Why do some startups, and not others, apply formal practices in their employee recruitment?

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Why do some startups, and not others, apply

formal practices in their employee

recruitment?

Master’s Thesis

Márton János Varga, 11807547

MSc Entrepreneurship

University of Amsterdam & Vrije Universiteit Amsterdam

Supervisor: Dr. Y. Engel

August 16, 2018

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Statement of Originality

This document was written by Márton János Varga who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Acknowledgments

Today is the day: writing this note of thanks puts the final touch on my thesis. This period has granted me excellent opportunities for development, on both professional and personal levels. Therefore, I would first like to express my sincere thanks to my thesis supervisor, Dr. Yuval Engel who showed exceptional patience and provided me with insightful feedback, support and guidance during the writing process. I would also like to express my very profound gratitude to my parents, grandmother, and my partner for providing me with unfailing support and continuous encouragement throughout this year. This accomplishment would not have been possible without you!

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Abstract

Prior research suggests that formal HRM practices, of which recruitment forms a part, positively influence the performance of small businesses. Nonetheless, still little is known about the mechanisms underlying recruitment-related decisions. Drawing upon a multiple case study of 15 western European startups, this thesis explores what factors are critical in determining the level of formality in employee recruitment. The study seeks to answer the following research question: “Why do some startups, and not others, apply formal practices in their employee recruitment?” To gain a deeper understanding of this subject, an inductive study was conducted. The findings suggest that entrepreneurs can be influenced by eight different factors when considering the level of formal recruitment. A cross-case analysis enabled the identification of three different clusters of formality within the sample: low, medium, and high. In addition, the study provides new insights into the underlying mechanisms of employee recruitment by identifying both internal and external factors that prove to be critical in determining the degree of formality in employee recruitment.

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INTRODUCTION

"Great vision without great people is irrelevant." - Jim Collins

"Trying to understand the entrepreneurial process without considering entrepreneurs is like trying to bake bread without yeast—an essential ingredient that makes the entire process

happen is missing." (Baron, 2004, p.2)

Background

Human resources are widely considered to be key assets for entrepreneurial firms' growth and survival (Aldrich & Langton, 1997). Therefore, effective recruitment is of vital importance with regards to the performance of small enterprises (SMEs) (Williamson, Cable & Aldrich, 2002). However, attracting and recruiting highly-qualified employees were found to be one of the most difficult challenges for startups and other SMEs to overcome (e.g., Hornsby & Kuratko, 2003; Williamson et al. 2002; Aldrich & Glinov, 1992).

In light of the emergence of knowledge economies, it comes as no surprise that human resources will continue to play a significant role in gaining an enduring competitive advantage (Barney, 1991; De Kok, Uhlaner & Thurik, 2002). In line with this trend, the significance of entrepreneurship and innovation as drivers of economic development (Fagerberg, Mowery & Nelson, 2005) is undergoing rapid growth, which also manifests in the growing number of startups whose contribution to world economy is becoming increasingly important (Ács, 2006); this thus represents an important context for analysis. Since the global economic recession, employers have encountered a growing shortage of qualified workforce, along with increasing costs (Patel, 2014 as cited in Araten-Bergman, 2016), a trend that is likely to remain a central issue to be addressed in the 21st century (Beechler & Woodward, 2009). What is more, small businesses also have to compete with their larger counterparts in finding and retaining the best candidates (Nguyen & Bryant, 2004). Application of formal human resource (HR) practices, of which recruitment forms a part, was found to positively affect SME performance (Lai, Saridakis & Johnstone, 2017); nonetheless, the vast majority of startups tend to rely on informal practices. Consequently, the aim of this research is to explore factors affecting the decision of startups with regards to the degree of formality in their employee recruitment.

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Research gap

While a burgeoning body of literature examines human resource management (HRM), the HR-related practices of small firms still represent a neglected and understudied field (Hornsby & Kuratko, 2003). Even though recruitment is a two-sided activity, previous work has mostly focused on jobseekers, while little is known about how employers manage recruitment (Behrenz, 2001). Following the aforementioned role of HRM, poor recruitment decisions can affect organizational performance negatively (Lodato, 2008). Therefore, given the increasing weight of startups in economic development, it is becoming necessary to advance both theoretical and practical knowledge that is applicable within their context.

Even if small firms significantly contribute to job creation and economic development, existing research into human resources has been limited to those large firms that have full-time HR specialists (Carrol, Marchington, Earnshaw & Taylor, 1999). Nonetheless, as SMEs rarely possess sufficient financial resources to employ full-time HR specialists - moreover, they cannot be regarded as the "miniature versions" of large firms - the recommendations given by these studies are mostly applicable to bigger organizations (Westhead & Storey, 1996). Not surprisingly, in comparison with large companies, entrepreneurial firms face distinctive challenges in obtaining human resources (Leung, 2003). These differences can be explained by limited resources (Strobel, & Welpe, 2011), higher risks (Moser, Tumasjan & Welpe, 2015) and a lack of organizational legitimacy (Williamson et al., 2002). Furthermore, when narrowing down the scope of the research to startups, it becomes apparent that this category also has not been dealt with in an in-depth fashion in academic research. In addition, little is known about why certain entrepreneurs apply either formal or informal practices, as literature tends to focus on the outcomes of these approaches rather than the factors that drove entrepreneurs to opt for them. Likewise, few researchers have addressed how individual characteristics of entrepreneurs can contribute to the formulation of formal HR practices (Engel, Knappert & Biron, 2018).

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A considerable amount of research suggests that instead of placing an emphasis on intuitions, managers are advised to rely on the collection and analysis of data as it has been proved to yield better decisions logically leading to favorable outcomes (Davenport, 2006; Bazerman & Chugh, 2006; Khatri & Ng, 2000).

Nonetheless, it is no surprise that most small firms, and especially startups, tend to resort to informal practices with regards to HRM and recruitment by applying reactive solutions that display a short-term approach (De Kok et al., 2002). However, there is also a group of startups that tend to utilize formal practices in their employee recruitment and thus create an opportunity for an in-depth analysis of this topic. Evidently, the formal approach adopted in recruitment can be regarded as a continuum, with companies being dependent on the use of informal practices (personal contacts, direct applications, word-of-mouth techniques, etc.) and being reliant on formal procedures (job advertisements, employment agencies, structured interviews, tests for assessments, etc.). Hence, this thesis sets out to explore what motivates startups to decide on the degree of formality in relation to their employee recruitment, by seeking to answer the following research question:

Why do some startups, and not others, apply formal practices in their employee recruitment? Stemming from the nature of the purpose of this study, this research utilizes a qualitative and inductive method relying on case study design, and thus makes use of primary data sources (interviews) and secondary data (company websites, LinkedIn profiles). In total, 15 semi-structured interviews were conducted with startup CEOs and founders located in western Europe so as to gain a deeper understanding into what drives these startups to define the degree of formality in their employee recruitment. Respondents, beyond other criteria, thus had to meet the criterion of having a significant influence on the HR-related decisions of their company. For this reason, the researcher focused on sourcing interviewees who were owner- managers at their companies, as both decision-making and HR-related tasks are usually part of their responsibilities (Kotey & Sheridan, 2001). Accordingly, as demonstrated by Hitt el al. (1996), decision-making within SMEs is largely dependent on the preferences and interests of owner managers.

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Outline of thesis

The rest of the paper is organized as follows. The second section provides a literature review that was prepared in an iterative process, and consists of two parts. The first part includes a general overview of recruitment literature including the definition of key terms, while the second one demonstrates the theories that are rooted in the analysis of the interviews. The third section describes the adopted research design, research context, and data collection tools. The fourth section offers an in-depth analysis of the collected data and articulates its findings, based on which a conceptual model is proposed to describe the context in which startup entrepreneurs make recruitment-related decisions. Based on the findings and the conceptual model, propositions are shared, to be taken into account in future research, along with theoretical contributions. Finally, a brief conclusion is presented as a summary of the research. The study closes with references and appendices, that serve to provide the background of analysis by presenting the interview protocol (see Appendix I.) and the codebook (see Appendix II.). The data structure was prepared based on these aforementioned documents and can be seen in Figure I and Figure II.

THEORETICAL OVERVIEW

This is an inductive study with the aim of exploring what factors affect startups to determine the level of formality in their employee recruitment. To facilitate the interpretation of the findings of the analysis, a model was developed, utilizing an iterative process between data and pertinent literature. Thereby, an overview of the literature addressing the topics of “definition of a startup”, “recruitment in startups”, “perceived dissimilarity”, “regulatory focus theory” is provided, that was consulted either before or during the course of the research, which later informed the emerging findings of the study (Pratt, 2008).

Definition of a startup

In spite of its extensive use, there appears to be no universally accepted definition of “startups”. As a result, for the purpose of this discussion, this paper will make use of the following definition: “A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty” (Ries, 2011). Derived from this definition,

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clarification, the researcher regards the terms “entrepreneurial firm”, “high-growth firms” as synonyms for “startup”. This is important as the term “startup” has only started to be used extensively in academic literature since the noughties (Spender, Corvello, Grimaldi & Rippa, 2017) albeit there was already relevant research concerning the aforementioned groups of companies and/or other SMEs prior to that, the results of which are applicable to startup companies as well.

Recruitment in startups

The process of recruiting, motivating and keeping employees is regarded as a great challenge for small enterprises (Hornsby & Kuratko, 1990). How HRM is implemented depends on factors such as strategy (e.g., Phillips & Gully, 2015; Youndt, Snell, Dean & Lepak, 1996), sector (e.g., Bacon & Hoque, 2005), and firm size (e.g., Marlow, 2006). Research suggests that HRM in SMEs is generally rudimentary (Bacon & Hoque, 2005) and that SMEs are less likely than larger organizations to adopt formal practices for recruitment (Aldrich and Langton, 1997; Carroll et al., 1999 as cited in Bacon & Hoque, 2005).

As was stated in the introduction, the first HRM-related task startups face is recruitment, thus there is a need for a proper definition of the term. Building on Barber’s (1998) theory, recruitment is defined as “those practices and activities carried out by the organization with the primary purpose of identifying and attracting potential employees” (Barber, 1998.,p.5). This definition calls special attention to the difference between two HR functions, namely recruitment and selection that are generally regarded as inseparable (Orlitzky, 2007). As Orlitzky explains “selection is the HR function that pares down the number of applicants, recruitment consists of those HR practices and processes that make this paring down possible—by building the pool of firm-specific candidates from whom new employees will be selected” (Orlitzky, 2007.,p.3). Thus, theoretically recruitment is supposed to come to an end once the applications have been collected, however, in practice, these two functions tend to be managed jointly which makes it difficult to identify a clear distinction between them. This interpretation of recruitment is supported by Windolf and Wood’s study (as cited by Boxman & Flap, 2017) in which it was found that the methods usually overlap between the two phases, meaning that informal recruitment often precedes informal selection.

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Since recruitment is regarded as a part of HRM and no distinct definition exists for formal recruitment, this paper will take Konrad and Linnehan’s (1995) description of HR formality and treat recruitment as a subdivision of it. According to Konrad and Linnehan (1995), HR formality entails formal rules, positions, programs and procedures exerting influence on HR- related decisions within a company. For this reason, the researcher prepared a table displaying the characteristics of formal recruitment, that is best understood when contrasted with informal practices. The table was inspired by Nguyen and Bryant (2004), Granovetter (1995), Ullman (as cited in Breaugh and Starke, 2000) and by the researcher’s own insights derived from the conducted interviews.

Practices Informal Adoption Formal Adoption

Who handles the HR function?

No specialist. The owner(s) or one employee handles it all along with other functions

Firm has HR specialist(s) or department to handle this function

Hiring No written criteria or rules. Firm recruits on a case-by-case basis

Firm has written policies or rules for recruitment

Source of new employees

Candidates come on their own, or firm relies mostly on a personal network (family and friend), direct applications, employee referrals

Firms attract most new employees through professional organizations universities, vocational schools, employment agencies, job boards, job advertisements

Application tracking

No use of application tracking Firm has a structured way of applicant tracking, e.g. uses application tracking software

HR plan No written plan. Only intuitive plans

Has written HR plan(s)

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Formal recruitment

Formal practices in recruitment relate to the use of job postings via intermediary services, such as employment agencies and job advertisements (Granovetter, 1995). With regards to the assessment of applications, formal practices entail testing and structured interviews. In general, formal recruiting is beneficial to companies that intend to access professionals in different locations and for companies that lack a complete social network (Granovetter, 1995). This is relevant especially for companies that enter a new market, launch a new activity, or look to fill in entry-level positions (Granovetter, 1995). It goes without saying that the latter is applicable in the context of startups.

A large body of literature has addressed the implications of formal practices within the HRM domain. As Windolf (as cited by Boxman and Flap, 2017), Hamilton, Nickerson and Owan (2003) claim, formal recruitment can help organizations to choose from a large pool of applicants who are also in possession of various skills. Furthermore, formal practices were found to increase gender diversity (Baron, Hannan, Hsu, & Koçak, 2007) that, in turn, was also demonstrated to positively affect firm performance (e.g. Hamilton et al., 2003). Gender diversity, however, is not present in the majority of startups (Baron et al., 2007). One of the main reasons for the maintenance of male-dominance within the startup ecosystem can be traced back to informal recruitment. The next section is going to elaborate on the reasons why a large number of startups prefer the latter approach.

Informal recruitment

Following the description of formal methods, the distinctive characteristic of informal methods lies in the use of personal contacts (Granovetter, 1995). As Marsden and Gorman (2001) explain, informal methods can be described by the use of interpersonal channels, as the main conveyors of information that were not set up with the aim of job matching. Following from the characteristics of formal recruitment it is important to highlight that in the case of informal recruitment, the job vacancy will not be made public, and thus the potential reach of it will also be smaller compared to formal practices.

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Generally, small businesses tend to focus their efforts on functional areas such as marketing, accounting, finance, and production, while little attention is given to HRM (McEvoy, 1984), partly explaining the popularity of informal approaches. Consequently, small businesses regard informal recruitment as a cost-efficient and comfortable activity that is directly governable by them (Heneman & Berkley, 1999). For instance, Bacon, Ackers, Storey and Coates (1996) found that entrepreneurs in the SME sector do not trust psychometric testing and regard it as time-consuming or less reliable than being dependent on “first impressions” (p.96). On the contrary, networks can provide potential employees with the possibility to acquire information about the firm (Shane & Cable, 2002) and apply directly for positions without the use intermediaries, thus lowering the cost of recruiting for employers.

In her analysis, Marlow (2006) suggests that applying formal and bureaucratic policies and procedures in the startup context do not help these companies to anticipate uncertainty, seek flexibility, and most importantly, to manage change. As she argues, in order to maintain employee confidence, entrepreneurs need to inspire their employees and make sure that they share the vision of the company; both activities require informal approaches (Marlow, 2006)

According to Ullman (as cited in Breaugh and Starke, 2000) informal recruitment is also characterized by employee referrals and direct applications. Researchers agree that referral recruiting provides several advantages for employers, stating that it is a cost-effective method that can also lead to better applicants (Simon & Warner, 1992; Fernandez, Castilla & Moore, 2000). Additionally, informal channels also contribute to a feeling of conformity by providing an extra layer of security. As Simon and Warner (1992) explain, since companies have limited information on the prospective employee’s productivity they are more inclined to ask for the opinion of intermediaries to obtain further information about productivity. Direct applications refer to situations in which the employer is dependent on the job-seeking efforts of applicants who submit their unsolicited CVs directly to the firm (Granovetter, 1995).

A further explanation as to why startup recruitment is mainly dominated by informal practices is provided by Barber, Wesson, Robertson and Taylor (1999). In their research, where the job-seeking behavior of college graduates was studied, the authors found that job

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within large companies were more likely to turn to campus placements offices than individuals who preferred to apply to small businesses. Therefore, the two-sided nature of recruitment also manifests in this regard, since, based on the aforementioned study, jobseekers who favor small businesses are less likely to make use of formal channels. Finally, small businesses also justify the use of informal practices in recruitment by the importance of cultural fit (Marlow & Patton, 1993).

Perceived dissimilarity

The role of founders in new venture creation started to receive much attention in the last decade. Studies addressing the role of founders as a topic particularly aimed at investigating the personal characteristics of entrepreneurs (Cardon & Stevens, 2003). There are numerous studies trying to measure the relationships between certain personal characteristics and venture outcomes, however, this section is only going to touch upon one such phenomenon: perceived dissimilarity, since it proved to be a deciding factor affecting decisions about the determined degree of formality in recruitment.

In their study, Engel et al. (2018) found that entrepreneurs who perceived themselves to be different to other entrepreneurs were more likely to turn towards the adoption of formal HR solutions. However, the reasons underlying the adoption of formal HR policies because of “perceiving oneself to be different” have not been uncovered yet. Researchers have found that “perceiving oneself to be different” can be a function of both deep-level and surface-level characteristics. Surface-surface-level characteristics relate to visible or easy-to-observe characteristics, such as gender, age, ethnicity; and deep-level characteristics that refer to traits such as personality, attitudes and values (e.g. Harrison, Newman & Roth, 2006).

Regulatory focus theory

Regulatory focus theory is concerned with explaining the motivational and goal-setting preferences of individuals. In his seminal work on regulatory focus theory, Higgins (1998) explains, that individuals who function based on a promotion-orientated mindset can be characterized by the motivation to grow, achieve and accomplish beneficial outcomes, whereas individuals operating under a prevention-oriented mindset are driven by a need for security, protection, and bypassing undesirable outcomes (Higgins, 1998). To put it

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differently, individuals embracing a promotion orientation are more likely to engage in risks since they place less emphasis on potential losses. Individuals adopting a prevention orientation, on the other hand, focus on minimizing losses when working on achieving their goals. The underlying concepts of the regulatory focus theory can thus be applied in the field of recruitment. As argued by Kuhn (2015), general motivational preferences affect decisions concerning recruitment that incorporate evaluations of various staffing policies. According to Kuhn (2015), a mindset that focuses on identifying good employees results in different outcomes than the one that concentrates on preventing the employment of bad applicants. Kunh (2015) concludes, that individuals favoring a prevention orientation will be more likely to focus on avoiding the hiring of bad applicants, while a promotion orientation is more focused on hiring the best candidates. In other words, as Crowe and Higgins (1997) explain, promotion orientation focuses on the presence or absence of beneficial outcomes, prevention orientation on the other hand is concerned with the presence or absence of disadvantageous outcomes. Thus, these two orientations are of paramount importance when investigating staffing decisions since they can fundamentally define the nature of recruitment. Furthermore, it is important to highlight the fact that these orientations can be collectively present in an individual and are likely to be shaped according to other contextual factors as well (Kuhn, 2015). Subsequently, developing a preference for either the promotion or prevention orientation is heavily dependent on cultural factors (Uskul, Sherman & Fitzgibbon, 2009). An example of the significant role played by cultural factors with regard to motivations was offered by Estrin, Kostoleva and Mickiewicz (2013) who discovered that the prevalence of corruption in could have a large negative influence on “entrepreneurial employment growth aspirations” (p.565).

METHODOLOGY

This section provides an in-depth explanation and justification of the decisions made with regards to research design, sampling, and data analysis.

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The aim of this research is to investigate the factors that drive startup entrepreneurs to determine the degree of formality in their employee recruitment. Based on the limited research that has addressed the central topic of this thesis, a qualitative approach is recommended (Edmondson & McManus, 2007), which is particularly appropriate when answering questions of how and why (Yin, 2014). The chosen design relies both on grounded theory (Strauss & Corbin, 2008) and case study research (Eisenhardt, 1989). The case study method was selected as it is widely used to generate theories and investigate understudied fields of research (Eisenhardt, 1989). Furthermore, the case study method allows for the exploration and comprehension of complex issues, and thus can be regarded as a robust method, especially when an in-depth study is needed (Zainal, 2007). Additionally, a multiple case study also serves as a useful tool for the prediction of similar and contrasting results (Yin, 2014). Consequently, multiple case study enables the researcher to conduct a cross-case analysis (Verschuren, Doorewaard & Mellion, 2010). To collect rich and empirical data, a total of 15 interviews were conducted (Eisenhardt, 1989; Yin, 2014).

Sampling

In order to ensure the presence of the addressed phenomena, cases were selected following the principles of theoretical sampling (Eisenhardt, 1989). Moreover, maximum variation sampling was employed to include cases that cover a variety of situations with regards to the studied phenomena (Eisenhardt, 1989; Miles & Huberman, 1994).

To ensure that the research followed the scope of the research question, boundaries were placed in terms of time, place, activity and context ( Harling, 2012; Miles & Huberman, 1994)

Thus, the following criteria were applied when approaching potential respondents:

Startups: First, the sampled companies had to meet the basic criteria of being a startup as was outlined in the Theoretical overview section. Second, the companies had to be in the early phases of their development meaning that they could be operational for no more than six years. Third, startups had to be in the process of hiring, or had to have just recently expanded their personnel, and had to employ less than 20 full-time employees. For the

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purpose of the study, HR and recruitment activities relating to outsourced staff members were not taken into consideration during data collection. The reason for this was to minimize sample variation as recruitment practices might differ between freelancers and full-time employees.

Location: In line with Zott and Huy (2007) participants were sourced from a confined geographical area, namely that of the Western European and Others Group (Götz, 2008). Consequently, startups under investigation in the study are based in countries such as the Netherlands (13 interviewees), Denmark (one interviewee) and Germany (one interviewee). By limiting the geographical boundaries of the sample, variation could be minimized, owing to environmental factors, including sociopolitical circumstances, etc. (Zott & Huy, 2007).

Respondents: Every respondent had to be actively involved in HR- and recruitment-related tasks and decisions of the company. Accordingly, respondents had to either be the founder or a leading manager (CEO, CTO, CMO, CDO, etc.) in their respective startups.

Data collection

Multiple sources of evidence were used (Yin, 2014) with semi-structured interviews being the primary source. The semi-structured nature of the interviews yielded many advantages to the study as it enabled the researcher to ask follow-up questions leading to more thorough answers from the interviewers (Bryman, 2008). In addition, secondary data was also collected so that the researcher could become well-informed about the respondents and their respective startups. Data sources for secondary data collection were comprised of follow-up emails and web-based materials (Lewis, Thornhill & Saunders., 2007), such as LinkedIn profiles and company websites.

Regarding contact with potential respondents, an email was administered to a target group of about 420 individuals by utilizing both personalized and mass communication platforms. As mentioned above, the vast majority of startups favors informal practices. Accordingly, discovering start-ups displaying a higher level of formal recruitment proved to be more difficult, therefore the researcher had to focus more efforts on locating such cases.

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The most efficient ways to check any sign of formality was by looking at job boards and contacting startups that made use of such services, along with identifying startups that had just recently secured an investment. Such platforms and websites included LinkedIn, AngelList, Dutchstartupjobs.com, Jobfluent, Crunchbase, StartupJuncture, Dealroom.co etc. Companies that hire by utilizing recruitment software and application tracking systems (e.g Recruitee) also served as a way to discover matching cases.

Another way of detecting early-stage startups that fit research criteria was to contact companies that took part in the programs of professional startup organizations (incubators, accelerators, co-working offices) throughout the Netherlands. The underlying assumption for contacting such companies stemmed from the fact that these startup organizations might offer advice on HR to their supported startups (Cohen & Hochberg, 2014), suggesting a possible match with formality. These organizations included: ACE Venture Lab, Rockstart, Startupbootcamp, YES! Delft, Utrechtinc, and The Next Web.

In sum, a total of 70 responses were received, of which 51 were negative, citing reasons such as: “Due to business I cannot participate”; “My company does not match the research criteria”; I am not interested”. Additionally, six cases were filtered out by the researcher after a short exchange of emails with the respondents. Nine interviews were secured by email, two were sourced from the researcher’s personal network, and four respondents were contacted and interviewed due to snowball sampling (Saunders & Lewis, 2012). In sum, a total of 15 interviews were conducted with startup professionals.

Interviews were conducted in July 2018, three of which were face-to-face, and 12 of which were carried out through voice calls on platforms such as Skype, WhatsApp, and Google Meet. The duration of the interviews ranged from 24 minutes to 55 minutes, depending on the format, the speed of speech, the availability of the respondent, and technical issues. All interviews were recorded, in order to ensure that the whole content of the given information could be collected for analysis (Yin, 2014). Respondents were sufficiently informed about the objectives of the research and the interview, the reason and means of recording, the procedure, and the purposes of further analysis as outlined by Miles & Huberman (1994). Respondents were also offered the option of anonymization; this was requested eight times out of the 15 cases.

The researcher tried to include an approximately equal number of representatives from both genders, however, it proved difficult to reach female founders. This effect comes as no

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surprise since research clearly indicates that women constitute a minority in business ownership (Allen, 2008). Furthermore, men are also more inclined to enter self-employment and to start new ventures (Verheul, Thurik, Grillo & Zwan, 2012; Langowitz & Ninniti, 2007).

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Case Role of resp. Company

size (staff) Stage

Year founded Age of resp. Gender of resp. Educational background of resp.

Country Industry Profile Hiring?

1 CEO & Founder 2 early 2018 28 Male _STEM NL Service Recruitment Platform Yes

2 CEO & Founder 18 growth 2015 38 Male Business NL Service AI Development Platform, Blockchain Yes

3 COO & Founder 8 early 2016 22 Male Business NL Service Volunteering Platform, Analytics Yes

4 CEO & Founder 5 early 2015 37 Male

Business NL

Service &

Product IoT, Connectivity Yes

5 CEO & Founder 2 early 2015 31 Male STEM NL Service Real Estate, Analytics Yes

6 Head of Partnerships & Growth 4 early 2017 25 Male Business

NL Service Event Management, Nightlife Platform Yes

7 CEO & Founder 5 early 2017 34 Male Art DE Service Event Management, Blockchain Yes

8 CEO & Founder 3 early 2012 47 Male Business NL Service Mobility, Analytics Yes

9 CEO & Founder 9 growth 2013 33 Male STEM NL Product Manufacturing, Exoskeleton Solutions Yes

10 CEO & Founder 10 growth 2017 25 Male Business DK Service FinTech Yes

11 CEO & Founder 3 early 2015 31 Female STEM NL Service Sharing Economy Yes

12 CEO & Founder 5 early 2016 35 Male STEM NL Service Virtual Reality, 3D Animation Yes

13 CEO & Founder 2 early 2018 28 Female STEM NL Service Innovation consultancy Yes

14 Head of Operations

& Founder 5 early 2018 26 Male Business NL Service Blockchain Data Platform Yes

15 CTO & Founder 5 early 2016 25 Female STEM NL Service AI, Deep Learning Yes

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With the consent of the respondents, conversations were recorded, of which notes were taken within the same day of the interviews, to follow the “24-hour rule” of Eisenhardt (1989). Audio recordings were transcribed verbatim by utilizing ExpressScribe Transcription Software following the interviews, in order to capture data as quick as possible. Subsequently, individual case files were prepared (Yin, 2014) comprising relevant files ranging from audio recordings, through transcripts to website links and CVs of respondents. In some cases, transcripts were sent to the respondents for two reasons. Firstly, transcripts were shared with those respondents that made a request to read them. Secondly, in case there were important, yet inaudible parts in the transcripts that could not have been captured as a result of a low recording quality, respondents were asked to help clarify those sentences or phrases. Overall, the study is based on 10 hours of interviews, yielding 264 pages of transcribed text including responses from follow-up emails.

Interview protocol

Building upon the recommendations of Gioia, Corley and Hamilton (2013) extra attention was given to ensure that the interview protocol (see Appendix I.) was thorough and did not comprise of leading questions, so that the interview could be focused on the addressed research question. Based on the guidelines of Blumberg, Cooper and Schindler (2011), the interview protocol began with general questions to enable the researcher to get an overview of the company and its contextual situation. Afterwards, the goals and values of the company were discussed, followed by questions inquiring about the past career of the respondent. After having obtained an overarching view of both the company and the entrepreneur in question, respondents were asked about their perception of entrepreneurship in general, to gain insight about the framework for an assumption of the study. Following this, awareness of staff and recruiting needs were discussed by delving into the actual HR and recruitment practices of the given company. The protocol ended by revealing one of the main assumptions the study seeks to examine. In consequence, respondents were asked to think of possible reasons that can explain a connection between “perceiving oneself to be a dissimilar entrepreneur compared to other entrepreneurs” and the use of more formal practices in HR and recruitment

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encouraging the respondents to share their own account of the company and themselves. Nonetheless, guiding questions had to be utilized as respondents tended to skip crucial details that were indispensable for future analysis.

Data analysis

To explore the addressed phenomena, the Gioia methodology (Gioia et al., 2013) was utilized in order to first analyze and then to present findings in a structured way, so that the connections between different phenomena become discernible. Due to the variation of the sampled cases, a cross-case analysis (Eisenhardt, 1989) was also conducted, to illustrate the similarities and differences between the sampled cases (Eisenhardt, 1989).

Interviews were analyzed in a circular process, utilizing open, axial, and finally selective coding (Gioia et al.; Strauss & Corbin, 2008). To lay the groundwork for coding, data analysis started with the process of identifying statements referring to recruitment in startups in its broadest sense. Codes were identified and then further refined in an iterative process via open coding leading to the generation of emergent first-order concepts consisting of common statements. Subsequently, second-order themes were created through axial coding by grouping and categorizing first-order concepts. Finally, overarching aggregate dimensions were identified building on second-order themes.

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Figure I: Data structure, informal recruitment

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FINDINGS

Based on the collected data, this section presents a selection of findings detailing possible factors affecting the degree of formality in employee recruitment. Research findings were collated with relevant existing literature (e.g. regulatory focus theory, signaling theory, perceived dissimilarity) in order to improve internal validity, generalizability, and the level of theory building derived from case study research (Eisenhardt, 1989). Lastly, a cross-case comparison is offered to identify patterns based on similarities and differences that were identifiable between the cases.

In general, it can be concluded that both internal and external factors play a role in influencing the way startups relate to recruitment. External factors mostly refer to technical issues and the environment, while internal factors refer to individual personality traits and preferences. Based on Pratt’s (2008) recommendations, findings are illustrated with “power quotes” and “proof quotes” (p.501) to ensure both the demonstration and prevalence of relevant points.

In total, eight factors were identified in the analyzed data that are also equated with second-order themes of the coded data structure presented in the previous page. Underlying these eight second order-themes, the researcher created three aggregate dimensions based on regulatory focus theory (Higgins, 1998) and the researcher's own insights. These are promotion orientation, prevention orientation and other orientation.

Formal recruitment

The data analysis revealed four different factors that can offer a potential explanation for the preference of the adoption of formal recruitment. These are: (1) Inner need to formalize; (2) External pressure to formalize; (3) Perceived dissimilarity from other entrepreneurs; (4) Risk aversion. These second-order themes can be grouped into two aggregate dimensions, namely: (1) Promotion orientation; (2) Prevention orientation. Inner need to formalize and pressure to formalize form part of a promotion orientation; perceived dissimilarity from other entrepreneurs are related to a prevention orientation.

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Perceived dissimilarity from other entrepreneurs

Perceiving oneself to be different from other entrepreneurs proved to be a deciding factor leading to the use of formal recruitment practices. Based on the data, four types of dissimilarities were observed: behavior, culture, background, and motivation.

Regarding behavioral differences, respondents tended to associate typical entrepreneurs with a strong, outgoing personality and hustling tendencies who is a keen networker. Even if networking is considered to be a social activity (Cromie & Birley, 1992), from these answers, it is plausible to assume that these respondents do not feel comfortable in such situations, which are inseparable from informal recruitment, thus explaining why they prefer formal practices when it comes to recruiting. As R15 explained: “I think the hustling is a big thing that typical entrepreneurs can hustle and I’m not too comfortable doing that.”

A further explanation is provided by R1, according to whom entrepreneurs who are not keen on personal interactions out of fear for miscommunication or misunderstanding are more likely to engage in formal practices: “I don't know, it's not understanding the others, so, by thinking you are different, you don't understand others, and then you'd be afraid of how I should behave with others, how I should communicate with others, how should they interact with others, and then you search for a solution as an entrepreneur, you think, I could layer it, I could do layers of formal HR to save me from interacting from these people and making mistakes with the people because I am different, I don't understand it.”

The need to operate according to plans and structures as a differentiating factor becomes apparent from the answer of R13 when describing how she regards herself compared to other entrepreneurs: “This is one of the things that I do not identify myself with when it comes to work for serial start-up people, serial entrepreneurs. I really believe in content and I'm very result driven. So I have a plan.”

Company culture seemed to be a strong predictor of formality in one of the cases. An important observation in this regard is that all the other respondents preferred to talk about their personal values and priorities and did not refer to their company culture as being a deciding factor in the formulation of formal practices. The strong exception is represented by R10 who referred to their company culture as an important factor contributing to their favorable opinion about formality. As R10 put it: “We're building our own company, we have a different culture than most other startups and we need to do things our way.” Background

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differences, it can be concluded that this factor is regarded as a possible explanation for the lack of an entrepreneurial network, thus limiting the possibilities of informal recruitment, as R13 indicated:

"Because just by the fact that I don't come from a business background in terms of my education or family or friends, you know…..And my educational background is also not. So I have not embraced, or I am not in that way a part of the mainstream entrepreneurial people.”

Another explanation is offered by R10, who claimed his career in diplomacy was a deciding factor in the attraction towards practices that are not common among startups: “I started my career in diplomacy, and I certainly prefer a "softer" style of leadership than most founders. I think that is reflected in our recruiting - we attract other types of people than most startups - but also some real talents in between. “

With regards to identity and nationality, an answer given by R13 is consistent with the findings of Engel et al (2018), who suggest that individual perceptions of dissimilarity can encourage these individuals to provide help for other individuals displaying dissimilarity as well. This becomes discernible in the response of R13, when elaborating on how and why she recruited her first employee, as she explained: "And I think I kind of resonate with that (the fact that she is confident about her multiple identities). So for example I'm Indian but I came to Netherlands a long time ago and now I feel very Dutch as well and I also carry this multiple identities and it was I must say also played a role.” Motivational differences could also be discovered as factors explaining the perception of being different. As R10 put it: “If we look at sort of our peers, we're much more purpose driven. There's not that many fintech startups for sustainability for example.”

Perceived dissimilarity - proof quotes

R 15: “No, not close, so for me a typical entrepreneur is someone who easily walks into a room in a conference and just knows easily who to connect with and how to build those lasting connections to get down to business.”

R13:"To embrace the business culture coming from a very scientific background where people are very precise, they're very theoretical let's say to another culture in business where you know last-minute things can happen or... It's just a very different social setting."

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Risk aversion was one of the eight factors that could be a result of both external and internal influences. Regarding external influences, past failures proved to be a recurring reason for why certain respondents favor formalizing their recruitment practices. In these cases (R15, R13, R12), when a startup had to make an employee redundant, the most cited reason was either a poorly managed recruitment process, or the use of informal recruitment. As R15 explained: “If I’d have done a more thorough technical check then that would’ve been better but also if I would’ve taken more time to think about what kind of person we were actually looking for, that would’ve been avoided.”. Therefore, in these cases, respondents formalized some of their recruitment practices in order to reduce the risks associated with new hires. As for internal factors, fear of potential failure could likely be explained by the personal characteristics of an entrepreneur that predisposed him or her to turn towards formality as a guarantee for a feeling of security and as a safeguard for prospective risky situations. As R13 explained: “You don't want to be in a situation where you have to fire someone. So better be careful than sorry. I think I will definitely want to educate myself more on there's tons of personality tests and this and that to give you a bigger picture of who you're hiring.”

Risk aversion - proof quotes

R9: “I think for any company especially if it's high level or expensive or important people, it could make a huge... It's a big risk if the people are not right”.

R3: “it could have been prevented if we would have thought about the significance of culture more.”

Inner need to formalize

Inner need to formalize relates to situations in which the entrepreneur consciously opts for the adoption of formal practices without any external pressure. Therefore, the motivation to apply formality comes from within the entrepreneur, and can be explained by the following factors: having specific recruitment criteria, preference for control, preference for analytics.

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Thereby, it becomes discernible from some of the answers given by the respondents that the use of formal practices can be an output of their trust and attraction towards analytical approaches that inherently entail the use of structured frameworks.

As R10 suggested: “I think I see of a lot of advantages in the formal side because you need to be quite aware of who you hire and why. And I think formal procedures are by far the best way to get a comprehensive idea of our each candidate and make sure you hire the right one.”

It was often the case with entrepreneurs applying informal practices that they were not aware of what professionals they should hire and how they should approach that activity.

Conversely, entrepreneurs in this category were certain about who they wanted to hire and consequently were also confident in the way how to test the given applicant. As R3

explained: “So for our new software developer, growth marketer and product designer so the three roles which we're hiring actually we're putting out job advertisements and we also use certain challenges to kind of test people's ability before we interview them.”

Another possible reason for an inner need to formalize is simply rooted in personal

characteristics. Respondents who preferred formality and were grouped into this subgroup expressed their preference for analytics and control. A detailed example is offered by R12 and R15: R12: “When I hire people I have a contract that I make them sign which has a lot of things detailed… That way the expectations are set right from the beginning.”

R:15: "It makes it easier for us to compare to people, it makes it easier for us to have those conversations to make sure that we really do focus on the things that we wouldn’t naturally focus on if we wouldn’t have that process in place."

Inner need to formalize - proof quotes

R10: “The more of a structured process people go through, the more I feel like I get a comparative picture of the,.”

R7: “I mean when you have these formal processes people know exactly what’s on the table, you know what you’re offering and there’s a nice starting point there”.

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Pressure to formalize

As opposed to the previous category, pressure to formalize describes a set of external factors that greatly contribute to the development of formal recruitment practices. Factors that were grouped into this theme involved: need for quick growth, dependence on profession, signaling professionality. A need for quick and managed growth usually becomes the priority of startups following the raising of a successful round of external investment. As R2 illustrated:

“We've got that funding and that funding was contributed from over 5500 different individuals and we wanted to put that money to work and make sure that we build this out as fast as possible and grow as fast as possible.”

Dependence on profession denotes situations in which the given startup was forced to look outside of its network when looking for new hires. The level of formality greatly depended on the given position startups wanted to fill in. First, the shortage of software developers is a well-known phenomenon that was also a challenge for almost all of the sampled startups, therefore the need to look outside one’s network proved to be a must rather than an option. As R3 put it: “Also we don't have a lot of choice with developers, especially developers. So that means we do formal recruitment in that sense. Secondly, as software developers are quintessential in building a scalable service or product, it is pivotal that they possess the necessary skill set needed to achieve the ambitious growth plans of their respective startups. Thus, the need to thoroughly check what a software developer is capable of is of paramount importance. As R7 suggested: “That’s completely up to what we’re hiring so I mean if we’re talking about a developer then from them we need they might do a coding test or something like this, if we’re talking about CTO and figure out the product they’ve a portfolio or get up to something.”

Signaling also proves to be an important driver of adopting formal practices. In some cases, respondents implied that formality would be adopted once securing a next round of external investment becomes necessary.

The reason behind this is that potential investors might evaluate their startups as potential investments if they show some signs of formality that can also be interpreted as professionalism which is a conducive characteristic when investors have to be convinced of the benefits of their prospective investment. As R4 put it:

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The decision to formalize in order to show signs of professionalism to potential investors resonates with the concepts of signaling theory, the concepts of which were first applied in recruitment. According to the first proponent of signaling theory, signaling is used in order to reduce information asymmetry between job seekers and employers (Spence, 1974). According to the author, job candidates take on activities, such as engaging in higher education, in order to demonstrate positive qualifications (Spence, 1974) that recruiters regard as a proof for future performance. Nevertheless, signaling inherently leaves room for fabrication that is extensively used in the job market. Weber and Korn (as cited in Kuhn, 2015) found, in many cases, that executives or other leaders could secure high-level positions by presenting fake information about their background. Concepts of signaling theory were already studied in the context of startups, Ko and McKelvie (2018) found that ventures project signals in the hope of securing external investments.

Relating back to regulatory focus theory, one can conclude, that signaling can be a potential issue for both prevention and promotion orientation. Taking the case of recruitment, startup professionals who favor promotion orientation can be more likely to engage in informal practices thus putting an emphasis on intuition-based decision-making in which the “stories” of the job candidate might play a larger role. Needless to say, “stories” are even harder to check than education credentials. As for startup professionals opting for formal practices, the probability of getting false information (at least in the CV-screening phase) is also high, since signaling is also prevalent under those circumstances. Returning back to the case of startup recruiting by applying the main concepts of signaling theory, entrepreneurs in this case consider applying some formality in their recruitment not because they are convinced about the benefits of that approach, but rather to project an image of the firm that is likely to trigger positive reactions from prospective investors who regard formality as a sign of professionalism.

Pressure to formalize - proof quotes

R3: “we just need more formality in the process to actually find those people because we don't know the chance that we would know someone with the specific skillset that we need.”

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R8: “I think when we attract investments from a funder, from a bank we need to go that way because we need to earn money. And you can only earn money if you have people on the job which make sure you can get that money for example getting the customers, account managers and so on to develop the whole sales funnel.”

Informal recruitment

The data analysis revealed four separate factors that can possibly explain a preference for informal recruitment. These are (1) Ambidexterity; (2) Trust in own intuitions; (3) Lack of HR competencies; (4) Organic development. These second/order-themes form three aggregated dimensions, which are (1) Promotion orientation; (2) Prevention orientation; (3) Other orientation. Ambidexterity and trust in intuitions can be linked to a preference for a promotion orientation, while lack of HR competencies can be related to a prevention orientation. The data also revealed a third aggregate dimension, namely, the other-orientation that can be explained by an organic development process.

Ambidexterity

Flexibility and efficiency could regularly be identified behind the reasoning of respondents when explaining their choice for informal recruiting. These two terms form integral parts of ambidexterity, the premises of which are also relevant for startups. Ambidexterity has been at the forefront of organizational literature, the principles of which can also be applied to startup recruitment practices and preferences. Ambidexterity refers to organizations that are capable of managing both exploring and exploiting activities, thus it can be used to describe organizations that target a balance between the two approaches (Simsek, 2009; Bodwell & Chermack, 2010). Exploration can be depicted - among others - by a desire to be flexible, while exploitation is best understood by a preference for efficiency (March, 1991). In the sampled cases, flexibility and efficiency were recurring reasons for an informality preference. Flexibility is best described by R14, who argued that informality provides leeway for startups, which is a must for his company to gain a competitive advantage under the extreme conditions it is encountering. As he explained it: “Yes. I think it is best to be informal, because there is a lot of experiment happening in start-ups. So we change a lot. We don’t

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Efficiency was mostly associated with cost considerations and the difficulty of efforts needed to engage in any sort of formal practices. As R6 described it: “At first, using the network that you have is a cheap way of recruiting. Next to that, you already know the people in some way. If you are looking for a specific type of person then you passed the first step of recruiting already. So it is efficient as well.”

Ambidexterity - proof quotes

R3: At this stage most it costs too much time. We’re really constrained on time so we just need to do the thing that is fast as possible

R2: if you're a startup and you don't have that, then it's really important to do what you can and cut the corners that you can -- beg, borrow and steal -- to make those things happen

Trust in own intuitions

The next factor contributing to the development of a preference for informal recruiting was trust in intuitions. The group of respondents who were assigned to this category showed a great confidence with regards to their decisions and intuitions. This preference was sometimes fueled by the negative image of HR:

R1: “they don't listen to you (HR professionals), and they only see what's written here, and this is formal HR, and you can also see it now with technology, the CV scanner, that's crazy man, I don't like that, you let a computer determine if the people fit in your company or it fits with other people, it doesn't sound right, based on what has been written, you know. If you look on paper, you can’t tell the whole story you know? And I care about people's stories.”

Trust in intuitions - proof quotes

R14: “I am not really such a believer on someone having absolute amazing credentials. I think let us say have a month to really work with us and show us what they can do, and whether they are passionate about then I would take you.”

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R3: “I think we would never use recruiters. I think the one of the keys to hiring at the start up is to know who the possible candidates are, knowing what motivates them, what drives them and also knowing what kind of problems different people are able to solve. It's really important to know what motivates people applying for a certain role.”

This is very much in line with the findings of Lodato et al. (2008), who demonstrated that professionals who favor intuition-based hiring, and thus tend to make decisions by relying on their feelings, are usually less experienced. However, when comparing this group with that of entrepreneurs who are not confident in their HR capacities, and are also not aware of how to develop them, the main difference that can be identified lies in the distinction between a promotion orientation and a prevention orientation.

Lack of HR competencies

Several times the decision to formalize or not to formalize recruitment was dependent on whether the respondent perceived himself/herself to be competent in HR-related decisions in general. Thereby, the natural consequence of not being confident in HR resulted in the use of informal practices. As R4 described: “We do not need to have this whole recruitment process. I am really bad in interviewing people when we recruit somebody.”

Lack of HR competencies - proof quotes

R6:”So if you can make specific tests that they’ve to do first or whatever then you know exactly that you found the right guy and that’s something that is kind of hard at this moment because we don’t have the time, we don’t have people to do it, so it is kind of risky.”

R5: "The advantage of informal recruitment seems to me that I can get a trusted opinion of the person beforehand, which makes it easier to determine if the person would fit the position. "

In this case it could be observed that respondents had a desire to turn towards formal practices, they just were not aware of the steps that would need to be taken.

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Organic development was classified as a subdivision of the aggregate dimension, other orientation. Put simply, other orientation is used to describe startup entrepreneurs who organically grew in a natural flow of events, and who did not obviously display prevention orientation or promotion orientation.

The overwhelming majority of startups start their operations by applying informal practices, which they can later keep based on either a conscious decision or just based on the fact that it seemed natural to follow without giving it too much thought. As R4 put it: “Currently, I am just hoping until now it worked out, that when we need somebody we just ask around the network and somebody pops up, and that worked.”

Organic development - proof quotes

R7: “So two of them are co-founders, and I met one co-founder we used to work together at this block chain company and then the second co-founder I know from my friend network, the other two also come from customer recommendations through just our network. Yeah it’s been a very organic experience, a very organic process.”

R2: “Initially, it was a massive dose of luck. I had been connected to a very prestigious tech firm in Amsterdam and so, a few of the members of that team, I would say easily, the highest members and the most gifted members of that team are the co-founders of this project.”

Cross-case findings and propositions

Consisent with Yin (2014) and Eisenhardt (1989) a cross-case analysis was carried out to identify patterns based on similarities and differences between the sampled cases. The following table provides an overview of the cross-case comparisons.

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Table III: Cross-case comparison of findings

From the cross-case comparisons, a clear pattern could be identified based on which startups were classified into three cohorts: (1) low formality (2) medium formality (3) high formality. The cases were classified into the three different categories based on the observations of the researcher, which were largely dependent on the interviews. Thus, startups in the low formality group had to comply with at least two factors that are presented under informal recruitment. Medium formality startups were identified by a mixed use of the two approaches. Lastly, high formality startups had to show signs of the presence of at least two factors presented under formal recruitment.

Low formality: Cases 4, 6, 7, 8, 14 can be classified as startups with low recruitment formality. Therefore, these cases are characterized by a concentrated use of informal practices, meaning that these companies place a large emphasis on relying on their networks to locate candidates. In addition, startups in this group are also characterized by a strong lack of HR competencies as that was the most common element from the cases in this group. What was also an interesting discovery to see, that none of the respondents whose startup scores low on formality had an educational background in a STEM field. What is also

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respondent whose startup was labelled as a low formality startup. Hence the first two propositions are phrased as follows.

Proposition 1: Founders with a lack of HR competencies tend to keep recruitment in a formal way

Proposition 2: Male founders are more likely to apply informal recruitment practices than women

Medium formality: The majority of the cases belong to the group of medium formality. These startups are numbers 1,2,3,5,11,12. Naturally, by definition this cluster is characterized by a collective use of both formal and informal practices.

Proposition 2: The majority of startups apply a mixed method of recruitment by relying both on formal and informal practices.

High formality: Case 9,10, 13, 15 can be characterized as startups displaying a high degree of formality. Findings suggest that startups belonging to this group have a strong promotion orientation that can be explained by their founders inner need to professionalize. For this reason, these startups tend to rely more on formality, and thus analytics supported their decisions to hire the best candidates to support their growth aspirations. In order to do so, they need to look outside their network and make use of formal ways to recruit talent. The latter is consistent with the results of Kuhn (1995) who demonstrated that a promotion orientation is likely to drive companies to turn towards formal staffing practices. However, Kuhn’s (1995) other assumption also seems to be true in these specific cases, namely that startups apply formal practices as a safeguard against potential losses. This became apparent from the answers. Another interesting phenomenon was discovered as well, namely that 3 out of 4 founders whose startup showed strong signals of formality had their former education in a STEM field. Thus propositions are phrased as follows.

Proposition 3: Founders with a strong promotion orientation are more likely to adopt a high degree of formality in their employee recruitment

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Proposition 4: Founders with an educational background in a STEM field are more likely to turn towards formal practices in their employee recruitment.

DISCUSSION

Based on the findings and cross-case comparisons a conceptual model was prepared that illustrates the relevant factors that are present in decisions regarding the level of formality in employee recruitment.

Toward a conceptual framework detailing relevant factors affecting formal and informal recruitment

Inspired by the findings, the following model was prepared to illustrate the factors

influencing the decisions made with regards to the level of recruitment formality. It is worth mentioning, that that the adoption of one approach does not exclude the other, as proved by the existence of the so-called medium formality group that refers to startups that jointly use the two approaches in a balanced way.

Figure III: A conceptual framework detailing recruitment approaches

Derived from this model it can be concluded that entrepreneurs face both internal and external challenges when they have to make a decision on the desired degree of recruitment they wish to follow. External factors mostly relate to things that are outside of the control of the entrepreneur, whereas internal factors stem from the character of the entrepreneur. To

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make good decisions in this regard, entrepreneurs have to take into account both streams of factors that affect their decisions.

Theoretical contributions and implications

Drawing on contingency theory (Scott, 1981), this paper does not intend to offer universally applicable best practices. In general, it is important to highlight that there are no universally superior modes of recruiting solutions, as employers have particular recruitment methods that depend on their needs, size and operations (Sackett and Lievens, 2008). Rather, the aim is to shed light on the different factors influencing recruitment decisions, to advance thinking in this topic both in the academic and business world.

This explorative study provides new insights into employee recruitment applied in a startup context. Through applying a theoretical framework derived from the findings of the study it becomes possible to gain a deeper understanding of what factors can drive entrepreneurs leading startup ventures to decide on the degree of formality in their employee recruitment. The findings suggest that entrepreneurs have to encounter both internal and external factors when contemplating recruitment that require them to conduct both a personal and an “environmental” analysis before making such decisions.

Limitations and suggestions for future research

This study clearly has some limitations.

First, stemming from the nature of the grounded theory approach, there was limited literature available to justify some of the factors that were established and presented as the second-order themes of the study. This, surely limits the validity of the research.

Second, generalizability of the findings is limited explained by the restricted scope of 15 participants. As suggested by Creswell (2007), the minimum number that is deemed necessary for a qualitative research should be around 20-30. Nevertheless, the findings revealed interesting insights with regards to the research topic, though more studies could increase the robustness of the research.

Why do some startups, and not others, apply formal practices in their employee recruitment?