When Do Spinouts Benefit From Market Overlap With Parent Firms?
Journal of Business Venturing (https://doi.org/10.1016/j.jbusvent.2022.106249)
We examine how market overlap with parent organizations impacts the performance of startups founded by the former employees of these incumbent firms. Building on knowledge inheritance and competitive dynamics theories, we propose that the degree to which the operating markets of spinouts overlap with their parent organizations has a curvilinear relationship with their likelihood of survival. Market overlap is beneficial to spinouts because it reduces uncertainty during the early stages of new venture development. However, substantial market overlap may spark hostile actions by the parent organizations, thereby creating disruptive competition that may lower the likelihood of spinouts’ survival. Furthermore, we hypothesize that the previous hierarchical position of founders in parent organizations moderates the overlap–performance relationship. Using a sample of European biotech spinouts and their parent firms, we find support for our hypotheses.
Technological and Marketing Capabilities of Incumbent Firms as Sources of Opportunities for Spinouts
2nd Revise & Resubmit
Entrepreneurship literature on spinouts (new ventures by ex-employees of incumbent firms) suggests that increases in either the level of incumbent firms’ technological or market knowledge enhance the likelihood of spinouts’ entry. Conditional on spawning new ventures, in this paper we examine whether the knowledge structure of incumbent firms would affect the strategic direction of ventures spawned. Analyses of data from the biotech industry supported our hypotheses linking the focus of incumbents’ technological and market portfolio to their spinouts’ pattern of entry to the same (or different) technological fields or market segments as their parent firms. Our results contribute to the strategy and entrepreneurship literatures by providing a novel perspective on incumbent firms as source of new venture formation and their post-entry strategy.
Opportunity versus Necessity as Drivers of Employee Entrepreneurship
3rd Revise & Resubmit
The prevailing view of spinout formation is that established firms unwillingness to pursue new opportunities can cause frustration among employees whose ideas or inventions are shelved, and in turn will increase their confidence about venturing out. Not all spinouts, however, are launched to exploit opportunities shunned by established firms. Anecdotal evidence suggests that deteriorating employment condition caused by adverse developments in established firms (e.g., involuntary exit, takeover, or changes in the top management) may be another dominant driver for employee entrepreneurship. In this study, I examine how organizational factors driving entrepreneurship decision impact the early-stage strategy of these new ventures compared to established firms. Data from the European biotech industry were used to test the hypotheses.
Knowledge Resources, Entry Strategies, and Performance of Spinouts in Nascent Industries
How do the knowledge resources inherited by spinouts shape their market entry strategies and the likelihood of success in nascent industries? In this study, we try to unpack the sources of heterogeneity in spinouts’ patterns of entry and exit during the early stages of the industry development based on whether their founders had prior employment experiences in the same industry or in other settings related to the focal industry context. Using a comprehensive sample of US startups in the artificial intelligence industry, we find that spinouts originating from the supplier industry firms or universities enter earlier to the industry, while those from the focal industry enter later compared to other start-ups. Further, we find that spinouts originating from the user industry firms are more likely to incorporate general-purpose technologies (GPTs) as their technological strategy upon entering the market. Finally, conditional on entering the industry during the later stages or incorporating a GPT, we find that all types of spinouts are more likely to successfully exit compared to other start-ups