Fire in the Belly? Employee Motives and Innovative Performance in Startups versus Established Firms

Abstract

Scholars have long sought to understand the advantages different types of firms may have in generating innovation. A popular notion is that startup companies are able to attract employees with “fire in the belly,” allowing them to be more productive. Yet research has paid little attention to the motives and incentives of startup employees. This paper compares startup employees’ pecuniary and non-pecuniary motives with those of employees working in small and large established firms and examines the extent to which existing differences in motives distinguish employees’ innovative performance. Using data on over 10,000 U.S. R&D employees, we find significant differences across firm types with respect to motives, although these differences are more nuanced than commonly thought. We also observe that startup employees have higher patent output, an effect that is associated primarily with firm age, not size. Moreover, we find evidence that differences in employee motives may indeed be an important factor distinguishing the innovative performance in startups versus established firms. Rather than intrinsic motives or the quest for money, however, it is employees’ willingness to bear risk that appears to play the most important role. We discuss implications for future research as well as for entrepreneurs, managers, and policy makers.