A lot of people choose to pursue professions in entrepreneurship and try to launch profitable companies. But not every aspirant business owner succeeds in creating a stable enterprise.

Approximately 50% of newly established enterprises fail within five years after opening. Usually, structural and financial issues preclude any possibility of long-term success.

Failed entrepreneurs will seek ordinary nine-to-five jobs as a way to get back on track. But research has shown that these former company owners’ prior experiences may actually work against them and prolong their recuperation.

A recent study conducted by Rutgers University that was published exposed bias towards former entrepreneurs throughout the hiring process.

For the purpose of the study, more than 200 seasoned corporate recruiters were given entirely fictitious resumes to peruse.

These recruiters came from a variety of industries, such as manufacturing, software development, and healthcare. While all the resumes listed the same accomplishments, others were sent by the researchers that mentioned the applicant’s made-up background as a former firm owner.

To find out what the recruiters would recommend, the researchers sent them three resumes and a job description. Based on credentials, Rutgers questioned who should be given the fictitious position.

The compiled data showed that hiring managers strongly favored assigning a position to a candidate who required additional business experience. This pattern emerged even though the resumes of the former entrepreneurs had the same qualifications but no experience in entrepreneurship.

Professor Jie Feng of the Rutgers School of Management and Labor Relations directed the project and conducted the research both prior to and following the COVID-19 outbreak. In both cases, the outcomes were nearly the same.

Feng discussed the finding that people with no prior entrepreneurial experience are treated differently from those who do, saying that “This difference is statistically significant across various firms and industries, suggesting a systematic bias against hiring former entrepreneurs. If you’re an entrepreneur, you raise more red flags.”

According to Dannin Wang, an associate professor at Rutgers Business School, there is a hiring prejudice against former entrepreneurs because of the different perspective that they bring to the workplace from non-entrepreneurs.

A hazard to companies that wish to avoid riskier techniques is the presence of individuals with entrepreneurial expertise. These people are accustomed to acting independently and taking chances without outside intervention.

But according to the study, former company owners might have luck if a female recruiter who is brand-new to the company or a former owner looks at their credentials.

Feng provided an explanation for this,  “Women are more open to applicants with a different identity or a different set of experiences. Newer recruiters are less constrained by organisational norms and more willing to consider an unconventional candidate. Former entrepreneurs can relate to those who have followed a similar path.”

The researchers advise businesses to provide greater emphasis to having excellent representation on their recruitment teams in order to counteract prejudice against previous entrepreneurs in hiring practices. Additionally, they advocate that specialized training be given so that recruiters can comprehend the drawbacks faced by entrepreneurs and why such drawbacks alone shouldn’t influence their recommendations.

Former business owners may not make as much money as their peers when they take a nine to five job. We refer to this as the “entrepreneurship penalty.”