Is It All About Who You Know? Prior Work Connections and Entrepreneurial Success

Abstract

This article studies how prior professional connections among founding employees predict a new firm’s short- and medium-term success. The authors apply three employment network measures to a large employer–employee matched Brazilian panel data set to find that network structures are strongly predictive of both firm survival and growth. All else equal, new firms with previously connected founding employees experience higher survival odds but slower early growth. Results suggest that working with former co-workers confers benefits such as resolved informational asymmetries, increased resource sharing, and nonpecuniary gains—qualities that are vital to new firm survival. High growth, however, likely benefits from a more varied resource set, facilitated by drawing on individuals from a multiplicity of employment backgrounds. In addition, the absence of prior ties may itself render the profit motive dominant, thereby increasing growth. Results are consistent across most sectors, initial firm sizes, and other sample selection criteria.