Assistant Professor Maria Roche
(Photo by Susan Young)

Assistant Professor Maria Roche
(Photo by Susan Young)

If you’ve just lost your job in a sour economy and you think this might be the sign you’ve been waiting for to get a startup off the ground, research by Assistant Professor Maria Roche suggests you might want to think twice.

In “Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Start-Up Outcomes,” Roche and coauthor Annamaria Conti found that high-tech and medical-device startups launched in uncertain financial times underperform those whose founders have better job security. As a result, the bar for good ideas goes down for people who are sensitive to the changes in the labor market—but stays the same for those in more stable job categories.

Examining the performance of 3,025 founders and their 1,747 startups in the biotechnology and medical-device sectors during previous economic downturns, Roche and Conti say their findings are likely driven by changes in the opportunity costs that a person might encounter in launching a venture. And the news is even grimmer for teams of academics: The more founders on the team with a PhD or postdoc training, “the lower the likelihood of survival and the smaller the number of patents produced,” the authors write. They reason that these people are more constrained by bumpy labor markets than others.

The paper has implications for founders and funders alike. Entrepreneurs, Roche says, need to be true to themselves if they’re launching because of a lack of better options. “It’s hard,” she says, “because we like to lie to ourselves.” But given the fact that most startups fail, a potential founder should really consider the lost resources and time, which they could have spent making money.

On the other side of the table, Roche suggests that funders should be extra stringent about assessing the quality of a project if it’s presented during a downturn. Tease out the team’s motivations for launching at that moment. Is it because they can’t find a job and this is their plan B? If it’s not their life’s dream, save your resources for a safer bet.

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