Entrepreneurs looking to break into the corporate world are significantly less likely to land a job at a more established organization than their non-entrepreneurial counterparts, new research finds. "When entrepreneurs go back into the labor market, they experience a ‘penalty.’ Relative to other people, they are 23 to 29 per cent less likely to be followed up with a job opportunity," says Hyeun Lee, an assistant professor of strategic management.

In a paper published in the Strategic Entrepreneurial Journal, Lee and her co-authors, University of Maryland's Waverly W. Ding and Debra L. Shapiro, devised a controlled experiment that, on top of quantifying their hypothesis, yielded some other startling results.

The researchers sourced 275 participants in managerial positions to play the role of job recruiters. They were presented with four similar resumes from recent MBA graduates, all of whom had near identical work histories, with one key difference. Of the four resumes, two candidates were presented as “founders” (or entrepreneur), while the other two listed their titles as “executives.”

Recruiters were asked to pick the best candidate for the job, as well as answer a series of questions designed to determine a proclivity towards entrepreneurial aspirations of their own, such as “How strongly have you considered starting your own company?”

“And what we saw was recruiters who had never considered entrepreneurship for their own careers were most likely to penalize candidates who had ‘founder’ on their resumes," says Lee.

The researchers also found that the extent to which  recruiters’ entrepreneurial aspirations diminish penalty towards candidates with entrepreneurship depended on firm size. Recruiters’ own entrepreneurial aspirations significantly weakened the penalty when recruiters worked in smaller firms (such as firms with less than 50 employees), but not in larger firms.

“Individual beliefs don’t really matter in recruiting for a large firm because there is a pressing need to find someone who more readily aligns with the corporation, someone who is more committed, will stay longer and is less independent," says Lee.

Overall, however, the study reinforces the "in-group favoritism" theory. “Similarity-attraction bias is a long-standing theory about how individuals tend to be drawn to people who are similar to themselves," says Lee. "This can be in terms of gender, age or race, but also in terms of experiences. Recruiters are only human, and it’s unrealistic to expect them to get rid of their biases fully.”

Aside from similarity bias, the researchers cite several other factors that may also be working against entrepreneurs.

Firstly, a recruiter’s unfamiliarity with the work culture or business operation of an entrepreneurial enterprise influences their evaluation of the candidates’ skills, network-building abilities and career prospects. Secondly, assessing a candidate's performance at a start-up can be challenging due to the inherent uncertainty often associated with these environments, making it difficult to gauge the quality of their work experience accurately. Thirdly, recruiters may perceive these candidates as generalists who lack certain specialized skills or have potential gaps in their transferrable skills. Additionally, they might view entrepreneurs as risk takers who prefer autonomy over conforming to the established norms of the company. Lastly, recruiters may believe that former entrepreneurs have fewer job options, and therefore possess lower market value thus suffering from the "stigma of failure." This factor alone can significantly impact a candidate's suitability for a role in the eyes of a recruiter, says Lee.

As a result, firms may be missing out on key skills and qualities that entrepreneurs bring to the table, such as innovation and initiative, vision, grit and leadership. “Particularly for larger firms, our findings suggest that large organizations seeking highly innovative new hires may risk losing the entrepreneurial-type job candidates they wish to hire," she says. "So, from an organizational perspective, there's a need to include biases against post-entrepreneurs as part of [anti-bias] training programs. Entrepreneurship is a special mix of so many different skillsets and experiences that a regular type of employment can’t really offer, so let’s think about how recruiters’ priors might help them look for those special talents to meet their organizations’ need.”

Given the persistent downward trend of entrepreneurship over the past two decades, Lee and her colleagues hope their findings may serve as some policy foundation for increasing the rate of entrepreneurship. Until that happens, Lee suggests post-entrepreneurs need to “think about how to communicate and quantify their entrepreneur experiences and pre-emptively address some of the possible biases recruiters might have.”