comprehensive longitudinal dataset of all one-time starts and restarts in Denmark from 1980 to 2007, we discovered the existence of a market for lemons in serial entrepreneurship. First introduced by Akerlof (1970), the market for lemons refers to a market in which low-quality products come to dominate. In serial entrepreneurship, this occurs due to Type II errors in the restart phenomenon. Type I error occurs when a potential entrepreneur endowed with the human and social capital necessary for restart success does not start a second venture. Type II error refers to the opposite and forms the basis for the market for lemons in serial entrepreneurship. Based on our empirical findings, we develop new theory relating these two types of errors to errors in learning attributions resulting in overconfidence bias and thereby impacting performance. Editor's Comment As more communities, states, and countries try to kick-start their economies by promoting entrepreneurship, recognized entrepreneurs and political leaders often preach the value of perseverance; taking the fall, dusting oneself off, and trying again. But is that really the best strategy? Might there not be an important message in failure? A must read

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Abstract: Contrary to employees, there is no clear evidence that entrepreneurs' education positively effects income. In this study we propose that entrepreneurs can benefit from their education as a signal during the recruitment process of employees. This process is then assumed to follow a matching of equals among equals. Using rich data from Germany and Denmark we fully confirm a matching on qualification levels for high-skilled employees, partially for medium-skilled employees but not for low-skilled employees, suggesting that as skill levels of employees decrease it becomes equally probable that they work for different founders. Founder qualification is the most reliable predictor of recruitment choices over time. Our findings are robust to numerous control variables as well as across industries and firm age. Terms of use: Documents in