Taking the Leap: The Determinants of Entrepreneurs Hiring their First Employee

One of the most important decisions that an entrepreneur has to make is whether to hire employees. Longitudinal data from the Kauffman Firm Survey (KFS) and the Growing America through Entrepreneurship (GATE) Experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a non-employer to employer firm. Several interesting patterns emerge regarding the dynamics of non-employer startups hiring their first employee. Many non-employer startups hire their first employee in the first three years of existence. After that period of time and through the first seven years, only a few additional firms make the switch from non-employer to employer. An examination of the demographic characteristics of owners reveals that non-employer startups owned by African-Americans have similar rates of hiring their first employee by each follow-up year whereas Asian-owned and Hispanic-owned startups have higher rates of hiring their first employee than white-owned startups. Female-owned startups are roughly 10 percentage points less likely to hire their first employee by the first, second and seventh years after startup. The education level of the owner is not found to be associated with the probability of hiring an employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, I also find some suggestive evidence that entrepreneurship training might increase the likelihood that non-employers hire their first employee. Another interesting finding is that the revenue levels of young firms do not strongly predict when they hire their first employee but business assets and intellectual property are associated with hiring the first employee.