We tested hypothesis 2 by adding 4 measures of business experience, as well as 4 demographic control variables, to the 3 equations described above. Our results are entirely negative: none of the 4 measures of business experience is significantly associated with recruiting or hrm practices, once business size and age are taken into account. Only 2 of the 12 coefficients for the demographic controls are statistically significant. Most important, adding the experience indicators and the demographic controls does not alter any of the results from the baseline models all significant coefficients survive in the expanded equations.
Using an evolutionary model of organizational life cycles, we hypothesized that founders will adapt to growth by using more formalized recruiting procedures and hrm practices. We also expected, following life cycle models of organizational learning, that older firms would have more formalized hrm practices than younger firms. Finally, we hypothesized that owners maintaining a "family orientation" in their firms would be less likely to adopt formalized practices, even if the majority of their workforce was non-family. We found some support for all our expectations.
We were surprised, however, at the strong dependence on non-family members that was already evident at startup for these firms. Fellow owners and paid employees were recruited mainly among non-family, even though almost all started at an extremely small scale. Unpaid employees were few and far between.
At the outset, these firms relied heavily on informal recruiting practices, and they stuck with them as the firm grew older and larger. We found that formal recruiting methods were added as the number of non-family members increased, and that formalization was inhibited by the number of family members employed. Workforce size clearly affected formalization, but business age also had an effect, in addition to the numbers of people employed. We take this as evidence that owners were learning on the job, at least with respect to recruiting. However, net of size, age did not have an effect on the formalization of other personnel practices.
We are encouraged by these results, but recognize that they need to be tested on our panel data. Testing life cycle models will require that entrepreneurship researchers collect more data on firms as they age, a considerable challenge, given the costs and effort involved in panel data collection.
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