It was one of the most important papers Raj Echambadi has co-authored. But there was always something nagging him about his groundbreaking research in 2004 on employees who quit jobs to start their own ventures.
“What are the motivations?” asks Echambadi, the Dunton Family Dean of the D’Amore-McKim School of Business at Northeastern. “Why do these people leave their companies?”
Fifteen years later, he has his answer. Surprise: It is not about the money.
With the help of two co-authors, Echambadi went back to interview 22 entrepreneurs who had been involved in his original look at the disk-drive industry. That 2004 paper detailed how knowledge gained from old businesses led to success for the startup competitors—new “spinout” companies, as Echambadi’s study referred to them.
The latest research is, essentially, a spinout of his previous work. Echambadi’s updated interviews have straightened out the popular misconception that entrepreneurs are inspired by money. Think of the disgruntled employee who comes up with a potentially lucrative idea that the bosses refuse to pursue. That frustration may help trigger the decision to quit, but it is not an ultimate driver of the startup.
“It was never the idea that made people move,” Echambadi says of the business leaders he interviewed. “It was the primacy of the people. The ringleader said, ‘I’m going to create something. I need to be an entrepreneur.’”
“It was never the idea that made people move. It was the primacy of the people. The ringleader said, ‘I’m going to create something. I need to be an entrepreneur.’”
The product and its profit were incidental to the fundamental desire by entrepreneurs to prove themselves. What they did was less important than the fact that they did it. In each case, the fulfillment of a need was more important than the rewards.
Echambadi’s new study, Jewels in the Crown: Exploring Motivations and Team Building Processes of Employee Entrepreneurs, classifies the leaders of startups into a couple of simple categories. The “ringleaders,” who are unabashedly ambitious, launch the company based on their personal ambition. They surround themselves at the upper-management level with “cofounders,” who are less daring. While the ringleaders tend to be all-in, the cofounders are hedging their bets and keeping the door open for a return to their old firms in case the new venture should fail.
“In any venture, it makes sense to have very focused decision-making,” Echambadi says. With startups, he adds, “there was abundant freedom, but at some point you had to execute. Somebody had to make that quick decision. And that’s what the ringleaders do.”
The next step was to fill out the startup with employees who could manage a variety of tasks. The ringleaders and cofounders were searching for workers with a diversity of skills that would complement each other. But those workers also had to have the same values; their hearts had to be in the right place. And they had to be problem-solvers.
“When all of the team-assembly processes were followed,” says Echambadi, “we found that the long-term performance of the spinout increased.”
The same complementary formula was applied to Echambadi’s own team. He and co-author Rajshree Agarwal, a professor in entrepreneurship at the University of Maryland, are both quantitative researchers; they needed the point of view of Sonali K. Shah, an associate professor of business administration at the University of Illinois.
“This paper would not have happened without Sonali Shah, who in my humble opinion is one of the best qualitative researchers in the world,” Echambadi says. “But then Rajshree made the final call in a lot of ways. For this paper, I would say Rajshree was the ringleader.”