My first employee: an empirical investigation

Abstract

The challenge for solo entrepreneurs to add their first employee is arguably the single biggest growth event facing any growing firm. To understand how this event affects performance, and the antecedents of hiring, we analyse Danish matched employer–employee data. Those who hire enjoy superior sales outcomes in subsequent years, while the dispersion in profits increases. Furthermore, those that hire enjoy faster sales growth in the previous year, suggesting that sales growth precedes the first hire. Finally, we show that founders with a stronger profile in terms of education and previous income are more likely to increase profits, while the characteristics of the employee are less important. The latter finding is important from a job creation perspective, in light of the suggested sorting of more marginalized employees into new and established firms.