Retaining Employees When Startups Professionalize

The delegation of decision-making authority from founders to dedicated managers is an important step in the professionalization of startups. However, such delegation changes the distinct nature of startups as workplaces with frequent interaction between founders and their employees. We build on theory of relational disruption in workplaces and theorize how delegation of decision-making authority affects employee retention. We reason that through delegation, employees lose opportunities to learn from founders and influence startup decisions. As a result, relational advantages of startup employment decrease, leading to employee mobility. Moreover, employees are particularly likely to leave after decision-making has been delegated when they are early in their careers and when founder teams are small. Using a sample of 13,737 employees in 1,797 German startups, we find support for our conjectures.