Hiring Entrepreneurs for Innovation

• Authors: Theodor Vladasel.
• BSE Working Paper: 110781 | January 22
• Keywords: human capital , entrepreneurship , innovation , learning by hiring , execution skills , middle management
• JEL codes: J24, L23, M12, M21, M51
• human capital
• entrepreneurship
• innovation
• learning by hiring
• execution skills
• middle management

Technical human capital improves firms’ invention outcomes, but generating innovation revenue may require distinct skills in bringing new ideas to market. We argue that former founders are endowed with execution skills, a generalist ability to create and exploit market gaps by acquiring and mobilizing resources, so entrepreneurial human capital enhances innovation in established organizations. Combining register and Community Innovation Survey data from Denmark, we show that entrepreneur hires are associated with higher sales from new products and services. This result is driven by founder hires in middle management, a hierarchical position where broader decision rights and resource access increase execution skills’ effectiveness. Founder hires are more tightly linked to innovation new to the firm or market, rather than world, consistent with our prediction that execution skills help bring incremental improvements to market, but do not necessarily generate radical innovation. Together, our findings suggest that entrepreneurial human capital may help firms appropriate a larger share of the value their knowledge generates.