Recruiting in start-ups : entrepreneurial approach to recruiting and incentivizing early employees

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Recruiting in start-ups:

Entrepreneurial approach to recruiting and

incentivizing early employees

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VU University Amsterdam and University of Amsterdam

Faculty of Economics and Business Administration

Master thesis

Name

Filip Degoricija

Degree

MSc Entrepreneurship (joint degree UvA & VU)

Student number

UvA 10826122 / VU 2566851

Date

June 2016

Supervisor

Drs. Roel C W van der Voort

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Abstract

This thesis addresses the skills or character traits that are helpful to nascent start-ups. The research questions explore the benefits that can be offered to allow start-ups to compete with larger companies, the roles filled in early hiring, and the skills or characteristics that are valued by successful entrepreneurs. Negative case analysis explores traits that are shared by unsuccessful entrepreneurships. Qualitative case analysis and structured interviews, combined with review of the literature to establish a current state of knowledge fuel recommendations for successful entrepreneurial hiring practices as well as provide recommendations for practice and future research. The combination of literature, case study, and fieldwork yielded rich results that will expand the body of knowledge. The finding was made that successful entrepreneurs hire for the quality of the employee rather than to fill particular positions.

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1. Introduction

1.1. Introduction

Fortune Magazine estimates that nine out of every ten start-ups will fail (Griffith, 2014). The reason most commonly stated in a recent analysis was that products were being produced that no one wanted. Griffith pointed out that when 101 essays relating to start-up failure were analysed, 42 percent of them cited lack of a market for the product as the reason for failure. Other reasons cited for the failure included the lack of capital, the wrong team for the project, and strong competition (Griffith, 2014). Griffith’s analysis found that 23 percent of the time, the company had hired the wrong team for the project, suggesting that the strength of the personnel and the personnel team plays a large part in entrepreneurial failure. Entrepreneurs may not be able to control the competition, but the correct team for a fledgling company should be able to develop and release products that are more likely to sell, to be able to develop strong follow-on products, and to be able to support the company’s goals through the process of capital acquisition.

1.2. Background

Start-ups in their early stages lack legitimacy and job security needed to attract strong candidates. Candidates understandably perceive the opportunity for growth to be low when 90 percent of young entrepreneurships fail. In the nascent phase of the company (and thus of recruitment) it can be difficult to find recruits that have the necessary qualifications and dedication to working with a fledgling company, and with the correct skill sets and character traits needed to work with a company that may not have established its true goals and business approach yet. This research project investigates entrepreneurship recruitment in order to gain a deeper insight into the reasoning and techniques used to hire early recruits.

1.3. Aims and objectives

The aims and objectives of the research are based on an entrepreneur’s view of the recruiting process in the early stage of a start-up. Deeper understanding and insight into the reasoning and techniques used to hire early recruits into successful start-ups can help inform other entrepreneurs and new start-ups determine the best techniques to hire early recruits for a successful outcome.

A number of general research questions evolved that will be used in guiding the research and for developing knowledge that can be applied to a basic plan for expansion of human resources in a nascent start-up. The main research question is: Which skills or character traits do successful

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Additional questions will be utilized to explore the central topic. Additional guiding questions include, but are not limited to the following:

 Which benefits do early start-ups offer to early recruits to compete with large companies?

 Which key roles do successful entrepreneurs try to fill with their first recruiting efforts?

 Which skills or character traits do successful entrepreneurs value?

During the course of the research, the literature review and theoretical background may open additional avenues that may need to be explored. The use of qualitative methodology will allow for exploration of meaning and knowledge in the experiences of successful entrepreneurs.

1.4. Setting

There are three settings for the project. The settings will cover the literature, a failed start-up, and successful start-ups. The first setting is the theoretical research setting. Information relating to entrepreneurship, nascent start-ups, and successful and non-successful start-ups will be gathered. A theoretical framework will be developed highlighting the current state of knowledge relating to successful start-ups. A failed start-up is examined in the second setting. The second setting is the investigation of the case of Ecomom, a start-up that failed dramatically and resulted in the suicide of its founder. The third phase consists of face to face interviews with owners, chief operating officers, and chief financial officers of successful start-ups. Details of the interviews and further details of the settings will be discussed in Chapter four, Methodology.

1.5. Ethical considerations

The researcher follows all rules established by the University in seeking permission to interview, and actually interviewing, the officers. All requirements of the school were observed in developing and administering the interview. The interviews took place in a private area of the interviewee’s choice. The interviews were recorded and transcribed. The recordings and transcriptions will be kept online under separate password.

There are no ethical considerations for the Ecomom case; the materials gathered are secondary materials that have been produced for other reasons. The case became public knowledge after its founder’s suicide, freely allowing the case to be discussed publicly.

1.6. Justification

The theory behind the entrepreneurship recruitment perspective is in its nascent phase. The failure rate for start-ups is extremely high. By studying a failed start-up and determining why it failed, and then studying successful entrepreneurial start-ups, it is possible to expand the body of knowledge relating to the recruiting process used by successful early-stage start-ups as well as providing information on why start-ups may fail, particularly relating to human relations and human capital.

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Deeper insight into the reasoning of entrepreneurs in the hiring of early recruits, along with experiences of less-successful hiring actions, will help provide valuable information that may lead to an increase in successful entrepreneurships.

1.7. Chapter conclusions

The background of the study was established in Chapter one. Ethical considerations, as well as the justification for the research were provided. In Chapter two the literature that provides the support for the research is provided, and the theoretical framework for the study is developed.

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2. Literature review and theoretical perspectives

2.1. Introduction

A theoretical or conceptual framework helps the researcher determine what is ‘going on’ with the research and the subject matter that is being studied. The conceptual or theoretical framework is a combination of assumptions, beliefs, and expectations that the researcher has as he or she is designing the research (Maxwell, 2012). Maxwell related the importance of having a robust framework by describing the work of Heinrich and Heinrich (1984) relating to ant lions and the strategies they used to trap their food in a pit. When Heinrich and Heinrich completed their original study, they found that their results were completely different than results of similar studies. They began the process of auditing their results (see Chapter four of this research) to determine why their study was unexpectedly different. As Heinrich and Heinrich repeated their experiments in order to determine why their results were different, they discovered an error in their work (Maxwell, 2012).

The error that the Heinrichs made related to the time allotted for observations. They had used a shorter observation period than other researchers. The result was that the ants did not have time to show all of their behaviours during the allotted observation period. It was not that the ants had different behaviours for the Heinrichs, or that the data was wrong or that the experiment was designed in error. The problem was that the Heinrichs had made an incorrect assumption about how long they would need to observe the ants.

Heinrich and Heinrich (1984) concluded that “Even carefully collected results can be misleading if the underlying context of assumptions is wrong” (p. 151). Rhodes and Dawson (2012), Lincoln and Guba (1985) and Creswell (2014) all cautioned the researcher to be aware of their own perspectives and how these perspectives might impact the veracity of the research. In Chapter four of this dissertation, a great deal of information is devoted to methodology that would minimize the impact of personal perception of the researchers. A strong conceptual or theoretical framework will also help the process remain unaffected by those perceptions.

This chapter addresses the state of knowledge relating to entrepreneurship in the present. By understanding a wide background of information on the topic being investigated, the researcher gains a deeper understanding of what other individuals have observed on the topic, what the current best practices are (if any) and what the general theoretical underpinnings of the research are. Maxwell (2012) states that the theoretical perspective is a model of what is current research, what is going on in the field, and why it is going on. With this “tentative theory of the phenomena” (Maxwell, 2012, p. 39), the researcher will have a better understanding of the goals, the methods, and even the level of validity that should be accomplished. According to Maxwell (2012) having a broad theoretical basis also helps justify the research (and by inference, to get published). The framework is a general theory

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of how thing work, and it can be used to help determine where the problems are with the previous research. Maxwell (2012) stressed that developing a theoretical or conceptual frame is not the same thing as a literature review. Instead of merely reviewing the literature, the conceptual framework synthesizes the researcher’s knowledge gained through experience, existing research, any preliminary research the researcher has conducted, and the researcher’s thoughts on the literature. Even as the researcher seeks to eliminate bias, he or she should seek to incorporate their previous learning and experience, as well as the learning and experience of others. In this chapter, the researcher strives to develop the conceptual framework that will aid in analysis of the interviews and their contents. By incorporating all these factors, the goal is to determine in part if it is likely the rate of failure of entrepreneurships can be significantly lowered, and if so, how.

Slevin and Basford (1999, p. 298) provided a series of questions that can be utilized to develop the theoretical framework. These questions have been used, loosely, in that development.

1. What does the researcher personally know about the phenomena being studied? 2. What types of information are available?

3. What theory will guide the research and later guide practice? 4. Has the theory discussed been proven with empirical research? 5. What other theories are being suggested? And, finally,

6. How could the theories being developed herein be applied to active practice?

2.2. Defining the start-up

2.2.1. No one final definition

There is no one simple definition of start-up companies. KPMG, one of the world’s big four audit companies (Knapp, 2014, p. 419), has been working with start-up firms and the governments in Australia and India in order to help start-up firms acquire funding. KPMG has also launched the Digital Innovation Network that links early start-ups with KPMG’s clients to acquire funding and support (Baldwin, 2014) in a form of public-private partnership that is becoming increasingly recognized, worldwide (Stelling, 2014). KPMG defines start-ups by three factors: innovation, growth or planned growth, and an age of less than ten years (KPMG, 2015, p. 5). Hemrag (2015) even argues that KPMG is one of the “big two” firms (p. 117), which suggests that they are well experienced in financial matters and an authority in the area. Ferreira, Azevedo, and Cruz (2012) suggested they were independent, tended to be owner controlled with the incumbent errors in decision making, but innovative.

Crowne (2002) defined start-ups in terms of life cycle. A start-up, he asserted, has four phases. In the first phase, conceptualization, the company is planned and the plan is implemented. According to Crowne, it is during this point that the executive team is hired with the goal of being able to produce

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product. This phase continues until the company makes its first sale. In the second phase, the stabilization phase, the process has continued to the point that it is possible to sell products without interfering with the development of new products. The third phase is the growth phase, while the product or additional products and services are refined and the company grows in market share and size. Finally, in the fourth phase, the start-up has become a mature organization; the product development is regular, sales are predictable, and there is a clear process in place for developing new products (Crowne, 2002).

2.2.2. Start-up success

Understanding why start-ups fail provides data on why other start-ups succeed. Patel (2015) suggests that if nine out of ten start-ups are going to fail, it is critical to develop an understanding of why the one start-up out of ten succeeds. He lists four criteria of success: the product is right for the market, the entrepreneur is extremely detail oriented, the company grows very fast, and the team can recover after setbacks (Patel, 2015). Some of the successes cited by Patel are unexpected. Having a product that is ‘perfect’ for the market is a certain growth factor, but as other analysts have pointed out, a true entrepreneur such as Steve Jobs can show the public what they want, and stimulate interest in a product that was previously unknown (for example, the cell phone) (Griffith, 2014).

2.2.3. Start-up failures

However, for every company that catches on and grows rapidly (like Uber), there are others that simply fail and disappear. Other start-up companies, like the company Ecomom, disappear under terrible circumstances. Jody Sherman, Ecomom founder and CEO, died of a self-inflicted gunshot wound in 2013 (Morrill, 2013). Within two weeks, Ecomom entered Assignment for Benefit of Creditors and the company was no more. The company’s former controller, Phillip Prentiss, developed a case study of the company to be used in teaching business students and other entrepreneurs. Prentiss’s assessment was that Sherman was not good with numbers, and could not understand the financial end of keeping the company running (Prentiss, 2013). Instead of succeeding with the company’s extremely popular product line, the start-up failed. The reasons for the failure will be discussed later in this research, but it seems likely that with the correct team, Ecomom would have been a success and Sherman might still be alive today. Instead, Sherman made a number of hiring missteps and the company ended up a complete failure rather than what should have been a resounding success. The lessons to be learned from the Ecomom nascent start-up are too important to be ignored in any study of the importance of personnel in start-ups, particularly key personnel. The goal of the current research, then, is to expand the body of knowledge relating to building the proper staffing of an expanding start-up. The theory behind the entrepreneurship recruitment perspective is in its nascent phase, and a qualitative approach will be utilized to expand the body of knowledge relating to this critical business topic.

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2.3. Nascent entrepreneurship

The process of nascent entrepreneurship is one of emergence (Lundqvist, Middleton, & Nowell, 2015). It may also be considered a stage of learning. However, in the nascent phase of the company (and thus of recruitment) change is expected both by the new company and by the entrepreneur who helms that company (Lundqvist et al., 2015). It is not the new entrepreneur that creates value, nor is it the company and its products that create the value. Instead, it is the synergy of the entrepreneur and the new company that cause the creation of value and of establishment of brand in the emerging company. Morris, Kuratko, Schindehutte, and Spivack (2012) go so far as to state that the venture may be as responsible for creating the entrepreneur, as the entrepreneur is responsible for creating the venture. This concept might explain some of the issues that occurred with Ecomom; the venture had its own issues that appear to have been caused in some part by either incompetent or dishonest employees. While there seems to be little disagreement that the CEO was brilliant, the company itself failed in transparency. As the company sold product at a very high rate, there was a tendency by employees to ask fewer questions. The fewer questions that were asked, the less transparent the company became, until finally there was no possibility of reclaiming the company either financially or functionally.

2.3.1. Establishing entrepreneurial identity

Lundqvist et al. (2015) point out that if a nascent entrepreneur has not really established an entrepreneurial identity at the point a company becomes popular or well known, they become forced to act as if the identity had already been established. Thus, the role of the entrepreneur literally becomes a role; it has metamorphed from a real role describing a real act to essentially being a role taken on by an actor. The role of the entrepreneur becomes significantly more complex when one realizes that an entrepreneur may find him or herself playing a role in a company they created, but having no similar company that they can observe in order to learn exactly what role they should be playing (Lundqvist et al., 2015). This is a point worth noting; it suggests that nascent entrepreneurs may be largely operating on instinct, because they have no role models that they can observe. With a lack of solid research on the topic of nascent entrepreneurship and dynamic hiring in the start-up phase of an organization, new entrepreneurs may not know how to network or to find other entrepreneurs or leaders. This point highlights an intense flaw in the literature.

2.3.2. Motivation

Hechavarria, Renko, and Matthews (2012) believe that “Entrepreneurship involves human agency” and the process of entrepreneurship can only occur because the people involved in the endeavour are motivated to pursue – and exploit – the opportunities that they believe the that working for a start-up would offer them (p. 685). They pointed out that one gap in the literature is that little research has been done of the impact of human resources on specific steps in the entrepreneurship process, which is one of the areas that the current research endeavours to reform.

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Part of the issue, Hechavarria et al. (2012) suggested, is that motivation in entrepreneurship can vary greatly; it is a spectrum and not one set issue at any given point. Hechavarria et al. pointed out that an engineer might be very highly motivated to develop a new type of medical equipment, but be very lacking in motivation (or ability) to acquire the financing for a new venture. Whether the engineer lacks the desire or the knowhow to do the paperwork is somewhat irrelevant; he or she simply cannot do it. Hechavarria et al. suggest instead that individuals like this engineer may be considered hobbyists, while nascent entrepreneurs actually start new firms and continue to operate them. The point then is to distinguish people who will continue to pursue business opportunities, compared to those who quit (Hechavarria et al., 2012). The common denominator in nascent entrepreneurs, they suggest, is that goals of nascent entrepreneurs always involve actually starting a new company (Hechavarria et al., 2012). Thus, an entrepreneur who does not manage to file paperwork and get financing is not a nascent entrepreneur.

Hechavarria et al.’s (2012) work is based on Locke’s theories of motivation. They assert that if one can understand Locke’s motivational theories, then understanding the linkage of “goals, self-efficacy, and start-up outcomes” (p. 687) are linked in nascent entrepreneurship is possible. Locke’s work suggests that personal goals and self-efficacy form the motivation hub, which in term influences outcome or success of the endeavour. One of the most important parts of the process was planning and in particular, setting specific goals. The goals are integral to determining whether the entrepreneur’s work process will be to make money and sell out, or to continue to grow the company.

2.3.3. Self-efficacy

Self-efficacy “refers to the extent to which a person believes that he/she can organize and effectively execute actions to produce given attainments” (Hechavarria et al., 2012, p. 688, citing Bandura, 2001). It applies to the individual’s ability to put out effort, how long they will put the effort out, and how long the individual would persevere in the face of difficult problems. “Individuals with a strong sense of self-efficacy will put forth a high degree of effort in order to meet their commitments, and attribute failure to things which are in their control, rather than blaming external factors” (Hechavarria et al., 2012, p. 688, citing Bandura 1994; Zacharakis 1999). Hechavarria et al. (2012, p. 688) also point out that entrepreneurs without high self-efficacy may “consider challenging tasks as threats that are to be avoided” (citing Margolis & McCabe 2006). This concept becomes very important in the understanding of reasons of failure of Ecomom in the case study.

2.4. Human resource view in nascent entrepreneurship

Entrepreneurs with strong self-efficacy will put forth a great deal of effort for their new company, but they cannot do everything alone. Martin, McNally, and Kay (2013) proposed that when future entrepreneurs receive entrepreneurship education and training (EET), they are more likely to form effective human capital. Their quantitative literature review found that there was a significant

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relationship between EET, assets of human capital, and the outcomes of successful entrepreneurship. The researchers found that entrepreneurs had a strong academic background in EET interventions, they were more successful than entrepreneurs who had received EET interventions that were focused on training (Martin et al, 2013).

2.4.1. Human capital

Martin et al. (2013) suggest that there are two types of human capital in terms of entrepreneurship. There is a difference, they stress, between human capital as assets, and human capital as investments. Human capital investments are inputs that are utilized in developing human capital. Training and training time are investments. Human capital assets are the benefits or capabilities that are gained from utilizing the investments (Martin et al.). There is a great deal of inconsistency in terminology in the field of entrepreneurship, however; the researchers stress that when conducting research, care must be taken to ensure that the authors’ meanings are the same as the researchers’ or entrepreneurs’ meanings.

2.4.2. Cultural capital

Jayawarna, Jones, and Macpherson (2014) argue that the research on human capital to education-based human capital is equivocal at best. Instead, they suggest, future outcomes could be predicted from their “personal, family and work histories” rather than education or achievements (Jayawarna et al., 2014, p. 919). Other researchers suggest that the personality is established at an early age, and being born into the right environment is what makes an entrepreneur. Jayawarna et al. argue that:

…the concept of cultural capital highlights how supportive parents transfer positive values regarding education and hard work, to make learning an enjoyable experience for their children. In doing so, they influence their children’s own perception of the value of education evident in the positive development of their knowledge, skills and attitudes (human capital). (2014, p. 919).

If Jayawarna et al. (2014) are correct, then entrepreneurs become entrepreneurs because of the culture of their childhood, and the people that they hire would also come from a family that valued education, work-experience and a supportive family environment that emphasized not only opportunities, but parental expectations.

2.5. Hiring in nascent entrepreneurships

The previous sections reviewed theories as to what type of employees would be best for nascent start-ups, as well as human and cultural capital that impacts employees. This section considers the hiring of employees for the nascent entrepreneurship. Dahl and Klepper (2015) used long-term data from Denmark in a researcher-developed model that was used to predict hiring practices. The

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results show that the more productive the firm, the larger it tends to get and the more employees it hires. Dahl and Klepper found that from the very beginning, firms that ended up getting larger paid higher wages to needed hires. As a result the firms grow more rapidly over time. Their conclusion was that workers were hired based on their abilities, and these abilities enhanced the firm’s capabilities (Dahl & Klepper, 2015).

The overarching conclusion of the Dahl and Klepper (2015) research was that any difference that exists in nascent entrepreneurships at founding will amplify over time. The better the firm’s founder, the better workers get hired, and the better the workers, the larger the firm gets and the longer it survives. The researchers suggest that retention in nascent entrepreneurships should be researched as part of an overall plan to determine what variables impact the personnel practices of start-ups.

Cardon and Stevens (2004) reported that it can be quite different managing and acquiring personnel in start-ups and emerging companies than it is in small firms, even though the size of the organizations may be similar. The reality is that the ventures themselves are different and require different skill sets for success than one might need in a small but established company. The problem is, however, that the research:

…lack[s] much of the theory and data necessary to understand how small and emerging firms train their employees, manage their performance, promote or handle organizational change, or respond to potential labour relations and union organization issues (Cardon & Stevens, 2004, p. 295).

It is clear, however, according to Cardon and Stevens (2004) that issues relating to personnel and their acquisition in the nascent phase can impact the success of the organization for the years to follow. Paradoxically, it is more difficult to recruit employees in start-ups; the new companies generally have fewer resources. Combined with greater challenges, this is not a situation that many employees would wish to enter. Further, as the researchers pointed out, there are drawbacks to being a small company; there are also drawbacks to being a new company. Some of the factors intersect between being new and small; other factors are exclusive of either factor (Cardon & Stevens, 2004).

One hiring concern in a small organization must be that new employees can very easily impact a corporate culture. Thus, new employees must have the moral structure, values, and goals that the company supports. Conversely, having flexibility, a variety of skills, and an attitude that will support sustainability is critical to new hires of nascent start-ups (Cardon & Stevens, 2004).

Altman (2013) asserts that hiring good people is “probably the most important thing a founder does” (para.1). He states, point blank, that someone who hires poorly is not going to be successful, because it is impossible to build a growing company with only the owner. Further, he states, “It’s easy to delude yourself into thinking that you can manage a mediocre hire into doing good work” (Altman, 2013, para. 2). One point that founders miss, he suggests, is that good hiring takes time and the entrepreneur should learn how to do the job he is hiring someone to do, before he hires them. Altman

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(2013) also suggests hiring individuals with cultural values similar to that of the company, because the employees will make decisions in place of the entrepreneur when necessary. Thus, their perspectives need to be similar to that of the founder. In order to keep the company financially stable, he suggests, compensation should initially be less in monetary terms but higher in terms of equity (Altman, 2013).

2.6. Chapter conclusions

In this chapter, the theoretical framework of the study was established. The chapter addressed the state of knowledge relating to entrepreneurship in the present. The literature review showed that there is no one simple or well-established definition of a start-up company. KPMG, the auditing firm that has become an expert in linking start-ups with targeted auditing services, has developed a working definition of start-up that includes the use of innovation, growth or planned growth, and an age of less than ten years (KPMG, 2015, p. 5). Crowne (2002) further defined start-ups in terms of life cycle: conceptualization, which includes hiring; stabilization, growth, and maturity. Nine out of ten start-ups currently fail, when measured by specific criteria of success: the right product for the market, detail oriented management, fast growing and ability to recover (Patel, 2015).

Nascent entrepreneurship is an emergent phase. One of the problems that arises is because the entrepreneur does not really understand what he or she, as an entrepreneur, should be doing (Lundqvist et al., 2015). If the entrepreneur cannot establish his or her role and become familiar with it, and comfortable with it, they may be ‘stuck’ in a role that does not fit a successful entrepreneurship or the company they have established.

Finally, Altman (2013) suggest that hiring is an intense process that takes time. Entrepreneurs need to find people with values similar to that of the organization, and offer then equity in order to make up for a necessarily lower salary (Altman, 2013). In the next chapter, the hypotheses of the research are presented.

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3. Hypotheses and conceptual framework

Based on the theoretical framework a number of hypotheses were formed. The main hypothesis of the current research is:

H1: There are specific skills and/or character traits that successful entrepreneurs search for in early employees.

Conversely:

H2: There are specific skills and/or character traits that unsuccessful entrepreneurs have failed to search for in early employees.

In order to investigate these two central hypotheses, three secondary hypotheses were developed:

H1a: Specific benefits offered by early start-ups allow the start-ups to compete with larger companies in the hiring process.

H2a: Specific benefits are sought by employees, and if they are not offered, start-ups cannot compete with larger companies in the hiring process.

H1b: Successful entrepreneurs seek to fill specific key roles in their first recruiting efforts. H2b: Entrepreneurs who are not successful do not fill key roles early in the recruiting efforts. H1c: Particular skills, skill sets and/or character traits are valued by successful entrepreneurs in their early employees.

H2c: Unsuccessful entrepreneurs do not value particular skills, skill sets and/or character traits in their early employees.

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4. Methodology

4.1. Introduction

All research needs to be conducted in an organized fashion. Establishing a research framework provides a guide for conducting the research successfully. Saunders and Tosey (2012) state that each layer of research builds on the previous layers. In the sections that follow, the research framework is described and the orientation of the research is reviewed.

4.2. Research framework

The pragmatic philosophy is a practical approach to research. Pragmatism suggests that “no single viewpoint can ever give the entire picture and that there may be multiple realities” (Saunders & Tosey, 2012, p. 3). Pragmatic orientation regards information as a continuum or spectrum, with no clear beginning or end, and requiring interpretation (Saunders et al., 2014). The pragmatic approach is flexible and can be utilized with a variety of research approaches and methods. For this reason, the pragmatic philosophy was chosen to guide the research.

4.2.1. Elements of field research

Edmondson and McManus (2007) suggested that research should “relates the stage of prior theory to research questions, type of data collected and analysed, and theoretical contributions” (p. 1155). In the case of the current research, there is little prior theory in the specific topical area. Edmondson and McManus (2007) reported that there are four essential elements of field research. Each of the elements is discussed herein.

Research question. The research question should focus the study while narrowing the topic to a manageable size. It should address areas that have practical as well as theoretical implications. The research question should point towards a viable research endeavour (Edmondson & McManus, 2007). However, many of the sources consulted for the current research suggest that qualitative research is more properly applied in answering questions relating to what occurred, and why, and in the forming of theory to be explored in future research.

Prior works. The state of the literature was considered (Edmondson & McManus, 2007), as well as the limited amount of theoretical or empirical research that has been conducted on this topic up to the present. In the current work, the literature and prior works, including the Ecomom case, served as “An aid in identifying unanswered questions, unexplored areas, relevant constructs, and areas of low agreement” (Edmondson & McManus, 2007, p.1156).

Research design. Edmondson and McManus (2007) recommended that the research consider the type of data that should be collected, the tools needed to collect it, and the type of analysis. The final step of the design would be to find a way to collect the data.

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Contribution to literature. Theory developed during the study or as study outcome should contribute to the literature (Edmondson and McManus, 2007). New ideas should be considered, but existing research should be integrated. Understanding of the phenomenon being studied should be refined. Finally, the conclusions should contain practical insights developed by the researcher (Edmondson and McManus, 2007).

4.3. Research design

The research design contains elements suggested by Edmondson and McManus (2007) .It also includes a structure suggested by additional research theorists. The design of the research is integral to the success of the final project.

4.3.1. Methodological choice

For the current research, the methodological choice made was to conduct a mixed method qualitative methodology. Ihuah and Eaton (2013, p. 938) described qualitative methodology as “an investigation process of a sympathetic study into a social or a human problem, focused on edifying a diverse, holistic depiction, fashioned with words, reporting comprehensive views of informants, and conducted in a normal setting.” The field research (McManus, 2007) will blend well with the secondary qualitative research in the analysis of the case study, and will help ensure “internal consistency among elements of a research project” (p. 1155).

4.3.2. Research strategies

Research strategies define the type of research that will be accomplished. Each strategy is typically associated with a particular type of methodological choice. Grounded theory, narrative inquiry, ethnography, action research and case studies are generally qualitative in nature.

Narrative inquiry was selected for the strategy to be used in this research. According to Howie (2010), narrative inquiry can best be described as the way that participants make sense of their lived experiences, over the course of time. Creswell (2014) suggests that narrative inquiry can be used as research, but also as a way to provide the results. In narrative inquiry, the data that has been collected (in this case, via interviews) is arranged in temporal order in order to determine the chronology of how the events actually occurred. The themes are identified, both of individual respondents and of the respondents as a group. Any subthemes are defined. Multiple perspectives are defined and presented (if they occur). Pertinent or meaningful quotes are identified. Interconnecting themes between different respondents are recognized. The resulting information can be organized textually, presented in tables, or presented in some other graphic manner (Creswell, 2014). Clandinin and Connelley (2000) also suggest that narratives should be sent to the respondents or subjects so that they can check to ensure that the researcher has truly represented their experiences. One benefit of this strategy is that it is easy to use the themes identified in the narratives to develop research questions that should be addressed in any further research, or to make recommendations for future research.

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Selecting the specific techniques and procedures to be utilized in the study was the final step of establishing the research design. The literature review formed the first setting for the research. The case study of Ecomom, presented in this chapter, forms the second setting, the semi-structured interview process was selected for third setting, and the analysis procedure chosen is an adaptation of the narrative inquiry process.

4.4. The instrument

The field research portion of the third setting for the company was conducted in the form of fairly open-ended interview questions. The initial questions are presented below, but the semi-structured interview is partially respondent-led. Thus, while the researcher steered the questions in an effort to elicit particular information, not all of the respondents provided the same types of responses. The initial guiding questions were the same ones that guided the fieldwork:

 Which skills or character traits do successful entrepreneurs search for in early employees?

 Which benefits do early start-ups offer to early recruits to compete with large companies?

 Which key roles do successful entrepreneurs try to fill with their first recruiting efforts?

 Which skills or character traits do successful entrepreneurs value? The initial interview questions are also presented in the Appendix A.

4.5. Method of analysis

Narrative inquiry generates data that comes from the stories presented by those involved in the research (Howie, 2010). Howie (2010) also suggested that narrative inquiry was able to preserve complex presentations of information, particularly within the confines of the temporal experience lived by the respondents. Narrative inquiry is not about what actually happened, but the meaning the individuals involved made of the experiences (Howie, 2010). For the current research, this appeared to be an ideal application as it would allow the researcher to determine what the entrepreneurs believe happened in their start-ups, why they believe it happened, and what they believed to be the significance of factors related to the hiring of adequate personnel in successful start-ups. “Frank (Frank, 2000) points out that people tell stories, but narratives come from the analysis of stories” (in Riley & Hawe, 2005, p. 227). In that regard, then, there is a difference between the story, which is what the respondent presents, and the narrative, which is what the researcher extracts during analysis (Riley & Hawe, 2005).

4.5.1. Role of narrative inquiry

When narrative inquiry is utilized, it becomes the researcher’s role to be able to interpret the story that the respondent is presenting. The themes underlying the obvious statements are presented.

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There may be broader roles that the people the respondent talks about actually played. Riley and Hawe (2005) use the narrative study of unemployed people as an example. In the narrative study, two different narratives evolved. One narrative gave prominence to the individual’s role in remaining autonomous and taking control of the situation, essentially putting them in a hero role. The other narrative gave prominence to the individual’s role as a victim of sources beyond their control (Riley & Hawe, 2005). The two types of narratives, when considered, help the reader understand not only why people become unemployed, but the types of actions that these individuals take when unemployed, and how their perspectives can affect the actions that they take.

One of the goals of the current research was to help the reader understand the factors that successful entrepreneurs believe impact successful hiring practices, as well as the factors that the entrepreneurs believe impact the success of those hired. It is expected that other factors relating to entrepreneur success in hiring will be addressed, including the skills or character traits that successful entrepreneurs perceive early employees need, the benefits that early start-ups offer these employees, how entrepreneurs compete with larger and well-established companies, the key roles in start-ups that the entrepreneurs try to ensure are filled, and the character traits and skills that the entrepreneurs value in others.

Gergen and Gergen (1984) pointed out that when the individual being interviewed speaks of other people (in the current research, this would be the individuals that have been hired), these individuals do not have a primary role. Instead, they fulfil a role as supporting cast members. There is a reason the interviewee puts them in the story, but they are not the reason for the story. Instead, they support the interviewees’ perceptions of what occurred and why. The information itself is a synthesis of what the teller (the interviewee) says, what the listener (the researcher) hears, and the context or history of the story (Riley & Hawe, 2005).

It is only through “careful examination of the data, why and how the story is being told, who the supporting cast are and the nature of the storytelling occasion, [that] one can determine the narrative’s plot or what the story is about” (Riley & Hawe, 2005, p. 230). The general plot of the story the interviewee tells provides the organizing theme, and the point of the story considers not only the theme but the form of the narrative provided by individual being interviewed. There are a number of extensive steps required for narrative inquiry. The steps are summarized here for the reader’s convenience.

4.5.2. Steps in narrative inquiry

Riley and Hawe (2005). Riley and Hawe (2005) suggested the following steps to be used in narrative analysis:

1. Examine the sentences and paragraphs of the interview transcripts.

2. Focus on the choice of words and phrases used by the storytellers (interviewees) and how they are used to describe the situations and what happened.

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3. Ask why some stories seem to start in one context, but finish in another, because the context is important.

4. Explore how the meaning of what the interviewee say interacts with the culture of the institution the interviewee comes from. An entrepreneur will have a different perception and position in the business culture, for example, than would someone hired as an office manager. 5. Identify the point of the story (Riley & Hawe, 2005).

Rhodes and Dawson (2012). Paul Rhodes, a professor at the University of Sydney and a member of Sydney’s Narrative Inquiry Research Group, described the narrative inquiry procedure in more detail. The Rhodes and Dawson (2012) steps better define the process but were quite involved. The process was truncated for the current research. The following steps, based on Rhodes and Dawson’s (2012) steps were used in the analysis:

1. Sampling should be purposive and non-probability.

2. An interview schedule, questions, and guidelines were developed, and the researcher’s notebook, journal, or dairy established.

3. The interviews, once complete, were transcribed and clearly unrelated comments were removed from the transcript.

4. The researcher read through the interview with the research questions in mind. 5. The story the interviewee was telling was created.

6. The essential story that the interviewees told was re-read.

7. Every sentence was evaluated by asking what the sentence was about. 8. The process was repeated for each interview.

9. A final analysis was be made of the research to the comments and feelings expressed by the interviewees.

4.6. Validation, credibility, transferability, dependability, and confirmability of

results

Qualitative research cannot be numerically verified. Other methods are necessary to validate the results. Creswell (2014) suggested a number of possible methods of verifying results of qualitative research. While Creswell recommended using a minimum of two of the following techniques during the research, most of these techniques will be used in one extent or another during the research.

The verifications include prolonged engagement in the field, triangulation, peer review or debriefing, clarification, negative case analysis, member checking, external audits, and using thick, rich descriptions. Lincoln and Guba (1985) include these techniques as well as providing an adequate audit trail (to establish confirmability), an inquiry audit for dependability, adequate referencing (for credibility), and reflexivity (for confirmability).

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Prolonged engagement. Creswell (2014) suggested that by gaining the interviewees’ trust, taking the time to learn their culture, the researcher takes the first steps to validation. Checking for misinformation and misunderstanding reduces distortion from researcher interpretation. Finally, it is the researcher’s exposure to the respondents that allows him or her to make decisions about what is relevant to the study. Prolonged engagement was part of the study as the researcher immersed himself in the culture of the start-up entrepreneurs that were interviewed.

Triangulation. Utilizing different resources and a variety of resources to corroborate what the interviewees reveal is one way to ensure triangulation (Creswell, 2014). The methods utilized were checked for accuracy and the transcripts were reviewed by a second party to ensure that nothing pertinent has been inadvertently omitted. The interviews and analysis were triangulated with the literature to ensure validity and corroboration.

Peer review or debriefing. Utilizing different resources and a variety of resources to corroborate what the researcher has concluded. In the current study, and independent researcher was asked to review the interviewer’s narrative analysis and to confirm the likely interpretation.

Clarification. In clarification, Creswell (2014) reports that the researcher provides notes on his or her conclusions, any biases, any special interests, or any orientations that may affect the results. These observations are included in the dissertation. Clarification was included in ‘Limitations’ in the final dissertation.

Negative case analysis. In negative case analysis, the researcher considers whether or not the information gathered still seems correct when any negative case information is considered (Creswell, 2014). In order to remain as neutral as possible, negative information will be included in the current research. Ecomom served as the negative case for analysis.

Member checking. The most important facet of member checking is to have the interviewee review the materials they provided for accuracy. Using Rhodes and Dawson’s (2012) method of narrative analysis, step 6 fulfilled the member checking requirement.

External audits. In an external audit, an individual who is not involved in the study will examine the process of the research and the product to ensure the findings, interpretations, and conclusions are logical (Creswell, 2014). An independent researcher of the researcher’s acquaintance conducted this audit.

Thick, rich descriptions. The use of thick, rich descriptions makes it easier for the results to be assessed for applicability and transferability (Creswell, 2014). To the extent possible this technique was utilized in the research.

4.7. Keywords from interviews

The analysis of the interviews yielded the following information in summary. The interviewees are identified as follows:

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 Interview 1 - Chief Executive Officer (CEO) of a successful start-up in IT industry

 Interview 2 - Chief Financial Officer (CFO) of a successful start-up in event management

 Interview 3 – Chief Operating Officer (COO) of an unsuccessful start-up in fashion industry

 Interview 4 - Chief Executive Officer (CEO) of a successful start-up in gaming industry

4.7.1. The guiding research question

The primary research question asked Which skills or character traits do successful

entrepreneurs search for in early employees? The identified keywords from the guiding question are

provided below; the numbers of the applicable interview(s) follow the keyword:

 flexible 1, 2

 technically competent 3, 4

 economics 1

 talented employees1

 follow directions 4

4.7.2. Benefits offered by start-ups

The question asked was Which benefits do early start-ups offer to early recruits to compete

with large companies? The identified keywords from the first sub-question are provided below; the

number of the applicable interview(s) follow the keyword:

 Stock options or ownership 2, 4

 Potential to grow with company 2, 4

 Independence 1, 4  Flexibility 1  More control 1  Salaries 3  Consistency 3  Vacation 4  Insurance 4  Time off 4

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The next question asked of the interviewees was Which key roles do successful entrepreneurs

try to fill with their first recruiting efforts? The responses in this category do not, at first observation,

match the question that was asked. However, all of the interviewees were consistent in responding that they were looking for functions in multiple roles, rather than a role. The identified keywords from the second sub-question are provided below; the numbers of the applicable interview(s) follow the keyword:

 Talented 1, 2

 Multitasking 1

 Flexible 3

 Experienced 3

 Good technical skills 4

4.7.4. Valued skills and character traits

The final question asked of the interviewees was Which skills or character traits do successful

entrepreneurs value? The identified keywords from the second sub-question are provided below; the

number of the applicable interview(s) follow the keyword:

 Flexible 1, 3, 4

 Self-starters 1, 2

 Wide variety of skills 1, 3

 Likely to be the competition 1

 Enthusiastic 1

 Forward-looking 2

 Responsible 3

 Professional 3

 Willing to follow directions 4

 Technical skills 4

4.8. Chapter conclusions

An overview of how the research was collected was established in this chapter and the basis of the case study was presented. The methodology for the research, the data collection, and analysis was established. The extracted keywords from the interviews were provided. In Chapter 5, the results of the study are presented.

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5. Results

5.1. Introduction

Chapter five presents the results of the study. The results of the Ecomom case study are provided first, followed by the results of the interviews. The results are discussed in Chapter 6.

5.2. A look at Ecomom

5.2.1. Detail case history

In just four years, the Ecomom start-up had revenue of over $1 million. The company controller, Philip Prentiss, was hired as soon as he became a Certified Public Accountancy (CPA). The company’s six senior members interviewed Prentiss for the job (Prentiss, 2013) and eventually offered him the job with a base salary of $105,000 and stock options for $100,000. Up until this point the company had not had a financial department nor a controller; finances were run through their bank account and the taxes and payroll were done by a bookkeeper. When the number of invoice a month exceeded 100, the system stopped working and the company hired Prentiss (Prentiss, 2013).

Prentiss (2013) insisted that everyone was honest, there was no waste and there were no questionable invoices. Further, web designs, computer consultants, costs for a number of field offices, and outsourced payroll expenses were phenomenal. The third party shipper would ship any volume, at any time, at the highest service levels (for the highest price). Every customer’s order received a 50 percent discount on every order. The contribution margin, or the total earnings that can be used to pay expenses and generate profit, was -48 percent (Prentiss, 2013). The company would have to go into bankruptcy according to their cash flows, but the CEO refused to discuss any of the finances, insisting instead that he simply wanted to know how much they would have to sell to make a profit (Prentiss, 2013).

5.2.2. Prentiss’s interpretation of Ecomom issues

The vice president of sales received his bonus on sales before discounts or costs, meaning that if the products sold (and they did) he received his bonus even though the company was selling at a loss. Prentiss was not even allowed to see financial statements (although he was sent copies at the end of the month). He was not allowed to sign checks. He did not even know if the company had a covenant with the bank for a certain amount of credit. Prentiss (2013) resigned; three days before he was due to leave, the CEO committed suicide. Two weeks later the company dissolved financially. The findings are presented in the next chapter.

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5.2.3. Morrill’s alternative interpretation of Ecomom

Morrill (2013) states that the entire management team needed to be held responsible for Ecomom’s failure, not just the CEO. The Vice President of Marketing, Leslie Langford, had run the marketing program with such an aggressive discount that the products sold like crazy, but without a profit. The Vice President of Sales, Alex Sayyah, received a personal profit on the sales that essentially drove the company bankrupt. The controller, Prentiss, asserted that the CEO was not a numbers man, but other people had reported that the CEO had a precise mastery of what was going on. At some point, someone had to be either corrupt or blatantly incompetent.

5.3. The analysis of the interviews

The analysis of the interviews yielded the following information in summary. The interviewees are identified as follows:

 Interview 1 - Chief Executive Officer (CEO) of a successful start-up in IT industry

 Interview 2 - Chief Financial Officer (CFO) of a successful start-up in event management

 Interview 3 – Chief Operating Officer (COO) of an unsuccessful start-up in fashion industry

 Interview 4 - Chief Executive Officer (CEO) of a successful start-up in gaming industry

5.3.1. The guiding research question

The primary research question asked Which skills or character traits do successful

entrepreneurs search for in early employees? The first interviewee offered this advice: entrepreneurs

should look at the economics carefully and still find ways to entice talented employees (Interview 1). The CFO in the second interview pointed out that when she was first starting out, even though she was hired to be the CFO, she was treated as just the “financial manager”. In reality, however, she helped with everything, including designing the company logo. Searching for someone who will take on a variety of tasks without regard to title is critical (Interview 2).

The COO in the third interview was intended to be part of the management team of the COO, CFO and CEO. She reports it has not worked out like this. Instead, she suggests, the CEO’s completely hands-off approach to management, combined with her tendency to hire friends and family without regard to skills because “Best of all they work cheap” has led the company into ruin (Interview 3).

Interview 4 was with the CEO of a start-up that has been successful thus far and seems likely to remain so. Despite being a gaming company, which might be considered a liberal working environment, the four individuals that started the company devoted a great deal of “work, time and

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building the core team” in order to make the organization a success. The owners sought to find employees who knew their job well enough that if they were told to “understand, pinpoint, and correct” they would be able to do so without drama (Interview 4).

5.3.2. Benefits offered by start-ups

The question asked was Which benefits do early start-ups offer to early recruits to compete

with large companies? The Interview 1 offered the idea that employees in a start-up liked the

independence and flexibility. He cited flexible hours as a benefit, because “they like to be able to set their own schedule”. He pointed out that they like the ability to be in charge of their own life. He stated that when independence and flexibility is offered, employees will be “better satisfied with the other less attractive conditions or working with a start-up” if they can access more control of their work life (Interview 1).

“Stock options leading to a percentage of ownership within the company” was the benefit recommended by Interview 2. The reason, she suggested, is that “the potential to grow and the incentive to the employee are a great deal clincher.” Helping the initial employees fully understand that they are working for themselves as much as for the company is a benefit; maintaining that enthusiasm as long as possible is key to keeping the employee fully invested (Interview 2).

The COO in Interview 3 was not as clear about what benefits should be offered by a successful start-up. She points out that the salaries promised by the start-up that employs her were very nice salaries indeed. The problem was that employees did not receive them on time or in full, and there was always some type of reason.

The gaming company partially owned by the Interview 4 CEO, like the company in Interview 2, offered “ownership.” The gaming company offered the ability to be “in on the ground floor of a good crew”, combined with stock options and ownership investment after the first 90 days. According to Interview 4, the 90 day requirement weeded out employees who were only in it for the ownership percentages and who did not really wish to work. The CEO commented that “People work harder when they are working for themselves in some way beyond just a pay check and vacation days.” Interview 4 also stressed that offering benefits of vacation, health insurance and sick leave was important, as well as offering access to the owners, at least in this stage.

5.3.3. Key roles

The next question asked of the interviewees was Which key roles do successful entrepreneurs

try to fill with their first recruiting efforts? The results differed from starting expectations. Instead of

hiring for roles, all of the interviewees suggested they hired for qualities. The first interviewee suggested that the role was a varied one; the search should be for “intelligent multitasking people” rather than seeking to fill a single specific role. The reason, he stressed, was that the more that an

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“employee is integrated into all the systems the more invested they are in the success of the company and the harder they will work to support the company.”

Interview 2 also advocated hiring talented people for general purpose, rather than seeking to fulfil a particular role. She stated that “Larger companies tend to put their people in departments and that is where they dig in. Start-ups don’t have the luxury to waste the talents of their people that way.” As people learn and grow in their professionalism, she believes, they will grow and expand the internal talent base, and it will be done without every adding to the payroll.

The COO in Interview 3 stressed the need for hiring employees who were flexible, experienced, and who could do more than one job. In the start-up phases, she had learned, having employees that could do one job and one job only meant financial ruin.

The gaming company needed to have employees that could code and that understood “game speak.” According to Interview 4, a good coder who came from a financial background but could not game would be of no use to a gaming start-up. In the case of this company, the skills and roles are integrated.

5.3.4. Valued skills and character traits

The final question asked of the interviewees was Which skills or character traits do successful

entrepreneurs value? Consider who might eventually work for your competition, Interview 1

suggested he felt that “people who you may actually be looking at as competition down the road” are the ones that should be hired in the nascent phase of the start-up. Employees who were “self-starters” who had experience in “more than one useful discipline” would be prime candidates. More importantly, people who are enthusiastic about learning the ropes and as excited “as you are about making your start-up work” are the people that should be hired.

Interview 2 also suggested hiring self-starters. More importantly, she believes, is hiring employees who have a view of their future 3-5 years in the distance. She emphasized that the first employees hired need to be willing to stick around for the foreseeable future. The first positions hired “are going to be critical positions and you need to come to understand each other on longevity concepts.”

Workers who could be flexible but still accomplish their primary responsibilities was crucial, according to Interview 3. If flex time was offered as a benefit, then it was paramount to remember that “The job still has to be done on time, correctly, and with reliability.” Failed deposits, unpaid salaries and unhappy employees led to start-up failure (Interview 3). Professionalism is a requirement and lack of it has led the company that employed her into utter disorganization and financial ruin.

Interview 4 stressed that employees needed to be flexible and able to follow directions but more importantly for this particular start-up, the employees needed to be gamers well as coders. Otherwise, they would not be able to understand what the company hoped to accomplish.

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5.4. Chapter conclusions

The results of the research showed that all of the entrepreneurs had fairly consistent responses as to what they searched for in employees, and what traits were desirable in employees. The two failed enterprises studied, Ecomom and Interview 3, also had consistent responses. In Chapter 6 the significance of the results is discussed and recommendations are made for application of the findings as well as future research.

Recruiting in start-ups : entrepreneurial approach to recruiting and incentivizing early employees