31. should i quit my day job

Download 31. Should i Quit My Day Job

Post on 07-Jul-2018




0 download

Embed Size (px)


  • 8/18/2019 31. Should i Quit My Day Job



    JOSEPH RAFFIEE University of Wisconsin–Madison

    JIE FENG University of Wisconsin–Madison

    Research suggests that the risk and uncertainty associated with entrepreneurial activ- ity deters entry and contributes to the high rates of new business failure. In this study, we examine how the ability to reduce these factors by means of hybrid entrepreneur- ship—the process of starting a business while retaining a “day job” in an existing organization—influences entrepreneurial entry and survival. Integrating insights from real options theory with logic from the individual differences literature, we hypothe- size and find that individuals who are risk averse and have low core self-evaluation

    are more likely to enter hybrid entrepreneurship relative to full-time self-employment. In turn, we argue and find that hybrid entrepreneurs who subsequently enter full-time self-employment (i.e., quit their day job) have much higher rates of survival relative to individuals who enter full-time self-employment directly from paid employment. Add- ing support to our theory that the survival advantage is driven by a learning effect that takes place during hybrid entrepreneurship, we find that the decrease in exit hazard is stronger for individuals with prior entrepreneurial experience. Taken together, our findings suggest that individual characteristics may play a greater role in determining the process of how (rather than if) entrepreneurial entry occurs, and that the process of how entrepreneurial entry transpires has important implications for new business survival.

    Research indicates that entrepreneurial activityis a key driver of economic growth, but only if  entrepreneurial entrants are able to avoid early ex- odus (Santarelli & Vivarelli, 2007). Not surpris- ingly, therefore, understanding the determinants of  entrepreneurial entry and dynamics of venture sur- vival has attracted the interest of numerous organ- izational scholars (e.g., Elfenbein, Hamilton, & Zenger, 2010; Evans & Leighton, 1989; Geroski, Mata, & Portugal, 2010; Ozcan & Reichstein, 2009; Patel & Thatcher, 2012). As evidenced by the high frequency of new business failure (Shane, 2003), understanding entry implies explaining why some

    individuals opt to start businesses despite the riskyand uncertain returns associated with doing so (Kihlstrom & Laffont, 1979). Likewise, understand- ing survival entails identifying how and why some entrepreneurs are able to overcome these risks to survive (Santarelli & Vivarelli, 2007). As such, pin- pointing ways in which the risk and uncertainty associated with entrepreneurship can be managed or reduced should offer further insight regarding how these processes unfold (see Folta, 2007).

    One such way is through hybrid entrepreneur- ship—the process of initiating a business while

    simultaneously remaining employed for wages(Folta, Delmar, & Wennberg, 2010). By launching a  business while retaining their “day job,” hybrid entrepreneurs implicitly reduce (or eliminate) the opportunity cost (i.e., earnings from paid employ- ment) associated with starting the venture (Folta, 2007; Folta et al., 2010). As such, by reducing what is put “at risk,” starting a business via hybrid en- trepreneurship is inherently less risky than doing so full time. Recognizing this, scholars have re- cently noted that hybrid entrepreneurs represent a

    We are deeply grateful to our editor Gerard George and three anonymous AMJ  reviewers for their insightful com- ments and guidance throughout the review process. We also wish to thank Russ Coff, Barry Gerhart, Randy Dun- ham, Jon Eckhardt, Ken Kavajecz, Phil Kim, and Hart Posen for their helpful feedback and suggestions. The first author graciously acknowledges financial support provided by the Robert W. Pricer PhD student fellowship at the University of Wisconsin-Madison. Of course, all errors remain our own.


      Academy of Management Journal 

    2014, Vol. 57, No. 4, 936–963.


    Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express

    written permission. Users may print, download, or email articles for individual use only.

  • 8/18/2019 31. Should i Quit My Day Job


    significant and growing component of total entre- preneurial activity (Burke, FitzRoy, & Nolan, 2008; Folta et al., 2010; Petrova, 2012). According to the U.S. Bureau of Labor Statistics, in 2011, roughly 10 percent of self-employed workers were also em-

    ployed by existing firms. Going a step further, re- search shows that many hybrid entrepreneurs ulti- mately decide to commit to their ventures full time (Folta et al., 2010). Indeed, anecdotal evidence in- dicates that some of the world’s most innovative and successful entrepreneurs started their compa- nies as hybrid entrepreneurs. For example, Steve Wozniak remained an employee at Hewlett–Pack- ard long after co-founding Apple (Wozniak & Smith, 2006), Pierre Omidyar launched eBay while working for the software development company General Magic (Cohen, 2002), and, with the help of 

    investors, Henry Ford founded the Detroit Automo- bile Group while employed by the Edison Illumi- nating Company (Ford & Crowther, 1922). In 1997, 20 percent of CEOs on  Inc. magazine’s 500 fastest- growing private companies list indicated that they continued to work a paying job long after founding their organization (Inc. staff, 1997). Yet, despite these observations, extant entrepreneurship theory largely assumes that entrepreneurial entry is an all-or-nothing phenomenon (Folta et al., 2010), and, because empirical testing is driven by theory, the treatment of labor force status as a mutually exclusive dichotomy is generally considered “un- controversial” in the literature (Sørensen & Fas- siotto, 2011: 1,323).1

    In this article, we depart from this trend and add to an emerging stream of literature (e.g., Burke et al., 2008; Folta et al., 2010; Petrova, 2012) by con- sidering the theoretical implications of hybrid en- trepreneurship for theories of entrepreneurial entry and survival. For example, extant theory suggests entrepreneurs have high tolerances for risk (Kihl- strom & Laffont, 1979) and/or perceive less risk due to greater confidence in their abilities (Moore,

    Oesch, & Zietsma, 2007). However, considering hy-  brid entrepreneurship reduces (or eliminates) the need for risk-bearing when starting a business, these theories may not adequately explain entry. Likewise, once an individual enters hybrid entre-

    preneurship, the uncertainty surrounding the fu- ture returns and viability of the business lessens (Folta et al., 2010). As a result, hybrids that opt to enter full-time self-employment do so under con- ditions of greater certainty (relative to those who enter directly from paid employment). However, despite numerous theoretical explanations (e.g., Geroski et al., 2010; Santarelli & Vivarelli, 2007), scholars have yet to consider how staged entry into full-time self-employment via the pathway of hy-

     brid entrepreneurship influences venture survival. To reconcile these issues, we turn to logic from

    real options theory (Trigeorgis, 1996). Conceptual-izing hybrid entrepreneurship as analogous to the establishment of a real option—a small initial com- mitment that creates the right, but not the obliga- tion, to subsequently commit full time to the ven- ture (Folta et al., 2010; Wennberg, Folta, & Delmar, 2006)—we integrate insights from real options the- ory with logic from the individual differences lit- erature (Funder, 2001) to theorize that risk-averse and less confident individuals will be more likely to enter hybrid entrepreneurship relative to full- time self-employment. In turn, using real options logic that emphasizes the benefits of learning from small investments (Roberts & Weitzman, 1981), we argue staged entry into full-time self-employment through hybrid entrepreneurship will relate posi- tively to venture survival. Finally, emphasizing the inherent heterogeneity among real options decision makers (e.g., Barnett, 2008), we posit that individ- ual characteristics (cognitive ability and entrepre- neurial experience) that influence the hybrid entre- preneur’s ability to evaluate the prospects of their venture during hybrid entrepreneurship will mod- erate this relationship.

    The present study makes several contributions.

    First, acknowledging that hybrid entrepreneurship implicitly reduces the risk associated with starting a business (Folta et al., 2010), our study suggests for the first time that individual characteristics per- taining to risk preferences and risk perception may influence  how  rather than   if  entrepreneurial entry occurs. Second, despite a substantial literature on venture survival (Santarelli & Vivarelli, 2007) and mounting evidence that entry into full-time self- employment is endogenous to hybrid entrepreneur- ship (Folta et al., 2010), the current study is the first

    1 Hybrid entrepreneurship is common in academic en- trepreneurship (e.g., Jain, George, & Maltarich, 2009), where academics often form firms to commercialize re- search while retaining their academic position (as op- posed to exiting the institution to pursue the venture full time) (Nicolaou & Birley, 2003a). However, perhaps due to the uniqueness of the university setting, few studies have accounted for this distinction theoretically or e