Affiliation-based hiring strategies enhance emerging companies’ capability to attract and maintain high-calibre employees, thus improving their overall performance, provided these affiliations align well with the business’s specific needs. A study featured in the Strategic Management Journal reveals that early-stage companies often benefit from hiring individuals linked to the founders’ previous work experiences. However, this advantage diminishes when founders opt to hire former schoolmates. The study highlights the prevalent practice of leveraging previous professional affiliations and delineates when such strategies might be beneficial or detrimental.

Historically, research has delved into the role of personal connections in the job market and how these relationships influence employment opportunities. However, scholars Vera Rocha from Copenhagen Business School and Rhett Andrew Brymer from the University of Cincinnati identified a gap in understanding how such hiring practices impact the companies that employ these individuals, especially startups. Rocha points out that the relationship between affiliation-based hiring and the performance of young firms is more complex than it might initially seem since employment and educational ties differ significantly. While workplace connections are typically professional, educational ties often encompass long-standing friendships and may involve similar skills and attributes, which do not necessarily benefit the firm.

The researchers also examined the nuances within these affiliations. Some connections are more direct, while others are more distant, varying by how much individuals’ experiences at previous organisations overlapped in time and physical space. For instance, individuals may have attended the same academic programme at different times or worked at the same company but in other departments.

To assess the advantages and disadvantages of affiliation-based hiring, the researchers analysed a comprehensive longitudinal dataset of Danish startups, their founders, and employees across various sectors. This data enabled them to track individuals and companies over time, observing educational and career paths, company evolution from inception to exit or expansion, and changes in employment within these companies. This extensive analysis shed light on how hiring patterns influenced company performance throughout their development.

Rocha notes that not all affiliation ties are equally valuable, and their worth can vary depending on when they are introduced during the company’s lifecycle; generally, young companies that employ affiliation-based strategies tend to perform better, as these tactics facilitate access to and retention of superior talent. However, the effectiveness of these relationships varies depending on the nature and closeness of the ties between the founders and the employees. Companies show improved performance when they hire based on the close and professional relations of the founders in the initial years (up to three years), but this is not the case when hiring schoolmates. For example, companies that employed founders’ elementary school classmates generally fared worse than those without such hires, as these relationships tend to be less professional and may include friends, highlighting the risks of employing personal connections who might not contribute essential resources to the team or could lead to conflicts.

Conversely, companies that hired individuals who attended the same university as the founders but in different fields tended to perform better. These relatively distant ties brought more diverse knowledge to the company, particularly beneficial when these individuals were hired into specialised or higher-ranking positions later in the company’s development. This contrasts with hires with close employment ties to the founders, who often needed more clearly defined roles, indicating a need for them to adapt to various roles during the early phases of the company.

Rocha emphasises that while many founders and managers are inclined to hire individuals they know well or share some professional or educational background with, there can be drawbacks, mainly if these hiring decisions are heavily influenced by social connections without adding complementary resources to the team. Thus, while affiliation-based hiring can be advantageous, careful consideration of the type and timing of these connections is required to benefit the firm truly.

More information: Vera Rocha et al, We go way back: Affiliation-based hiring and young firm performance, Strategic Management Journal. DOI: 10.1002/smj.3673

Journal information: Strategic Management Journal Provided by Strategic Management Society