From owner to applicant: New research reveals hiring bias against entrepreneurs

Owning a business is often seen as the absolute pinnacle of professional living, but make no mistake, it takes hard work and dedication to make it to the top of the summit. Entrepreneurs must scrape and claw their way to the top, inevitably amassing considerable amounts of business acumen and invaluable experience. Consequently, most assume former business owners have a leg up on other applicants when it comes to HR departments and hiring decisions. 

Surprisingly, however, new research from Rutgers Business School reveals the average ex-entrepreneur or former startup founder/owner actually appears to face an uphill battle in pursuit of full-time employment. Read on to learn more about a massive challenge, or perhaps stigma, associated with entrepreneurship that no one is talking about. 

Entrepreneurs & the job market

If you’re wondering why an entrepreneur would want to apply for a more traditional, 9-to-5 corporate job in the first place, keep in mind that the vast majority of new startups fail within a matter of years if not months. Entrepreneurship is a high risk, high reward activity, and while we’d all love to be the next Jeff Bezos or Richard Branson, for every single success story there are quite literally millions of failures, bankruptcies, and insolvencies. That means there are a whole lot of entrepreneurs and former business owners sending out resumes with the rest of us. 

A clear bias against entrepreneurs 

All of this begs the question: How are entrepreneurs viewed by recruiters and hiring managers? This latest research project, recently published in the scientific journal Personnel Psychology, set out to answer that very query. The team at Rutgers gathered together a collection of 219 individuals with legitimate, real-world corporate recruiting experience (across various fields including healthcare, software development, tech manufacturing, etc), and showed the participants a series of fake resumes. 

All of the distributed fictional resumes were identical besides one key difference. Some resumes stated the fake applicant was a former business owner. Each study participant was provided with three fake resumes in addition to a job description, then asked to recommend one of the three hypothetical candidates.

The ensuing findings were undeniable; study subjects were far less likely to recommend the former business owners for employment, despite these fictional entrepreneurs boasting the exact same levels of experience and qualifications as the other applicants.

Is entrepreneurship a red flag for recruiters?

This observed hesitancy to hire former business owners held up across industries and professions as well. All in all, these findings hint at former business ownership representing a  major red flag for many corporate hiring managers and recruiters. It appears most corporate HR departments are doubtful that the average startup founder or former business owner will enjoy a smooth transition from employer to employee.

“This difference is statistically significant across various firms and industries, suggesting a systematic bias against hiring former entrepreneurs,” comments lead researcher, Jie (Jasmine) Feng, Associate Professor of Human Resource Management at the Rutgers School of Management and Labor Relations, in a university release. “If you’re an entrepreneur, you raise more red flags.” 

Prof. Feng, in collaboration with her colleagues, Danni Wang (Rutgers Business School), Lei Huang (Auburn University), and Ruoyong Zhang (Lanzhou University), conducted this experiment on two occasions (once before the COVID-19 pandemic, and then again after the pandemic). The results remained largely the same both times.

Autonomy and employment rarely mix

So what’s behind this underlying bias against entrepreneurs? Study authors theorize that at the end of the day, the same traits that make for a great entrepreneur don’t exactly add up to the ideal employee. Business owners and startup founders typically thrive off of independence, high-pressure decision making, and leading others. Well, as a salaried employee, former entrepreneurs may be expected to follow far more than they lead. Teamwork is another skill essential for virtually all employees that may be somewhat unfamiliar for seasoned entrepreneurs. 

“Entrepreneurs behave differently,” explains Danni Wang, Associate Professor of Management and Global Business at Rutgers Business School. “They value autonomy. They are used to making decisions on their own and taking risks. Some recruiters view that as a red flag. After all, large corporations like to minimize risks.”

Entrepreneurial hiring exceptions 

This work, while illuminating, shouldn’t discourage entrepreneurs from entering the job market entirely. There are still plenty of opportunities out there, and researchers point to three distinct types of recruiters who are more likely to move forward with a candidate who was once a business owner: Women, recently hired recruiters, and recruiters with former entrepreneurial experience themselves.

“Women are more open to applicants with a different identity or a different set of experiences,” Prof. Feng says. “Newer recruiters are less constrained by organizational norms and more willing to consider an unconventional candidate. Former entrepreneurs can relate to those who have followed a similar path.”

The penalty of entrepreneurship 

The notion of starting one’s very own company in the garage and watching it grow into a multi-billion dollar powerhouse is both romantic and exhilarating, but this report is just the latest in a long line of research highlighting the hidden challenges of entrepreneurship. Besides getting hired in the first place, prior studies also suggest ex-entrepreneurs tend to earn less than their colleagues. In light of all this, the team at Rutgers believes employers should do more to ensure a level hiring field for former business owners. They may be more independent than the average worker, but given a chance, entrepreneurs can bring countless sought-after skills and traits to the proverbial table.

“Unfortunately for many entrepreneurs, closing their business is just the beginning of a long and difficult road,” Prof. Feng concludes.