We go way back: Affiliation‐based hiring and young firm performance

Abstract

Research SummaryFounders often tap their prior employment or educational affiliations to facilitate employee mobilization and post‐hiring integration. But, how do these affiliation‐based hiring (ABH) tactics relate to venture performance? We theorize that ABH generally helps founders fulfill relational and resource goals, yet differently depending on the type and proximity of the affiliation they share with new hires. We leverage Danish employer–employee data and test our hypotheses with a sample of 8312 ventures launched across multiple industries and joined by 143,469 employees during 2001–2012. We observe higher profitability, sales levels, and survival rates among ventures that hire from founders' past affiliations, with some nuances. Young ventures perform better when hiring founders' former proximal employment ties in nascent stages and relatively distal education ties as these firms mature.Managerial SummaryFounders often tap their prior professional affiliations—former workplaces and education institutions—to hire, but are there benefits or downsides associated with these affiliation‐based hiring (ABH) tactics? Using a large longitudinal sample of Danish ventures, founders, and hires across multiple industries, we study in depth how different ABH strategies relate to new ventures' profitability, sales, and survival. We generally observe better performance among ventures using ABH tactics, as these seemingly help firms access and retain higher quality employees. However, these relationships vary with the type and proximity of affiliations shared between founders and hires. Ventures perform better when hiring founders' proximal employment ties in the early stages but less so when hiring their schoolmates. Nonetheless, some of founders' education ties become valuable as their firms mature.