Back in early 2020, knowledge workers got a taste of freedom when they were sent home during lockdowns. Some liked remote work so much that, instead of continuing the wage job grind, they used their newfound flexibility to chase a different dream: becoming their own boss. While the spawning of entrepreneurs has benefits for the economy, it does come at a cost for businesses that might want to avoid fully remote work because they could lose their best employees.

The leap from 9-to-5 to founder life was recently studied by Ting Xu, an assistant professor of finance at the Rotman School of Management. He teamed up with the University of Hong Kong’s Alan Kwan, the University of Notre Dame’s Ben Matthies and the University of San Diego’s Richard Townsend to take a micro-level look at the trend.

For their working paper — “Entrepreneurial spawning of remote work” — the researchers tracked U.S. workers by using internet data and IP addresses to determine whether employees were logging in from home, the office or somewhere in between. After validating their measure of remote work, they matched it with LinkedIn career histories to see who had left their full-time job to launch a business between March 2020 and December 2022. They found that employees at firms with higher levels of remote work were substantially more likely to start their own businesses, with entrepreneurial activity rising by more than 40 per cent compared to firms with lower remote work levels. These new firms were often launched while their founders were still employed, suggesting that remote work gave individuals a career cushion before formally leaving their jobs, says Xu.

Remote work birthed stronger ventures

Startups that emerged from the shift to WFH showed higher employment and likelihood of receiving venture capital than the typical firm pre-pandemic. They were “high-growth ventures, rather than just safe, hobby-based self-employment like selling crafts on Etsy or running an Airbnb,” says Xu. Their theory is that potential founders could engage in much-less risky “entrepreneurial experimentation” because, if things didn’t work out, they still had their day jobs to fall back on.

Working remotely also allowed the new firm founders to invest more time — which may have been previously used for their commute to an office — into market research and building out a proof of concept. “And there is less monitoring by an employer,” says Xu. “They could explore a business idea on the side without being discovered by their boss. That safe space to experiment is very important for eventual entry.”

The positive spillover meets the employer dilemma

“I think companies should be worried,” admits Xu. Losing any kind of knowledge worker can be a setback for a business, but in this case, it isn’t just any employee. The new firm founders tended to be manager-level or above, and more educated than their peers — likely also contributing to the strength of the ventures they went on to launch.

Xu worries, as a result, companies might under-invest in remote work because they don’t get to directly benefit from the new firms created by their employees — if anything, these spawned firms could be competitors.

“If you only worked in companies your whole life, you likely never get to explore whether you could thrive as an entrepreneur — essentially, you’re constraining yourself. So it’s the relaxation of this constraint that allows you to explore outside options that leads to better use of your talent,” says Xu.

And as workers explore new ventures while working from home, they’re also stepping outside traditional business hubs. “We know that traditionally, high-growth startups tend to cluster in business centres,” says Xu. “Now, if you work remotely, you can start your business anywhere. Spawning doesn’t have to come from hub cities. You could be based in a small town.” Entrepreneurship, as a result, is now more likely to spread to emerging cities and less urban areas — potentially reshaping the geography of innovation, one home office at a time.

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