Firm Growth and the Job Satisfaction of the Startup Workforce

Author Information: 
James Bort, DePaul University
Johan Wiklund, Syracuse University
Wei Yu, National University of Singapore

Journal: 
Strategic Management Journal, 2025

Summary:

This study investigates how sales and employment growth shape employee job satisfaction in startups, revealing that while moderate growth enhances employee experience, rapid expansion can undermine satisfaction through distinct organizational challenges. Using data from 7,962 employees across 263 startups, the research shows that employment growth follows an inverted U-shaped relationship with job satisfaction, while sales growth affects satisfaction indirectly through managerial performance problems.

Key Insight: Growing fast isn't always better for employees—startups that scale at moderate rates create better workplace experiences than those pursuing breakneck growth, but the reasons differ depending on whether you're rapidly adding people or rapidly increasing sales.

Research Questions:

Our primary research question was: Does the rate of growth influence employee job satisfaction in startups, and what mechanisms drive this effect?

With this, we explored several specific sub-questions:

• How do different dimensions of growth (sales vs. employment) differently impact employee satisfaction?
• What organizational challenges emerge during rapid growth that affect the employee experience?
• How do managerial performance problems and socio-structural issues mediate the growth-satisfaction relationship?
• At what point does growth become counterproductive for employee wellbeing?

What We Know:

This research matters because startups are creating the workplaces of tomorrow, yet we know remarkably little about how their defining characteristic—rapid growth—affects the people who work there. While growth is celebrated as the ultimate startup success metric, our findings suggest the employee experience tells a more nuanced story.

Why scholars care: The study bridges macro-level organizational dynamics with micro-level employee experiences, advancing both growth theory and job satisfaction research. It reveals how Penrose's classical growth theory applies differently to modern, technology-enabled firms where sales and employment can decouple in unprecedented ways.

Why practitioners care: In an era of intense competition for talent, understanding how growth affects employee satisfaction is critical for retention and recruitment. The research provides actionable insights for startup leaders about the hidden costs of rapid scaling and the organizational interventions needed to maintain positive workplace culture during expansion.

Novel Findings:

This study advances our understanding of startup growth in several key ways:

1. Growth Dimensions Matter Differently: Sales and employment growth affect employee satisfaction through distinct pathways. Employment growth shows a direct inverted U-shaped relationship with satisfaction, while sales growth works indirectly through managerial performance problems.

2. The Penrose Effect is Less Binding: Unlike Penrose's original theory suggested, today's technology-enabled firms can often scale sales dramatically without proportional increases in management challenges—until they reach extreme growth rates.

3. Two Types of Growing Pains: Rapid sales growth primarily exposes managerial performance problems (leadership deficiencies, coordination failures), while rapid employment growth creates socio-structural problems (diversity issues, reduced trust, office politics).

4. Optimal Growth Rates: Employee satisfaction peaks at around 138% annual employment growth, beyond which workplace dynamics deteriorate significantly.

Implications for Practice:

For Startup Leaders:

Moderate growth isn't failure—it can be strategic. The pressure to grow at all costs may be destroying employee satisfaction which can lead to negative long term consequences as internal problems accumulate.

Different growth types require different management approaches. Scaling sales demands leadership development and operational excellence, while adding employees requires focus on culture, inclusion, and social cohesion.

Invest ahead of the curve. Management infrastructure and social systems need to be built before growth constraints emerge, not after problems become visible.

For Investors:

Question extreme growth rates. While rapid growth creates impressive financial returns, it may be building unsustainable organizations with high hidden costs in employee turnover and workplace dysfunction.

Support portfolio companies with growth management. Provide resources for leadership development, HR infrastructure, and organizational design—not just capital for expansion.

Implications for Policy:

Startup Ecosystem Development: Policymakers promoting entrepreneurship should recognize that sustainable startup ecosystems require more than just funding and market access. They need infrastructure supporting organizational development, leadership training, and human resource management capabilities.

Labor Market Considerations: As startups become larger employers, policymakers should consider how rapid organizational change affects worker wellbeing and career development. This has implications for employment law, worker protection, and professional development programs.

Implications for Society:

This research highlights a broader tension in modern capitalism between the pursuit of growth and human wellbeing in the workplace. As startup culture and growth-at-all-costs mentalities spread beyond Silicon Valley, understanding these dynamics becomes crucial for creating sustainable organizations that benefit both shareholders and employees.

The findings suggest that the most successful startups of the future may not be those that grow fastest, but those that grow most thoughtfully—balancing expansion with employee experience to build organizations that can sustain their success over time.

Implications for Research:

This study opens several exciting avenues for future research:

1. Extending Growth Theory: The decoupling of sales and employment growth in modern firms calls for updates to classical theories developed in the industrial era. Future research should explore how technology continues to reshape organizational scaling.

2. The Start-up Workforce: More research is needed on how start-up employees navigate rapidly changing work environments and what factors help them thrive despite organizational instability.

3. Measuring Success Beyond Financial Metrics: The findings suggest that employee satisfaction should be considered alongside traditional performance measures when evaluating startup success and sustainability.

4. Cross-Cultural and Industry Variations: Future studies should examine whether these patterns hold across different cultural contexts and industry sectors beyond the primarily US-based, high-growth firms in this sample.

Full Citation:

Bort, J., Wiklund, J., & Yu, W. (2025). Firm Growth and the Job Satisfaction of the Startup Workforce. Strategic Management Journal, in press.

Abstract:

This study investigates how sales and employment growth shape start-up employee job satisfaction in startups. Grounded in Penrosean growth theory and related literature, we propose an inverted U-shaped relationship, where excessive growth triggers the "Penrose Effect" and impairs employee job satisfaction. Analysis of multi-level Glassdoor.com data reveals modest support for this relationship in employment growth, especially among firms undergoing rapid workforce expansion. Exploratory text analysis further suggests that rapid employment growth exposes socio-structural challenges, while rapid sales growth reveals managerial deficiencies in scaling revenues. The differences between these mediating mechanisms suggest that the Penrose effect may be less binding than previously theorized, warranting further scrutiny. Our findings bridge macro-level growth dynamics with micro-level employee experiences, providing insights into the contemporary challenges of rapidly growing firms.