When Employees Leave to Create their Own Entrepreneurial Ventures

Many research studies explore why founders of companies create new ones after breaking off a parent company, this process is called a “spinout.”

Mariko Sakakibara (University of California, Los Angeles) and Natarajan Balasubramanian, professor of management at Syracuse University’s Martin J. Whitman School of Management tried to examine the following questions in their research, “Human capital, parent size and the destination industry of spinout.

  • Where do entrepreneurs form spinouts? Close to their parent? Far from the parent?
  • Does the destination industry of entrepreneurs differ depending on (a) their level of human capital, and (b) size of their parent?

Sakakibara and Balasubramanian found that where individuals form spinouts are associated with their level of human capital and the size of their parent company/employer.

“Individuals with higher human capital are more likely to form spinouts in their employer’s industry than in other industries,” states Balasubramanian. However, individuals are not as likely to form spinouts as the parent company gets larger. They may choose to spinout into a different sector of business. 

Balasubramanian explains why they conducted this research, “Spinouts have received extensive attention from researchers in management, economics and finance, partly because many industry studies find that spinouts perform better than other types of new ventures. In these studies, parents are typically regarded as sources of knowledge for the founders. However, parents can also deter spinout formation, which has not been studied widely.”

Research in this area also allows us to understand how the potential of entrepreneurs may be impacted when they launch a startup in the same industry as their parent company as well as considerations that firm founders look at before creating their own spinout.

The study has been published in the Strategic Management Journal 2019.

Learn more about research being completed by faculty at Whitman.

Maya Bingaman
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