Michael S. Dahl and Olav Sorenson
Studies have consistently found that entrepreneurs who enter industries in which they have prior experience as employees perform better than others. We nevertheless know relatively little about what accounts for these differences. The presumed explanation has generally been that these entrepreneurs benefit from the knowledge that they gained in their former jobs. But they might also differ from other entrepreneurs on a variety of other dimensions: Preferential access to resources or differing motivations, for example, may account for their decisions to enter known industries instead of new ones. Combining novel data from a representative survey of entrepreneurs in Denmark with a matched employer- employee database of all residents in Denmark, we examined how entrepreneurs with prior industry experience differed from those without and the extent to which these differences could account for the performance premium associated with prior industry experience. We found that those with industry experience came from younger, smaller and more profitable firms, and that they recruited more experienced employees, worked harder and placed less value on having flexible hours. The recruitment of more experienced employees and the greater effort exerted appeared to account for at least some of the performance advantage associated with prior industry experience.