Scientists and engineers who choose to work in startups over established firms place lower importance on job security and salary but greater importance on independence and responsibility.
Henry Sauermann, an associate professor of strategy at ESMT Berlin, examined the data of more than 10,000 US scientists and engineers working in startups and established firms, collected from the National Science Foundation’s Science and Engineering Statistical Data System, to identify these motivations.
He also found that startup employees also have higher patent outcomes than employees in small and large established firms, partly mediated by their greater willingness to bear risk.
No longer a golden ticket
Jobs at big companies are no longer the golden ticket they once were. Increasingly, engineering graduates turn away from the traditional route straight out of university into established firms, and instead join entrepreneurial startups.
To understand this trend, my team and I examined the data of more than 10,000 US scientists and engineers working in startups and established firms, collected in the US National Science Foundation’s science and engineering statistical data system.
[caption id="attachment_48884" align="alignright" width="225"]
ESMT Berlin[/caption]
We found that engineers working in startups had stronger desires to exercise independence and have plenty of responsibility in their job than employees in established firms.
This is consistent with research on the kinds of work environments offered by different types of firms: young and small firms often leave their employees more autonomy in decisions that will impact the business, while also asking them to take responsibility for a broader range of R&D as well as business related tasks.
As firms get older and larger, jobs become more specialised but also more stable. As a result, larger firms are able to offer higher job security as well as salaries to their employees. The engineers in our sample who worked for established firms were indeed particularly attracted by these two factors.
Implications for innovation
Understanding who is attracted to work in startups versus established firms is important because individuals’ characteristics may affect firms’ ability to innovate and succeed.
My team’s data analysis revealed that startup employees produced more patents than employees in small and large established firms. Compared to startup employees, researchers in established small firms had 51.9 per cent lower patent application counts, and researchers in large established firms had 29.8 per cent lower counts.
More importantly, some of this performance difference can be tied back to startup employees’ greater willingness to bear risk, although other factors may certainly play a role as well.
It’s important to recognise that patent applications are an imperfect measure of innovative performance across the board. In reality, not all inventions are patented and patent propensity differs across industries. To mitigate this measurement challenge, we controlled for industry, scientific field and type of research and development in our data analysis.
With these factors accounted for, the patent data we gathered demonstrated a greater level of innovation in startups compared to established firms.
This higher innovative performance may also reflect that startups are most often founded in new technological areas with greater technological opportunities; offering the promise of uncharted territory. Engineers who are seeking to make an impact are understandably drawn to roles in these kinds of ventures.
There are limits to the risk taking
While many engineers are happy to take the risk of joining startups, much fewer plan to found them. In a separate study, my team and I conducted a survey of 4,200 doctoral candidates on course to obtain degrees in STEM fields within the next two years.
Our findings showed that nearly half (46 per cent) reported an interest in joining a startup as an employee but only 11 per cent said they expected to found companies.
To some extent, the lower share of respondents planning to found companies may reflect that founding requires a valuable technology or other entrepreneurial 'opportunity', which few may have. Moreover, founding requires capital and other resources that can be difficult to secure.
[caption id="attachment_48885" align="alignright" width="300"]
Henry Sauermann[/caption]
However, this result also likely reflects that the desire for autonomy and the willingness to take risk only goes so far. Many graduates are attracted by the prospect of an environment in which they are afforded a lot of responsibility; they want to be decision makers, not left at the bottom of a lengthy management hierarchy. Similarly, they find the independence startups can offer appealing.
However, the vast majority of engineers do not chase the vision of being a startup founder. Especially for technically trained people, the kinds of responsibilities and risk associated with being a startup founder may not be what they are looking for.
Indeed, being a startup joiner represents a good compromise between the stressful life of a founder on the one hand, and traditional engineering roles in established firms on the other.
Breaking down the figures
While my team’s survey of soon-to-be engineering graduates turned up a result of 46 per cent expressing a desire to join startups, our sample of engineers who were already employed did not reflect the same share in new ventures.
Of the 10,000 working scientists and engineers in our sample, overall 580 of the sample work in startups, 1,059 in established small firms and 8,946 in established large firms.
Similarly, follow-up surveys of graduates from our PhD study show that many who expressed an interest in joining startups ended up taking jobs in established firms.
We are still studying the underlying reasons, but one possibility is that there are simply many more open positions for highly trained engineers and scientists in large established corporations, which have the resources and long-term perspective to invest in R&D.
Moreover, established firms are starting to recognise shifts in employees’ goals and preferences, and position themselves to compete successfully for human capital against startup firms.
What does all this mean for engineering businesses?
Firstly, founders of engineering focused startups can derive significant benefits from hiring employees with entrepreneurial mindsets – especially a willingness to take risks – because these individuals may be more likely to tackle ambitious challenges and explore innovative approaches than individuals who are drawn to established firms.
Our studies also have implications for macro-level outcomes such as entry decisions, firm survival and competitive dynamics. In particular, we showed that startups and established firms differ with respect to the characteristics of their human capital, especially employees’ motives.
These differences in human capital, in turn, appear to drive important differences in innovative performance across firms. As such, efforts to understand why some firms outperform others should consider not only issues such as strategy or organisational structure, but also the human capital base of the organisation. Of course, these issues are related and need to be considered jointly.
Our results also provide employers in startups and established firms with crucial insights into what kind of engineers are drawn to their companies.
These insights could be used to devise informed business strategies designed to attract engineers with particular characteristics, or rethink employee incentive schemes to make companies more competitive.
In light of this, it is not surprising that many established organisations are creating small semi-independent units in an effort to attract entrepreneurially minded engineers and to provide them with a creative environment conducive to innovation.
Author: Henry Sauermann is an associate professor of strategy at ESMT Berlin