Former entrepreneurs have X factor

According to Statistics Denmark, 19,600 startups were established in Denmark in 2017, which is the highest number in more than ten years. Five years later, only 8,400 of these new businesses were still active. This is according to an analysis of entrepreneurship in Denmark by Statistics Denmark (2024).

What happened to the entrepreneurs and the businesses that were no longer active in 2022, the analysis does not say. Whether they went bankrupt, were acquired by other companies or simply shut down, we do not know.

Contributing to growth

However, if the entrepreneurs have since continued their careers as employees of other companies, there is every chance that they are now contributing significantly to growing sales of innovative products. At least that is the conclusion of a new study from the Department of Management at Aarhus BSS, Aarhus University.

Assistant Professor Louise Lindbjerg from the Department of Management at Aarhus BSS, Aarhus University, together with her assistant professor colleague Theodor Vladasel from Pompeu Fabra University in Barcelona, has studied what happens when Danish companies with 25+ employees hire former entrepreneurs.

“We wanted to find out whether hiring former entrepreneurs had a positive association on the innovative performance of these companies, and we can confirm that it did. As early as one year after hiring a former entrepreneur, companies increase their sales of innovative products,” says Louise Lindbjerg, emphasising that it is not a causal effect, but a very clear pattern.

“The findings are robust and consistent even after multiple tests,” she explains.

It doesn’t seem to matter so much whether they end up working in the industry from which they have entrepreneurial experience, or whether they did well or badly as entrepreneurs

^{Louise Lindbjerg, Assistant Professor, Department of Management, Aarhus BSS, Aarhus University.}

Entrepreneurs and innovation

Using business and labour market data from Statistics Denmark, the researchers have followed Danish entrepreneurs over time and their journeys into and out of entrepreneurship. These data have been linked to additional data from the innovation survey carried out by Statistics Denmark every year during the research period as part of the OECD’s innovation survey. In the survey, companies are asked whether they have introduced new products or new processes in the past three years. The researchers’ analyses are based on a total of more than 20,000 observations in almost 4,000 unique companies during the 2007–2016 period.

“We see a relatively large turnover in entrepreneurship, but in fact, former entrepreneurs only account for about half a percent of all new hires in these companies. The fact that we are able to detect an effect is therefore even more remarkable,” says Louise Lindbjerg.

The analyses show that former entrepreneurs contribute up to 23.4 times more to the companies’ sales of innovative products than employees without an entrepreneurial background.

Middle managers

The researchers do not know exactly why this is, but there are many indications that the former entrepreneurs have gained general skills that they can apply in their new jobs.

“It doesn’t seem to matter so much whether they end up working in the industry from which they have entrepreneurial experience, or whether they did well or badly as entrepreneurs. What we can see is that the effect is greatest if they are hired for middle management positions by their new employers,” explains Louise Lindbjerg.
 

Important knowledge

Thus, the former entrepreneurs are not involved in developing the innovative products, and the researchers suggest that the explanation may be that their entrepreneurial experience provides an advantage in being able to adapt the business model of the new company to the innovative product and to analyse the market for the product, which leads to increased sales of the innovative products.

“But it could be interesting to find out what is actually happening,” says Louise Lindbjerg, who believes that the study itself has already contributed important knowledge to the entire field of entrepreneurship.

“Entrepreneurs have experience in bringing new ideas to market, and if they can transfer that experience to a different context, then it is an important element to factor in when talking about investing in entrepreneurship as a society. And that’s exactly what we’ve seen,” says Louise Lindbjerg.

Facts

We strive to comply with Universities Denmark’s principles for good research communication. For this reason, we provide the following information as a supplement to this article: