It’s common for employees to leave their organizations to start their own firms. In fact, studies show that spinouts, as these new firms are called, perform better than other types of new ventures, mainly due to the fact that the founders can call upon the knowledge gained from their parent company. But, new research from Syracuse University’s Martin J. Whitman School of Management finds that parent companies can also deter spinout formation.
The study, “Human capital, parent size and the destination industry of spinouts,” finds that individuals who work for large employers are sometimes dissuaded from forming a startup at all.
“Our study shows that large parent companies try to retain their high-ability employees who are capable of striking out on their own,” says Natarajan Balasubramanian, associate professor of management at Syracuse University who co-authored the research. “And these highly-skilled employees still decide to leave, often forming spinouts in a different industry altogether.”
Balasubramanian adds that this helps the founders of the spinout avoid potential competition with the larger parent company. While the study finds that individuals with higher human capital are more likely to form spinouts in general, they are more likely to stay within their employer’s industry only when their parent company is smaller in size. The larger the parent, the more likely founders are to form spinouts in distant industries.
“We want highly capable entrepreneurs to start new firms where they can best utilize their capabilities,” said Balasubramanian. “But if employers of potential founders start to impede entrepreneurial activities in their industry and influence the destination industry of entrepreneurs, then relevant policy measures may be called for.”
The research, co-authored by Mariko Sakakibara (University of California, Los Angeles) is forthcoming in the Strategic Management Journal.
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