Will Starting a Business Kill Your Future Job Prospects?

Starting your own business has an added risk: a tougher road to get hired by someone else later.

learn more about Scott Shane

By Scott Shane

Opinions expressed by Entrepreneur contributors are their own.

Starting a business is risky. Half of all new businesses fail to experience a fifth anniversary. And everyone knows that you could lose all the money you've invested in your new company and then some. Those are the obvious risks of trying to be an entrepreneur.

But there is also a hidden risk to you of going into business for yourself – and this hazard is present even if you succeed with your company. If you spend time self-employed, your chances of getting a job working for someone else later are lower than if you never went down the entrepreneurial route in the first place, a recent study conducted in the United Kingdom reveals.

The study was pretty straightforward: Five Dutch researchers mailed 196 job applications of human-resource managers to employers advertising 98 job vacancies in the United Kingdom in 2011 and 2012. The applications were all the same, and involved the identical descriptions of skills developed from previous work activity, except for one feature. For some "individuals" created by the researchers, the most recent work experience was in a personally-owned consulting business, while for others it took place in a company owned by someone else.

Even though all other dimensions of the resumes and cover letters were the same, the authors found that the people with self-employment experience were 10 percent less likely to receive a subsequent call for an interview. Because being invited for an interview is a necessary condition for getting a job, the researchers concluded that having a spell of self-employment reduces the chances of getting hired by someone else later, even if that prior self-employment was successful.

The study was a randomized, controlled trial – the research gold standard. So the only factor that could have caused the "people" with self-employment experience to have lower odds of being called in for an interview was the self-employment experience on their resumes.

Related: Are Men Better Entrepreneurs Than Women? That's the Perception.

It's true that the researchers only looked at one occupation – human-resource management – and one place – the United Kingdom. People with entrepreneurial experience in other fields – house painters, doctors, lawyers, accountants, landscapers and so on – might not have trouble getting jobs after a self-employment gig. Moreover, working for yourself might not have an adverse effect on subsequent employment in places other than the United Kingdom. And entrepreneurial experience that involves building a company with employees, rather than simply working on one's own as a self-employed consultant, might not have a negative effect on future job prospects.

Nevertheless, the results strongly suggest that a spell of self-employment reduces a person's chances of getting a future job.

What the authors cannot answer from their study is why employers are averse to hiring people who have been entrepreneurs in the past. Employers might discriminate against the self-employed because they simply do not like them, even if people who have worked for themselves have excellent skills and abilities. But they might also might avoid people who have gone into business because the self-employed tend not to fit well in the corporate setting, have less training or lack skills useful for the world of working for others.

Whatever the reasons, would-be entrepreneurs should be forewarned. Going into business for yourself isn't just risky because your business might fail. It's risky because you might have a harder time getting a job in the future, even if you succeed with your company.

Related: Are Small-Business Owners Immoral If They Pay Low Wages?

Scott Shane

Professor at Case Western Reserve University

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).

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