Startup Hiring: Do Perks Really Matter?

There’s an oft-repeated statistic in the startup world: More than 95% of startups fail.

Now that we have that cheerful news out of the way, do those crazy perks that startups offer when hiring actually make a difference when it comes to its survival?

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A new study aimed to find out.

Why startups offer perks when hiring

Companies advertise their perks when hiring because of the belief that they build a sense of reciprocity between the employees and the company, which motivates employees to perform better and increases their commitment to stay. Offering perks is a popular hiring tactic because it’s perceived as a relatively cost-effective and flexible way for a startup to do so.

Simple, right? Surprisingly, very little research has been done on whether these perks actually make a difference in terms of whether a startup succeeds or fails.

Do perks make a difference whether a startup succeeds or fails?

Professor DeGeest and colleagues examined the effect of perks (which they call motivation-enhancing human resource practices) on a startup’s survival. Specifically, they looked at four common perks offered by startups: flex-time, employee stock options (equity), a bonus program, and a health insurance plan. They examined 1,100 startups over a 7-year period from 2004 to 2010.

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They found providing perks to employees did make a difference for a startup’s survival but the effect differed based on time. Specifically, in the viability stage (1 year after a startup’s founding), offering perks decreased a startup’s chance of survival. Whereas in the growth stage (5 years after a startup’s founding), offering perks increased a startup’s chance of survival.

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Should a startup offer perks when hiring?

Founders of startups have difficult choices they have to make every day, often with limited resources. How to attract, hire, and retain the best employees is one of those difficult but crucial decisions.

It might seem obvious that offering the best perks you can when hiring is a no-brainer, but this research suggests that investing resources towards perks too early can hurt a startup’s chances of survival.

However, once a startup is in its growth stage, offering perks to employees provides a significant advantage for its success. Teslas, anyone?

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Ji-A Min

Ji-A Min

Head Data Scientist at Ideal
Ji-A Min is the Head Data Scientist at Ideal. With a Master’s in Industrial-Organizational Psychology, Ji-A promotes best practices and data-based recruitment. She writes about trends and research in talent acquisition, HR tech, and people analytics.
Ji-A Min

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