Founder-Employee Fit: The Founders' Impact on Startup Employee Retention

Strategy & Business Policy

Speaker: J.Daniel Kim

Professor - Wharton.Upenn

Conference  Jouy-en-Josas  / room meeting (T022) 

Abstract: 

Employee retention is a persistent challenge for startups, but (how) does the founder influence this outcome? Classical theories suggest that employee retention is primarily a function of institutionalized routines and organizational norms, thereby downplaying the significance of any one individual, such as the founder, especially as organizations mature. However, employee retention might also depend on fit employees develop with founders instead, based on which the founders’ influence may grow over time. Leveraging detailed administrative data from US startups, we assess the relative salience of institutionalized routines versus founder-employee fit by examining how the departure of a founder—particularly due to premature death—affects employee retention. We find that employee turnover increases significantly after a founder’s exit, with the impact being more pronounced in older startups. Furthermore, employees with longer shared tenure with the departing founder are more likely to leave. These findings underscore the growing importance of the founders in strengthening employee retention, primarily through the fit they cultivate with their employees over time.