Hiring in Entrepreneurial Firms: Pre-Founding Affiliations & the Origins of Organizational Diversity

Abstract

New ventures typically have few resources and rarely have formal human resource processes, calling into question how these entrepreneurial firms find early employees critical to their success. Additionally, entrepreneurial hiring practices set the trajectory of how workforce composition is built in a growing organization. A common, informal tactic in young firms for finding workers is the use of incumbent workers’ prior affiliations (employment and educational), an expedient practice though one that may limit a new venture’s workforce diversity. Our study examines when young firms engage in such affiliation-based hiring and its implications for demographic diversity. Using a representative sample of new ventures drawn from Danish matched employer-employee data, we find that larger founding teams with greater internal social tie depth are more likely to hire from founders’ prior affiliations. Our results further suggest that affiliation-based hiring reinforces demographic homophily, contrasting with diversity imperatives as firms grow. Our work provides insights to hiring processes in entrepreneurial firms and the enigmatic origins of diversity differences between firms.