Does the timing of integrating new skills affect start‐up growth?

Markus Grillitsch,Torben Schubert

doi:10.1002/sej.1375

Abstract

AbstractResearch SummaryGrowth often requires start‐ups to recruit new skills not present in the founding team. We analyze if the relationship between integrating new skills and growth depends on timing. Should new skills be recruited as early as possible, or can start‐ups add them as needed along the way? Using a unique panel dataset covering Sweden's population of start‐ups from 1997 to 2012, our analysis shows that (a) start‐ups' growth rate is positively correlated with integrating novel skills early in their life, while adding novel skills later is associated with lower growth and (b) corporate spin‐offs profit less from recruiting novel skills than de novo start‐ups. We mirror our results against existing theories and develop theoretical perspectives for future research.Managerial SummaryEntrepreneurs and managers of start‐ups need to develop the competences of their company as it matures. For this, they typically need to hire qualified personnel. But when is the best time to do so? In this paper, we show that the costs of integrating new skills from recruitment increase over time. We show that in order to achieve high firm growth there is a window of opportunity for successful recruitment covering the first 3–4 years after the founding of the company. Recruiting novel skills after this period is associated with reduced firm growth. Our results are thus in favor of a hiring strategy, where needed skills are recruited as early as possible.

Highlights

How to turn start-ups into scale-ups is a very important topic in strategic entrepreneurship, and is deeply linked to the question of the timing of growth processes
Because the frictions associated with recruiting new skills can be substantial and become even life-threatening for new ventures, we argue that minimizing integration costs must be a central task of strategic human capital management in new ventures
The aim of the paper, is not to establish how adding skills per se relates to the growth performance of new firms, but rather to analyze whether it makes a difference for firm growth when the new skill is added

Summary

Introduction

How to turn start-ups into scale-ups is a very important topic in strategic entrepreneurship, and is deeply linked to the question of the timing of growth processes. Some authors have argued that start-ups typically undergo a process of professionalization, during which new required skills may be recruited flexibly in order to facilitate scaling and growth processes (Boeker & Karichalil, 2002; Hellmann & Puri, 2002). Other authors instead have argued that recruiting new skills is far from a frictionless process and comes with heavy integration costs (Lockett, Wiklund, Davidsson, & Girma, 2011) due to organizational rigidities and path dependence (Beckman, 2006; Beckman & Burton, 2008), founder imprinting (Judge et al, 2015; Leung, Foo, & Chaturvedi, 2013; Marquis & Tilcsik, 2013), and the danger of threatening established routines (Beckman, 2006; Beckman & Burton, 2008; Guenther, Oertel, & Walgenbach, 2016; Hannan, Baron, Hsu, & Koçak, 2006). Because the frictions associated with recruiting new skills can be substantial and become even life-threatening for new ventures, we argue that minimizing integration costs must be a central task of strategic human capital management in new ventures

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