Many founders strive to treat their employees well. Offering generous benefits can hire potential employees, retain talented employees, and foster loyalty—important qualities for early-stage ventures’ growth. But can being “too nice” to employees actually hurt your startup’s performance?
That’s the question we tackle in our recent study published in the Journal of Business Venturing Insights. We explore whether there's a limit to how much early-stage ventures should invest in employee-oriented practices. Using data from 623 new U.S. ventures tracked over 7 years, we uncover a counterintuitive finding: employee orientation follows an inverted U-shaped curve in relation to performance. In other words, treating employees well helps—until it doesn’t.
“Being nice” to employees
To capture employee orientation in concrete terms, we created a composite index based on the monetary value of employee benefits (e.g., healthcare, paid leave, tuition reimbursement). Using detailed U.S. government data, we assigned cost-based weights to each benefit to reflect the real-world resource allocation entrepreneurs make toward their teams.
Rather than relying on subjective survey responses, our approach provides an objective, scalable measure of employee orientation grounded in actual practice.
Tipping point of employee orientation
Our results confirm that moderate levels of employee orientation improve performance. Startups that offer benefits to their employees are more likely to attract talent, signal legitimacy, and foster internal trust—all of which can improve revenue. But there’s a tipping point. Once employee orientation exceeds a certain level, performance starts to decline. Overcommitting resources to employees early on—without adequate returns—can:
Drain scarce cash,
Shift power away from the entrepreneur, and
Distract from engaging with other critical stakeholders (e.g., customers, suppliers, investors).
There’s such a thing as being too nice—especially when your venture is still fighting for survival.
Not all teams are created equal: The role of founders’ human capital
We also discovered that the “optimal level” of employee orientation depends on the human capital of the founding team. For teams with extensive prior work experience, the performance peak occurs at lower levels of employee orientation. Why? Experienced teams can attract, manage, and retain talent without relying heavily on costly employee benefits. Their know-how serves as a substitute for benefits.
In contrast, less experienced teams may need to compensate employees more by adopting a stronger employee-oriented approach to build trust and legitimacy.
Practical takeaways for entrepreneurs
Balance is key. Don’t overinvest in employee benefits at the expense of your startup’s financial health—especially in the early stages.
Tailor your strategy. Reflect on your team’s capabilities. If your founding team has deep industry experience, you may be able to conserve resources and still build a strong employee culture.
Revisit regularly. Your optimal employee strategy might shift as your team, market, and financial position evolve. Make “stakeholder fit” a dynamic part of your strategy.
Avoid one-size-fits-all. Not every venture needs the same level of employee orientation. Consider other stakeholders too.
Who should read the full paper?
This study will be especially useful for:
Entrepreneurs navigating growth decisions and talent strategies,
Startup coaches and accelerators advising early-stage ventures,
Policymakers considering regulations or incentives around startup labor practices, and
Researchers interested in stakeholder theory, entrepreneurship, and resource allocation.
Read the full paper here: https://doi.org/10.1016/j.jbvi.2025.e00519
Author Bios
Myeongho David Park is an Assistant Professor of Entrepreneurship at Rowan University. He was a former entrepreneur. His current research focuses on stakeholder strategy, institutional entrepreneurship, and employee mobility.
Shawn L. Berman is a Professor of Business and Society at the University of New Mexico. His research focuses on stakeholder theory, corporate social responsibility, and business ethics. He has published in journals such as the Academy of Management Journal and the Academy of Management Review.
That is a great practical insight. Being very employee-oriented, especially at the early stages when the firm does not have good financial health, is not great for the venture's performance. It would be interesting to understand how culture shapes the employee orientation of startups (what is expected and what is happening in reality).