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Reassessing the Entrepreneurial Spinoff Performance Advantage: A Natural Experiment Involving a Complete Population


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Through the discovery and exploitation of a natural experiment comprised of a complete industry population, this paper presents empirical evidence challenging widely held beliefs related to intra-industry entrepreneurial spinoffs. Extant spinoff theory holds that knowledge and capabilities are transferred from parent-firms to spinoffs in hereditary fashion, endowing spinoffs with a performance advantage over de novo entrants. Our analysis of all 612 industry entrants, including 448 spinoffs, paints a dramatically different picture. In the context of a complete population, we find that: (a) de novo entrants actually outperform spinoffs; (b) parent-firm quality exerts no discernible influence on spinoff quality; and, (c) founder-specific experience, not parental lineage, is the primary driver of spinoff performance heterogeneity.
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Frontiers of Entrepreneurship Research
Volume 32 |Issue 12
Richard A. Hunt
University of Colorado,
Daniel A. Lerner
University of Colorado
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Research: Vol. 32: Iss. 12, Article 2.
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Richard A. Hunt, University of Colorado at Boulder, USA
Daniel A. Lerner, University of Colorado at Boulder, USA
Abstr Act
Through the discovery and exploitation of a natural experiment comprised of a complete industry
population, this paper presents empirical evidence challenging widely held beliefs related to intra-
industry entrepreneurial spinoffs. Extant spinoff theory holds that knowledge and capabilities are
transferred from parent-firms to spinoffs in hereditary fashion, endowing spinoffs with a perfor-
mance advantage over de novo entrants. Our analysis of all 612 industry entrants, including 448
spinoffs, paints a dramatically different picture. In the context of a complete population, we find
that: (a) de novo entrants actually outperform spinoffs; (b) parent-firm quality exerts no discern-
ible influence on spinoff quality; and, (c) founder-specific experience, not parental lineage, is the
primary driver of spinoff performance heterogeneity.
Intra-industry entrepreneurial spinoffs (sometimes called “spinouts”) occur when employees
leave a corporate parent to start a new, completely independent company as an entry vehicle into
the same industry as their former employer (Klepper, 2001), without support or sponsorship from
the parent-firm. Entrepreneurial spinoffs are richly in evidence during periods of new industry
formation, appearing as both a driver of new industry opportunities and a primary beneficiary of
emerging industry opportunities (Garvin, 1983). It has become popular in recent years for scholars
studying intra-industry business spinoffs to invoke the language of procreation and genetics as an
explanatory model for spinoff creation and performance. An expanding set of studies supporting
a progeny model (Phillips, 2002) variously refer to the parent-child ties (Klepper, 2001) as
“spawning” (Gompers et al., 2005; Chatterji, 2009), “inheritance” (Nelson, 1991; Agarwal et al.,
2004), “organizational births” children” and “offspring” (Dyck, 1997), “parenting” (Klepper &
Sleeper, 2005), and “heredity” (Dick et al., 2011). The use of proto-biological speak is evidence
that spinoff scholars believe they have secured sufficient empirical support to advance a widening
set of “stylized facts” (Klepper 2009) that provide a theoretical foundation for the subject, namely:
that spinoff founders learn lessons from their parents that are advantageously deployed towards
an improved likelihood of survival and the achievement of superior performance. As Klepper and
Sleeper asserted, “Firms can be thought of as giving birth to spinoffs, so that spinoffs have parents
from whom they inherit specific traits, in this case knowledge” (2005: 1303).
Central among these “stylized facts” is the widely held belief that entrepreneurial spinoffs
live longer and perform better than de novo entrants (Brittain & Freeman, 1986; Christensen,
1993; Stuart & Sorenson, 2003; Agarwal, Echambadi, Franco & Sarkar, 2004; Klepper & Sleeper,
2005; Chatterji, 2009). “Spin-outs have a survival edge in the market over other entrants as the
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result of a combination of entrepreneurial flexibility and inherited knowledge,” noted Agarwal
and colleagues (2004: 519). It is also widely propounded that high-performing parent-firms serve
as a wellspring for high-performing spinoffs (Gompers, Lerner & Sharfstein, 2005; Eriksson &
Kuhn, 2006; Klepper, 2009; Elfenbein, Hamilton & Zenger, 2010). As Klepper and Sleeper asserted,
“Spinoffs inherit technical and market-based knowledge from their parents that shapes their
nature at birth” (2005:1303). Simply put, the common wisdom has become: “Better-performing
firms have better-performing intra-industry spinoffs” (Klepper & Thompson, 2010: 5).
On the face of it, these increasingly formalized assertions present a formidable case in
support of a hereditary theory of entrepreneurial spinoffs. And yet, this general acclamation of
spinoff superiority is vexed by a very simple, very perplexing fact: most spinoffs fail to become
substantively operational. In fact, spinoff failure rates often exceed those exhibited by the general
population of firms (Garvin, 1983; Klepper, 2002; 2007). The sheer number of entrepreneurial
spinoff failures raises several important research questions. First, if spinoff performance can be
most aptly portrayed as involving a hereditary linkage between parent-firms and their spawn, then
why do so many spinoffs fail? Second, if high-performing parent-firms are generally thought to
produce high-performing spinoffs, then why do many low-performing spinoffs come from high-
performing parents and many high-performing spinoffs come from low-performing parents?
The extreme heterogeneity in spinoff performance constitutes a theoretical fissure that can only
be resolved through the use of fine-grained, comprehensive data that allows close examination of
spinoff successes and failures. Using data from a natural experiment that arose through legislative
action related to the regulation of asbestos removal and disposal in Colorado, we directly address
the performance heterogeneity complications by employing a complete industry population.
In this fashion, our study breaks new ground in several important respects. First, we contribute
to entrepreneurial spinoff theory by providing the first substantive head-to-head comparison
between a complete population of spinoff entrants and de novo entrants. Our study provides
the circumstances and data necessary to test the foundational assumption that market entrants
who possess high-quality parental lineages outperform those that do not. Through this empirical
breakthrough, we offer a corrective course for the development of a more robust and encompassing
spinoff theory. In the absence of a clear spinoff performance advantage, existing theories are
unable to explain the high failure rates, especially failed spinoffs spawned from better-performing
parent-firms (Eriksson & Kuhn, 2006; Klepper, 2009). Our analysis materially enriches spinoff
theory by providing explanatory bases for failures as well as successes.
Secondly, we contribute to the knowledge-transfer literature (e.g. Kogut & Zander, 1992) by
addressing the effect-conflation issues that have bedeviled prior studies of nascent industries
(Aldrich & Fiol, 1994), including those examining spinoffs. By dissecting the drivers of spinoff
performance heterogeneity, we offer a more detailed evaluation of parent knowledge transfers to
spinoffs. Prior studies have used aggregated spinoff data, thereby failing to capture performance
heterogeneity. This has led to strong, but untested assumptions linking parent performance to
spinoff performance. By comparing firm-level heterogeneity to overall heterogeneity, we offer
the first meaningful test of whether or not transferrable knowledge is instrumental to spinoff
outcomes. Finally, we provide important insights for entrepreneurship research methods through
our sensible explication of unobservable non-linear relationships (Daniels and Hogan, 2008) by
using a natural experiment, rather than simulated data. Much of the prior literature in this realm
has come to rely upon a patchwork of explanations that are conceptually sound but functionally
disengaged from the actual challenge of assessing truncation effects. Through the innovative use
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of a natural experiment, we address the persistent dilemma of data truncation, which inherently
understates spinoff occurrence and overstates spinoff survival and performance.
In the following section, we provide additional context regarding spinoff theory and develop
a set of four hypotheses that are tested using OLS regression models. After detailing the database
and methods used in the study, we present the results of the data analysis associated with this
natural experiment. We conclude by reflecting on the implications for future study.
theoretIcAl dev elopm ent And hypothe ses
Spinoff Theory and Data Truncation
Spinoff scholars have drawn strong connections to a wide range of seminal management theories
for the purpose of advancing spinoff studies, including: evolutionary theory (Nelson & Winter,
1982; 1987), organizational learning (Cyert & March, 1963; Fiol & Lyles, 1985; Leavitt & March
1988), tacit and explicit knowledge transfer (Kogut & Zander, 1992; Teece & Pisano, 1994; Franco
& Filson, 2006), and a variety of economic-based (Geroski 1995) and sociology-based (Hannan
& Freeman, 1977; 1989; Aldrich & Fiol, 1994) explanations for market entry. Credible linkage to
these theoretical frameworks requires scholars to demonstrate the soundness of a hereditary-based
theory of spinoff performance. Unfortunately, comprehensive spinoff data has been notoriously
elusive. For the data that has been gathered to-date, analysis has been confounded by left-side data
truncation, meaning that observations on both the dependent variable and regressors are missing
(Cameron & Trivedi, 2005). Figure 1 displays a stylized representation of the truncation problem.
The individual data points represent the complete population of firms entering a hypothetical
market. The truncation threshold represents the beginning of the observation window. This
means studies that define the observation window through the use of trade catalogues (Klepper,
2001), venture capital financing (Chatterji, 2008) or industry journals (Agarwal et al., 2004) may
exclude early spinoff failures from the analysis.
In Figure 1, the mean performance (YO), comprised of only the observed values of y (yo),
overstates the operational performance and understates the entry rate of the complete population.
This is because there exists an unobservable non-linear relationship in the complete population
of observations. Since the unobserved values of y (yu) do not share a linear relationship with the
population of values comprising YO, conventional efforts to relate YO and YU will be impaired by the
inability to apply the distributional assumptions underlying parametric correction tools, such as
the Tobit Model. Corrections that relax distributional assumptions such as maximum-likelihood
estimation and the Heckman two-step estimator are marginally more robust, but suffer from
the notable liability of being “fragile to even very minor misspecification of error distributions”
(Paarsch, 1982; Cameron & Trivedi, 2005). When the boundaries of possible solutions are so
broad as to include the parametric estimators that are assuredly wrong and the non-parametric
estimators that are assuredly uninformative, then these features render the estimators difficult to
interpret (Tsiatis, 2006) and unsatisfying to apply to management research.
Given the formidable methodological challenges associated with any examination of spinoffs,
a natural experiment involving a complete population is perhaps the only tool through which
this complex array of issues can be comprehensively addressed. Due to of the manner in which
Colorado chose to implement the federal requirements governing asbestos abatement, there exists
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a well-defined database, extending back 25 years to the industry’s inception. Equipped with the
data from this uncensored population, we advance two arguments (see Figure 2):
H1a: De novo entrants live as long as or longer than spinoff entrants.
H1b: De novo entrants perform as well as or better than spinoff entrants.
Spinoff Performance Heterogeneity
Prior studies have largely attributed the heterogeneity of performance among entrepreneurial
spinoffs to hereditary linkages between parent-firms and their respective spawn, saying in essence
that good parents produce good kids and bad parents produce bad kids. “Spinoffs will initially
have the same expected profits and survival prospects as their parents, thus more innovative and
long-lived parents will have more innovative and long-lived spinoffs” (Klepper, 2001:646; Franco
& Filson, 2006). Given the effects of left-side truncation, in which a great preponderance of failed
firms are never included in the analysis (Figure 1), this assertion is based more on speculation
than empirical observation. Absent from all previous spinoff studies is an analysis of the variance
within the group of spinoffs spawned from a shared parent-firm. If the variance is greater within
the cohort of spinoffs for a parent-firm than for the population of spinoffs, then this would cast
doubt upon the conclusion that better-performing parents spawn better-performing spinoffs.
Data limitations have hindered scholars’ ability to address this critical question. Meanwhile,
the methods used in prior studies have identified successful spinoffs across multiple industries,
but these same methods have produced a spinoff theory that is unable to explain the high failure
rate. Because of this, there is reason to doubt the extent to which existing research has accurately
captured the performance outcomes of spinoffs. Instead, by linking the spinoff story primarily to
technological know-how (Agarwal et al., 2004) and knowledge appropriation (Eriksson & Kuhn
2006; Klepper & Thompson, 2010), existing theory explains the few success stories, while failing to
account for the far-larger legion of failed firms.
The only meaningful way to directly test the purported linkages between parent-firm quality
and spinoff quality is by examining the extent to which high-quality parents produce high-quality
spinoffs, and low-quality parents produce low-quality spinoffs. Doing so requires the availability
of a complete, non-truncated population of industry actors. The natural experiment involving
the Colorado asbestos abatement industry provides such data. From its inception in 1986, through
2010, 100 parent-firms spawned 448 spinoffs. Among these, 35 parent-firms produced five or
more spinoffs, and thirteen of those firms produced ten or more spinoffs. The presence of several
dozen parent-firms, each producing statistically a significant spinoff cohort group, provides an
unprecedented opportunity to scrutinize spinoff performance heterogeneity. If the transfer of
knowledge and capabilities from parent to spinoffs is a critical source of performance advantage,
then the variance in performance for the cohort of spinoffs spawned by any given parent should
be less than the overall performance variance. In directly challenging the dominant association
between parent quality and spinoff quality, we predict that cohort group heterogeneity will exhibit
variance exceeding the variance for the entire population of spinoffs (see Figure 2):
H2: Variation in performance within a parent-firm’s cohort of spinoffs will, on average, exceed
the variation in performance for the population of all spinoffs, regardless of parent-firm quality.
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Founder-Specific Experience
If it can be demonstrated that spinoffs exhibit extreme heterogeneity, then one must ask: What
is the driver of this variance, particularly in light of the hereditary-based theory of spinoffs? Prior
research has clearly focused on parent-firm quality: “Apparently the key to the performance of the
spinoffs is the quality of the environment in which founders worked and not the positions held
by the founders,” wrote Klepper (2002: 660). Others have agreed, noting that “prior employment
affiliations may influence not only new venture formation, but also product-market strategies and
firm survival” (Agarwal et al., 2004: 501). Knowledge creation, replication and transfer (Kogut &
Zander, 1992; Connor & Prahalad, 1996) are basic to the belief that parent-firms with large stocks
of knowledge will be a wellspring of successful spinoffs (Agarwal et al., 2004; Klepper, 2009).
“Pre-entry experience,” argued Klepper, “including experience in incumbent firms, impart(s) an
enduring advantage” (2002: 662). And yet, Agarwal and colleagues caution that “past authors have
assumed an underlying process of knowledge inheritance by a progeny firm, without explicitly
testing whether inheritance from an incumbent parent actually occurs” (2004: 502). In looking at
the disk drive industry, the authors nonetheless conclude that “knowledge is in fact inherited, and
a firm’s founder is a potentially more effective agent of transfer than a hired employee” (Agarwal
et al., 2004: 519).
Ultimately, however, the presence of extreme heterogeneity erodes the credibility of assertions
that lineage influences performance outcomes. Absent a clear linkage between parent-firm
performance and spinoff performance, founder-specific experience takes center stage. Extending
the findings of Chatterji’s study of the medical device industry (2008), we predict that spinoffs
founded by technical experts will perform demonstrably worse than spinoffs founded by non-
technical experts, who will have a higher success rate in obtaining market-based repricing of their
knowledge and capabilities. By dissecting the particulars of spinoff foundings, we predict that
founder experience will be a significant moderator of spinoff performance:
H3a: Spinoffs led by founders possessing only technical knowledge will exhibit lower survival
rates and performance levels than spinoffs led by founders possessing non-technical, general
market knowledge.
H3b: Spinoffs led by founders possessing non-technical, general market knowledge will
exhibit survival rates and performance levels comparable to de novo firms.
H3c: Spinoffs led by founders possessing both technical and non-technical, general market
knowledge will exhibit survival rates and performance levels higher than spinoffs led by
founders possessing only non-technical, general market knowledge.
metho ds An d dAtA
This empirical analysis of the Colorado asbestos abatement industry involves a retrospective
research design with archival data comprised of the complete population of firms having ever
entered or exited the market. The methodology employed in this study is an event-history analysis
(Tuma, Hannan & Groeneveld, 1979) of a comprehensive database hand-collected from more
than 1 million records at the Colorado Department of Public Health & Environment, covering
the period from industry inception in 1986 to the end of 2010. This 25-year period witnessed
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the entry of 612 firms, objectively documented through licensing data. At the project level, 56,465
permits were issued towards for the removal of 21 million lineal feet and 234 million square feet
of asbestos-containing material (ACM), for revenue totaling $1.8 billion. Information is likewise
available for annual supervisor and worker certificates issued by the state.
As a consequence of the strict monitoring and reporting requirements associated with the
removal and disposal of ACM, an unusual level of detail is available. By law, companies must
obtain (and annually renew) a State-issued license prior to commencing any abatement work.
There is no reciprocity with other states for individual certificates or company licenses. Therefore,
firms seeking to perform abatement must possess a Colorado state license. This allows for
comprehensive tracking of every firm into and out of the industry-population. It also allows the
capture of nascent-stage firms that fail to complete even one project or survive beyond their first
annual license. This marks perhaps the first time that a dataset includes a statistically significant
population of organizational forms that fail prior to becoming substantively operational.
Spinoffs are by far the predominant mode of entry for firms in the asbestos abatement
industry, constituting 73% of the total market entrants. The widespread occurrence of spinoffs in
the context of highly granular data makes it an ideal platform test the hereditary theory of spinoffs.
The relatively small number of diversifying incumbents (just 9%) is also fortuitous because it
allows for a more direct comparison of spinoffs and de novo entrants.
Dependent Variables
Three separate dependent variables were used to test the performance advantage that is posited
by existing spinoff theory: Lifespan, Operational Performance and Performance Variance. Firm
Lifespan refers to the total duration of operational existence measured in years. Operational
Performance refers to the average projects per firm-year for each market entrant. Spinoff
Population Performance Variance refers to the spinoff population performance standard deviation,
recalculated for the exclusion of each parent-firm’s finite population of spinoffs.
Independent Variables
Entry Mode – This is a categorical variable. “1” indicates spinoffs and “0” otherwise.
Spinoff Founder Experience - This variable is derived from a set of orthogonal codes in which
a founder’s Colorado asbestos certifications are used to determine whether a spinoff founder has
technical experience, non-technical experience, or both.
Parent-Firm Spinoff Performance Variance - The variance in performance of spinoffs emanating
from the same parent. This is represented by the standard deviation of cohort (i.e. off-spring)
performance and is calculated separately for each parent-firm with five or more spinoffs.
Differences in Variation - The difference between the standard deviation in the performance of
all spinoffs and the standard deviation in performance of each parent-firm’s cohort of spinoffs.
Weighted Average Parent-Firm Spinoff Variation – This is a sum of the variance in performance
for each parent-firm’s finite population of spinoffs (“cohort”), divided by N firms. The parent-
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firm variances are weighted based on the total number of spinoffs spawned by each parent, so that
the spinoff cohort performance variance is proportional to each cohort’s size.
Controls & Model Analysis
Controls: Two separate vectors were developed model to control for macroeconomic and
industry-specific variables at entry. The macroeconomic vector (CONmacro) contains Colorado-
specific measures for construction, unemployment and economic activity. The Industry-specific
measures (CONind) are comprised of the number of firms that entered the industry in a given year,
the industry population for each year, and the entry group size relative to the population (Hannan
& Carroll 1992). Dummy codes were used to control for unobservable year-specific effects.
Model Specifications: OLS regression analysis and significant mean differences are employed to
derive and explicate the focal effects. Prior studies in support of a spinoff performance advantage
primarily have used lifespan as the determinant. Because of the uniquely detailed dataset we have
discovered, for the sake of robustness, both Firm Lifespan and Operational Performance were used
to compare spinoffs and de novo firms in testing Hypotheses 1a and 1b. The generalized OLS
equation for the population is represented by:
Firm Lifespanpop or Oper Perfpop =
0 +
1CONind +
2CONmacro +
Hypothesis 2 predicts that the average variance in spinoff performance for each cohort of
sibling firms spawned from the same parent will exceed the performance variance for the entire
population of spinoffs in this industry. Each parent-firm cohort performance variance was
subtracted from spinoff population variance through which we derived a function predicting that
the resultant difference from the population variance will be greater than zero (Figure 3):
Hnull: VARavg = VARpop (2)
H2: VARavg > VARpop
Hypotheses 3a, 3b and 3c predict that Spinoff Founder Experience will be a significant predictor
of Firm Lifespan and Operational Performance (Figure 2). The hypothesized model proposes that:
Firm Lifespanspin or Oper Perfspin =
0 +
1CONind +
2CONmacro +
The generalized relationships are formulated as:
PerformanceTech+GeneralExperience > PerformanceGeneralExperience > PerformanceTechExperience (4)
In light of extant theory, our analysis of the natural experiment data produced findings that are
surprising and significant, with noteworthy effect sizes and a high degree of confidence. Bivariate
correlations and descriptive statistics are provided in Tables 1 and 2. In support of Hypothesis
1a and 1b, we found that after accounting for a complete, non-truncated population of industry
entrants, there is no spinoff performance advantage. On the contrary, a head-to-head comparison
between spinoffs and de novo entrants (Table 3) shows that the average lifespan for entrepreneurial
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spinoffs was less than half that of de novo entrants (t1,558= 15.03, p < 0.001). On average, spinoffs
annually completed fewer than half the number projects as de novo firms (t1,558, 558= 9.66, p < 0.001),
a fact that certainly contributed to the lower lifespan. Consistent with these mean differences, the
OLS regression model predicted that a de novo firm would live 1.2 years longer than a spinoff
(p < 0.001), as shown in Table 4. De alio firms, though not the focus of the analysis, similarly
underperformed de novo firms by a substantial margin (Table 3).
Hypothesis 2 predicted that the average performance variance for spinoff cohorts (i.e. siblings
sharing the same parent-firm) would exceed the performance variance for the complete popula-
tion of all spinoffs. If correct, this prediction would suggest that both low-achieving and high-
achieving parent-firms produce spinoffs of varying quality. The data in Table 6 shows that spinoff
performance is highly heterogeneous. The standard deviation for projects annually completed
by the entire population of spinoffs is 17.5. This is significantly lower than the weighted aver-
age standard deviation for all spinoff cohorts, which is 22.8 (t1,448= 9.25, p < 0.001). The thirteen
parent-firms that spawned ten or more spinoffs are listed in Table 6, as well. The weighted average
standard deviation for cohorts from this group of highly prolific parents is 24.26, also exceeding
the population variance (t1,168= 7.48, p < 0.001). Therefore, Hypothesis 2 finds strong support.
Given the finding that performance variance within spinoff cohorts is greater than the variance
between spinoff cohorts, the question arises: What is driving this variance? Hypotheses 3a, 3b and
3c examined this question through the lens of founder-specific experience. Mean comparisons
indicate that spinoffs founded by non-technical managers have double the lifespan of spinoffs
founded by technical managers. The mean difference of three years is highly significant (t1,448=
18.82, p < 0.001), as is the mean difference for firm performance, measured by completed projects
per firm-year, which is nearly 400% higher for firms with non-technical founders (t1,448= 8.99, p
< 0.001). These findings provide strong support for Hypotheses 3a and 3b. On the other hand,
it appears that founders possessing both technical and non-technical experience performed
equivalently to founders possessing only non-technical management experience. This result
requires the rejection of Hypothesis 3c, but confirms Chatterji’s (2009) finding that general
business acumen is the decisive component in spinoff performance, not technical knowledge.
conclu sIons
The cornerstone of dominant spinoff theory is that spawned firms live longer and perform
better than other entry modes due to knowledge acquired from parent-firms (e.g. Klepper 2009).
Further, top-quality parents, possessing larger stocks of capabilities, are presumed to spawn
more and better spinoffs than low-quality parents (Brittain & Freeman, 1986; Christensen, 1993;
Agarwal et al., 2004; Klepper & Sleeper, 2005). This examination of a complete population of
firms contradicts each of these theoretical assumptions. In fact, the only way to find support for
the tenets of spinoff theory through this natural experiment is to truncate the vast preponderance
of spinoff failures (Table 4, Models 2a, 2b & 2c). Contrary to the stylized facts that predominate in
spinoff research (Klepper & Thompson, 2010), our data provides evidence that hereditary-based
conceptions of entrepreneurial spinoffs significantly overstate the relationship between parent-
firm performance and spinoff performance. Taking into account a complete, non-truncated
population of firms, average spinoff performance is less than half that of de novo’s. Specifically, the
average lifespan for entrepreneurial spinoffs is 3.1 years versus 6.6 years for de novo firms; also on
average, spinoffs completed 18.2 projects per firm-year versus 37.3 projects per firm-year for de
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novo entrants. Of the 448 spinoffs that entered the industry, 178 exited within one year and 116
exited without ever performing a single project.
This evidence shows that spinoff performance is highly heterogeneous, even among spinoffs
emanating from the same parent-firm. In sharp contrast to prior studies using truncated data, we
find that this heterogeneity is uncorrelated with parent-firm quality. If hereditary endowments
were sources of a performance advantage, then one would largely expect to see high-performing
parents spawning high-performing spinoffs and low-performing parents spawning low-perform-
ing spinoffs. In fact, however, there is no discernible relationship. Rather, the performance variance
within cohorts from shared parent-firms is significantly larger than the population variance, indi-
cating that high-performing parents spawn many low-performing spinoffs and low-performing
parent-firms produce many high-performing spinoffs. If hereditary knowledge had been a vital
source of performance advantage, then there would be relatively little variation in the performance
of spawned entities emanating from the same parent. In fact, however, such variation is rampant.
Disaggregation of the spinoff data reveals a fuller story. Spinoff performance is clearly
bifurcated between technical and non-technical founders. The average operational existence
for firms founded by technical supervisors is less than half that of non-technical founders. On
average, technical founders completed 6.8 projects per firm-year, versus 32.1 projects per firm-
year for non-technical founders. These results suggest that contrary to extant theory, the key driver
of spinoff performance is less a function of parental knowledge transfers (Klepper, 2001; Agarwal
et al., 2004; Gompers et al., 2005; Klepper & Thompson, 2010) and more a function of differential
outcomes based on founder-specific experience.
In addition to the empirical and theoretical contributions derived from this study, we also
provide a valuable portal to the phenomenon of unobserved non-linear relationships. The study of
nascent-stage organizations inherently confronts the fact that surviving firm data is readily avail-
able while failing firm data evaporates. Applying the techniques commonly used in prior spinoff
studies, it is apparent that data truncation would exclude hundreds of early failures. An examina-
tion of the OLS results (Table 4) reveals the extent to which this is true. In our non-truncated
model consisting of a complete population (Model 1c), Entry Mode is a significant predictor with
by far the largest effect size in the model, indicating that a spinoff will, on average, survive 1.2 years
less than a de novo firm. Meanwhile, a model reflecting the event truncation that is typical of prior
spinoff studies (Model 2c), reverses the sign, indicating that a spinoff will survive 0.4 year longer
than a de novo firm. Such are the pronounced effects of data truncation.
Overall, these results pose significant challenges to the dominant, hereditary-focused concep-
tions of intra-industry spinoffs. Through the lens of this natural experiment, our evidence sug-
gests that the purported spinoff performance advantage requires reassessment.
CONTACT: Richard A. Hunt; University of Colorado – Boulder; Leeds School of Business, 419
UCB, Boulder, Colorado 80309-0419;
Frontiers of Entrepreneurship Research 2012
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FIGURE 1: Stylized Schematic of the Data Truncation Effect.
In compiling data related to new market entry by nascent-stage firms an unobserved, non-linear
relationship results in the truncation of early-stage failures, dramatically changing the empirical
and theoretical implications of the data. Spinoff data analysis is highly prone to these effects.
Frontiers of Entrepreneurship Research 2012
FIGURE 2: Hypothesized Model of Spinoff Performance.
In the context of a complete population, spinoffs are predicted to underperform de novo entrants.
Spinoff founders possessing only technical knowledge will exacerbate this effect, while founders pos-
sessing general business knowledge will reduce the negative effect of being a spinoff. If correct, these
predictions shift the attention away from parental lineage to individual spinoff founder attributes.
FIGURE 3: Hypothesized Model of Spinoff Performance Variance.
Hypothesis 2 (i.e. the triangular region denoted as H2) predicts that the average performance vari-
ance for the cohort of spinoffs spawned by the same parent will exceed the performance variance
for the entire population of spinoffs. Line H0, the null hypothesis, involves no difference in vari-
ance. A result of H2 > H0, functionally indicates that low and high-performing parents produce
both low and high-performing spinoffs.
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TABLE 1: Bivariate Correlations.
TABLE 2: Descriptive Statistics.
N Minimum Maximum Mean s.d.
Year of Firm Founding 612 1986 2010 1997 7.38
Year of Firm Failures 508 1987 2011 2001 7.77
Currently Operating (Yes = 1) 612 0 1 0.17 0.37
Firm Lifespan (Years) 612 0 25 3.73 4.45
Entry Mode (Spinoff = 1) 612 0 1 0.73 0.21
Completed Projects (Lifetime) 612 0 2817 89 287
Completed Projects (Avg. Annual) 612 0 166 9 21
Spinoff Frequency - by Parent 100 1 20 4.48 4.41
Founder Experience (Non-Tech = 1) 448 0 1 0.26 0.44
New Firm Entry Cohort 612 14 41 26.49 7.41
Population at Entry 612 29 134 91 24.41
Entries as Percent of Population 612 13% 100% 33% 19%
Entry Cohort Average Lifespan 612 1 15 4 3
TABLE 3: Survival and Performance Comparisons by Entry Mode
Entry Mode # Firms
% of
Firms Average Lifespan
Average Projects Completed
Per Year
De novo 110 18% 6.6*** 37.3***
Spinoffs 448 73% 3.1*** 18.1***
De alio 54 9% 3.1 12.0
All Firms 612 100% 3.7 23.8
*** Focal mean differences (spinoff vs. de novo) were highly significant, p < .001.
Frontiers of Entrepreneurship Research 2012
TABLE 4: Effect of Entry Mode on Lifespan (OLS Regression Estimation)
For ease of use, the units in this table are expressed in Years. When data is truncated (Models 2a-c),
spinoffs survive 0.362 years longer than de novo firms. But with complete, non-truncated data,
the situation is reversed. Being a spinoff entrant actually reduces a firm’s lifespan by 1.242 years.
Non-Truncated (n = 612) Truncated Data (n = 380)‡
1a 1b 1c 2a 2b 2c
(Constant) 4.635*** 4.737*** 5.856*** 4.113** 4.464*** 4.935**
(1.066) (.906) (1.113) (.824) (.807) (.741)
Macro Controls -0.034 -0.031 -0.022 -0.102* -0.093 -0.091
(.013) (.010) (.007) (.117) (.110) (.110)
Pop at Entry -0.021** -0.022* -0.023* 0.142* 0.137* 0.131*
(.011) (100) (.011) (.457) (.452) (.448)
Entry Cohort Size 0.002 0.002 0.018 (-.089)* (-.033)* (-.024)*
(.028) (.028) (.028) (.031) (.017) (.024)
Cohort Lifespan 0.011 -0.009 0.001 -0.001 -0.001 0.000
(.025) (.030) (.025) (.002) (.001) (.001)
Founder Experience 0.077* 0.049* 0.136 0.122
(.051) (.027) (.034) (.029)
Year of Entry -0.079 -0.074 0.084 0.079
(.060) (.057) (.055) (.052)
Avg. Annual Projects -0.044** -0.030* -0.075*** -0.069***
(.021) (.013) (.018) (.015)
Total Projects 0.014*** .012*** 0.016*** 0.014***
(.001) (.001) (.002) (.001)
Entry Mode (Spinoff =1) -1.242*** 0.362*
(.361) (.394)
Adj. R2 0.331 0.585 0.780 0.414 0.534 0.551
F-value 34.7*** 111.2*** 118.8*** 50.8*** 80.9*** 57.7***
‡ - Truncation of firms failing to complete survive one year and/or complete at least five projects
Standard errors in parentheses. * p < .05, ** p < .01, *** p < 0.001.
TABLE 5: Spinoff Founder Comparison – Technical vs. Non-Technical Knowledge
Founder Ty pe Average Lifespan Average Projects Per
Founder with Only Non-Technical Experience 5.3*** 32.09***
Founders with Only Technical Experience 2.3*** 6.75***
Founders with Both Tech & Non-Tech Experience 5.1 30.82
All Spinoffs 3.1 18.19
*** Mean differences (Technical vs Non-Technical) were highly significant, p < .001.
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TABLE 6: Heterogeneity of Performance – Cohort Variance vs. Population Variance
For parent-firms producing ten or more spinoffs, the performance variance for each parent-firm’s
spawn-cohort is compared to the performance variance for the entire population of spinoffs, which
was 17.5 projects per firm-year. In all but one case (i.e. MDR), the cohort performance variance
exceeded the population variance. This provides strong support for Hypothesis 2, which predicted
that both low and high-performing parent-firms spawned both low and high-performing spinoffs,
a finding that confounds the attempt to link parent-firm quality to spinoff quality.
Parent Name
# of
(# Projects per
(# Projects per
(# Projects per
(Std. Dev.)
American 20 112.7 13.1 0 – 89.4 24.23 6.72
RRI 17 90.0 17.6 0 – 116.9 34.72 17.21
LVI 17 166.3 12.5 0 – 97.9 24.51 7.00
Dominion 16 97.2 14.8 0 – 53.5 25.57 8.06
Great Plains 15 5.4 10.7 0 – 77.2 21.43 3.92
ACM Removal 14 88.3 11.7 0 – 58.7 19.68 2.17
Mac-Bestos 10 57.1 10.5 0 – 60.6 18.85 1.34
MDR 10 53.5 11.5 0 – 47.4 16.59 (1.08)
Schauer 10 51.0 12.3 0 – 28.9 21.51 4.00
Asbestos Tech 10 16.5 10.4 0 – 86.5 26.76 9.25
Onyx 10 33.3 23.5 0 – 133.1 20.38 2.87
Misers 10 52.6 14.3 0 – 87.9 27.53 10.02
A.R.C. 10 14.4 13.6 0 – 52.8 17.79 0.28
13 Largest Cohorts
(avg.) 169 64.5 12.6 0 – 133.1 24.26*** 6.75***
All Spinoff
Cohorts (avg.) 448 30.3 11.8 0 – 133.1 22.78*** 5.27***
The standard deviation in projects completed per firm-year for all 448 spinoffs is 17.5
*** Mean differences (Average Cohorts Variance versus Population Variance) were highly significant, p < .001.
Frontiers of Entrepreneurship Research 2012
... Colorado neither recognizes nor honors licenses obtained in other states), closed-system of regulatory compliance was created in Colorado. For our purposes, this regulatory ardor resulted in well-structured data of a complete population of firms for its entire history (Hunt, 2013;Hunt and Lerner, 2012). ...
... projects per firm-year); it was also the fifth most prolific parent, spawning 16 spinouts. complete population and given the highly compressed nature of successive generations, the extensiveness of public records, and the presence of highly prolific parents, the Dominion example represents a microcosm of the entire industry (Hunt, 2013;Hunt and Lerner, 2012). ...
... Our research design consists of a longitudinal model that extracts annual data for the complete population of firms for the entire history of the industry (Hunt and Lerner, 2012;. ...
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Research Summary In recent years, scholarship on intra‐industry entrepreneurial spinouts has coalesced around a heredity‐focused perspective, propounding the notion that spinouts from high‐quality parent‐firms outperform those emanating from low‐quality parent‐firms. This view has found strong support in high‐tech sectors, but it is unclear whether parental lineage is a determinant of performance and survival in sectors exhibiting low technological dynamism, especially when the locus of value creation stems from generalist rather than technical‐specialist knowledge. Applying the knowledge spillover theory of entrepreneurship and jack‐of‐all‐trades framework, we assess the fate of a complete population of 678 service‐sector firms for the entire 32‐year history of an industry. Our study offers explanatory mechanisms that more fully account for the non‐hereditary success factors driving performance heterogeneity among entrepreneurial spinouts. Managerial Summary In many industries, half or more of the firms are founded by former employees of existing companies (i.e. “entrepreneurial spinouts”). In high‐tech sectors, these “spinouts” often appear to perform better than entrants without prior industry experience. Moreover, spinouts spawned by high‐performing parent‐firms tend to out‐perform spinouts from low‐performing parents, suggesting that spinouts benefit from advantageous parental knowledge and capabilities. However, this does not seem to be the case among spinouts in industries characterized by low technological dynamism. Our findings indicate that when technological dynamism is low, general business acumen eclipses parental lineage in determining spinout performance. In these cases, spinout founders with primarily technical experience would be well‐served by partnering with individuals possessing experience in marketing, sales, and day‐to‐day business management.
... Although this argument is compelling, the empirical evidence is inconclusive. While many studies have shown a positive relationship between pre-entry experience and new entrant performance (e.g., Andersson & Klepper, 2013;Dahl & Sorenson, 2012;Wennberg, Wiklund, & Wright, 2011;Zheng, Devaughn, & Zellmer-Bruhn, 2016), others have reported a negative relationship (e.g., Arora & Nandkumar, 2011;Florin, Lubatkin, & Schulze, 2003;Gimmon & Levie, 2020;Hunt & Lerner, 2012;Shrader & Siegel, 2007), or no relationship at all (e.g., Davidsson & Honig, 2003;Hmieleski & Baron, 2009;Lee, Lee, & Pennings, 2001;Stuart & Abetti, 1990). As a result, Delmar and Shane (2006: 216) conclude that "this pattern of empirical results makes it difficult to accept the hypothesis that founding team experience enhances new venture performance" and Ganco and Agarwal (2009: 229) conclude that "there is conflicting empirical evidence regarding the main effect of pre-entry experience on performance." ...
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While pre-entry experience is widely regarded as a critical asset that positively influences new entrant performance, empirical support is mixed. To address this inconsistency, we conduct a meta-analysis of the empirical findings in 272 papers. We draw theoretically on the organizational learning literature to argue that the pre-entry experience—new entrant performance relationship will be contingent on the characteristics of pre-entry experience, the environmental context of the new entrant, and the interaction between the two. In particular, we examine the effects of two levels of pre-entry experience (firm and founder), four types of founder-level pre-entry experience (entrepreneurial, managerial, industry, and functional experience), and two types of environments (industry and institutional). The meta-analysis results show a significant and positive correlation between founder-level pre-entry experience and economic performance of 0.07. Likewise, the failure rates of spin-outs and diversifying entrants are 11% lower than that of start-ups. The moderating analysis results show that the correlation of pre-entry experience and economic performance is lower in knowledge- or technology-intensive (KTI) industries, but higher in low KTI manufacturing and service industries. The correlation is also higher in institutional environments with high power distance and individualism. These findings provide compelling new evidence for the importance of pre-entry experience, and advance our understanding of the boundary conditions on the pre-entry experience—new entrant performance relationship.
... In the case of employee spinoffs that I have analysed and discussed in the two previous chapters, parent firm does not initiate or sponsor the establishment of these intra-industry spinoffs (Hunt & Lerner, 2012;Klepper, 2001). Broader spinoff literature has identified other types of spinoffs, such as corporate spinoffs (that are initiated and supported by a parent firm) (Parhankangas & Arenius, 2003), university spinoffs (that are new firms which have been incubated in a university for the purpose of spinoff) (Huyghe, Knockaert, & Obschonka, 2016), and recently introduced government spinoffs (that are spinoffs from government facilities) (Woolley, 2017). ...
The mining industry in Australia and elsewhere is known for the capital-intensive nature of its projects that can cost up to hundreds of millions of dollars. Progression of a mining project from early feasibility tests to an operational mine has low success rates and it could take many years. The Minerals Council of Australia estimates only one in a thousand exploration projects successfully leads to a new mine site. Due to high costs and high failure rates of mining projects, companies frequently tend to enter strategic alliances to share risks and pool resources. In mining, as an alliance-intensive industry, not only is it important for established mining firms to forge new alliances, but it is also even more pronounced for new mining firms. This is due to resource constraints that new firms face at the time of their founding. Prior studies show that alliance networks are an important way for new firms to gain access to the necessary resources. Despite the importance of this topic, it is an under-researched area in entrepreneurship literature. Most prior network-based research in entrepreneurship has focused on social networks of entrepreneurs, and not on the firm-level strategic alliances. In particular, the share of research on the alliance network growth of spinoffs is small, although they constitute a major group of entrants into various industries. Spinoffs are firms started by ex-employees of incumbent firms in the same industry as their parent firm, which gives them an initial advantage over other types of new firms. According to The Register of Australian Mining database, in a ten-year period over 70% of new entrants into the industry had an intra-industry founder on their board. Studies show that contextual knowledge inherited from pre-entry experiences can lead to the successful performance of new firms. However, the relation between knowledge inheritance and post-spinoff outcomes is an overlooked area in the network-based research in entrepreneurship. Therefore, there is clear scope for additional research to better understand the early alliance portfolio establishment in mining spinoff firms. This thesis investigates the antecedents, underlying mechanisms, and outcomes of early alliance network growth of spinoff firms in three longitudinal studies. I draw upon network imprinting, organisational learning, knowledge transfer and social categorisation lenses to find answers for research questions. In Study I, I perform an extension of Milanov and Fernhaber (2009) on determinants of spinoff alliance network growth. Specifically, I test the positive imprinting effect of initial partners as well as the parent firm’s network size versus centrality on the spinoff firm’s alliance network growth. Informed by the findings of this study, I test a multiple mediation model in Study II, where spinoff absorptive capacity and spinoff network status mediate the relationship between parental network centrality and spinoff network growth. I also test for the moderating effect of knowledge overlap between parent and spinoff on the mediated relationships. Finally, in Study III, I examine the influence of spinoff alliance network growth on the spinoff’s performance. I also consider whether this relationship is spurious, and if it is still driven by parental resources by testing the effect of parent’s network characteristic on spinoff performance. This thesis benefits from using secondary data by a synthesis of multiple datasets. Having access to a comprehensive dataset containing multiple levels of data (i.e., all firms, all companies, and all directors in the Australian mining industry) for a period of 10 years, provided a unique opportunity to study the main phenomenon of the thesis. Further, gathering and combining data from several other datasets yielded a strong platform for analysis. Data was mainly collected from The Register of Australian Mining database annually for the period from 2002 to 2011. Additional data was collected from Morningstar Premium, Australian Securities Exchange, Dun & Bradstreet Hoovers Business Browser, Australian Bureau of Statistics, Bloomberg, Osiris, and Orbis. Network analysis is performed on 3370 strategic alliances on a sample of 248 spinoff firms. Together the three studies enhance our understanding of the phenomenon of alliance network growth in newly founded spinoff firms. This thesis extends network-based research in entrepreneurship by shedding light on the influence of parent firm network features on spinoff alliance network growth. It further extends the literature by suggesting new theoretical explanations for underlying mechanisms of network imprinting and empirically testing them. Further, it contributes to the existing literature by providing evidence that the relationship between spinoff alliance network growth and its early performance is U-shaped for upstream alliances. This thesis, thus, provides important new avenues for future research in network-based research in general, and parent–spinoff research in particular.
... Previous research on spin-outs argues that a parent of high quality in terms of, for example, larger stocks of capabilities spawns more and better spin-offs than a low-quality parent (e.g., Agarwal et al. 2004;Klepper and Sleeper 2005). However, the role of the parent in relation to the performance of the spin-out is challenged by Hunt and Lerner (2012), who find spinoff performance to be more heterogeneous; they find that founder-specific experience rather than parental lineage is the primary driver of spin-off performance heterogeneity. Again, it should be noted that these papers do not distinguish between experience working at an entrepreneurial firm or an experienced firm; instead, their empirical analysis may include the number of years of working experience and the diversity of occupational experience. ...
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Recruiting employees to an entrepreneurial venture is a challenging task. From the employee’s perspective, accepting a position in an entrepreneurial venture potentially implies considerable uncertainty. This paper provide a literature review and identifies research gaps related to labor mobility of employees into and out of entrepreneurial firms. Who works for an entrepreneur? What are the conditions under which the employees of entrepreneurial firms work? Additionally, labor mobility after an employee works for an entrepreneurial firm is discussed. In conclusion, the quality of the jobs generated by entrepreneurial firms may be questionable (and still relatively unexplored in empirical research), but they are nevertheless important from a labor dynamic perspective. Better understanding about motives to work for an entrepreneur, issues related to job security beyond survival rates, and job quality may contribute to ease the recruitment problems that many entrepreneurial firms struggle with. Furthermore, the relevance and potential pros and cons of working for an entrepreneurial firm in future career paths (entrepreneur or employee) need to be carefully addressed in future research.
... Corporate spin-ins occur when a firm acquires a company that was founded by a former employee. Often, the innovations of ex-employees are permanently lost to the parent-firms when frustrated or ambitious employees leave the parent to form their own companies (Hunt & Lerner, 2012;Klepper & Sleeper 2005), a phenomenon called intra-industry entrepreneurial spinouts. Such spin-outs typically fail to facilitate corporate renewal since the parent company does not benefit from the innovations produced in the new organization (Agarwal, et al. 2004;Hunt, 2013b). ...
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More often than not, corporate acquisitions are expensive and difficult, especially those transacted for the purpose of advancing the aims of corporate entrepreneurship (CE). Motivated by frequent, high-cost failures, firms are experimenting with novel organizational structures and fresh approaches to acquisition-driven CE. In this study, we examine the effectiveness of corporate spin-ins-acquisitions in which the acquired company is founded by former employees of the acquiring firm-in resolving key challenges of CE-motivated acquisitions Using a matched pair-wise dataset of spin-in and non-spin-in acquisitions, we discover that spin-ins generate superior outcomes, positioning them as a high-potential facet of CE portfolios.
... First, despite the willingness of expert entrepreneurs to use control strategies to engage in entrepreneurial action, how might such control strategies be enacted in the face of uncertainties regarding the external consequences of such actions? Garud, Gehman, and Giuliani (2014) contend that "projective stories" designed to set audience expectations often set the firm up to disappoint audiences, given that "inherent objective environmental uncertainties" will force entrepreneurs to adapt miscalibrated plans (Hunt, 2015;Hunt & Lerner, 2012). In other words, despite attempts to socially construct appealing narratives designed to solicit stakeholder approval and engagement (i.e., a control strategy- Garud, Hardy, & Maguire, 2007), the objective environment will still influence the outcomes of entrepreneurial action. ...
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Whether business venturing emerges in the context of nascent-stage start-ups or corporate giants, one of the enduring and fundamental assumptions underlying theories of entrepreneurial action is that entrepreneurs operate in uncertain environments. And yet, nearly a century since the unveiling of Knightian uncertainty as a precursor to profit-making, the identification, description and operationalization of uncertainty as a construct continues to exhibit conflicting definitions, tautological measures, and unwitting conflation with more apt, more precise constructs in entrepreneurship and organization theory. The purpose of this study is to review the multiple research streams that together constitute the literature on knowledge problems to identify critical boundary conditions of uncertainty as an analytical construct. Based on this review, we then set forth a multi-level research agenda for exploring entrepreneurial action under conditions of ambiguity, complexity, equivocality, and uncertainty.
... In this context, it helps to explain how illegal businesses were able to survive and thrive despite laws prohibiting their existence. Ultimately, customers made decisions based on demonstrable value, not the legal system [111]: Single-minded attentiveness to customer satisfaction provides a kind of "security blanket," insulating women entrepreneurs from legal strictures because loyal customers are their best protection to the extent that women entrepreneurs can deliver superior value. In a sense, the transformational nature of their effort was vastly subordinate their customer-focused aims, not because they were indifferent to the plight of women, but because the best way to pursue entrepreneurial passion and ensure that their respective business survived was to remain relentlessly customer-centric. ...
... The results further suggest that entrepreneurs, incubators, investors and other parties with a vested stake in commercializing science, will be well-served by investing time and effort into better understanding opportunity fields as they are defined by current and future customers, rather than isolated supply-side pre-conceptions of when, how, why, where and by whom technologies might be acquired and used. Unquestionably, there exists a highly interactive testing and exploration process (Di Stefano et al., 2012;Mowery and Rosenberg, 1979;Rogers, 2003) between suppliers and consumers of entrepreneurial activity; but, supply-side explanatory models that have ignored the generative role of demand-side forces handicap entrepreneurs who buy into the myths of swashbuckling individualism (Hunt and Lerner, 2012;Schoonhoven and Romanelli, 2009). As the illustration of the automotive industry demonstrated, entrepreneurs who selected technological solution sets that were most closely akin to the latent opportunity space generated by society for motorized transport faired far better than those who pushed an unwanted set of technological solutions. ...
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Purpose One of the crucial questions confronting strategy and entrepreneurship scholars continues to be: where do new industry sectors come from? Extant literature suffers from a supply-side “skew” that focuses unduly on the role of heroic figures and celebrity CEOs, at the expense of demand-side considerations. In response, the purpose of this paper is to examine societal demand for entrepreneurial innovations. Employing historical data spanning nearly a century, the author assess more completely the role of latent demand-side signaling in driving the quantity and diversity of entrepreneurial innovation. Design/methodology/approach Applying the methods of historical econometrics, this study employs historical artifacts and cliometric models to analyze textual data in drawn from three distinctive sources: Popular Science Monthly magazine, from its founding in 1872 to 1969; periodicals, newsletters, club minutes, films and radio transcripts from the Science Society, from 1921 to 1969; and programs and news accounts from the US National High School Science Fair, from 1950 to 1969. In total, 2,084 documents containing 33,720 articles and advertisements were coded for content related to pure science, applied science and commercialized science. Findings Three key findings are revealed: vast opportunity spaces often exist prior to being occupied by individuals and firms; societal preferences play a vital role in determining the quantity and diversity of entrepreneurial activity; and entrepreneurs who are responsive to latent demand-side signals are likely to experience greater commercial success. Research limitations/implications This study intentionally draws data from three markedly different textual sources. The painstaking process of triangulation reveals heretofore unobserved latencies that invite fresh perspectives on innovation discovery and diffusion. Originality/value This paper constitutes the most panoramic investigation to-date of the influence wielded by latent demand-side forces in the discovery and commercialization of innovation.
Four major stylized facts about spinoffs have been identified by the literature: (i) spinoffs perform better than de novo entrants, (ii) there is an inverted U-shaped relationship between the age of a firm and spinoff formation, (iii) better parents generate more spinoffs, and (iv) better parents originate better spinoffs. These stylized facts hold in some industries (e.g., automobiles) but not in others (e.g., lasers, disk drives, and asbestos). Existing theories of spinoff formation and performance explain these stylized facts but not the differences across industries. Inspired by the history-friendly models of industry evolution, the article presents an agent-based simulation model in which technological and demand conditions contribute to determine both the emergence and the performance of spinoffs. We assume that three main factors characterize the emergence of spinoffs: first, spinoffs emerge out of innovation activities within the parents; second, spinoffs share knowledge with their parents; third, spinoffs have some degree of product differentiation with respect to their parents. The model is able to generate the stylized facts identified by empirical research in the automobile industry and also to replicate the regularities and exceptions holding in lasers, disk drives, and asbestos.
Introduction. Silicon Valley is the envy of the world, one of the most celebrated regions of economic growth in modern history. We are accustomed to thinking of it as the outgrowth of a unique confluence of ingredients. One is its roots as an early incubator of now famous electronics firms, including Hewlett Packard, Varian Associates, and Litton Industries. Another is Stanford University, led by its innovative dean of engineering and eventual provost, Frederick Terman. Yet another is its culture of vertically specialized, non-hierarchically organized firms that define a virtual network of producers. Couple all these ingredients with the growth of the semiconductor industry and the emergence of venture capitalists in Silicon Valley to support it and you get a seemingly unprecedented wave of new, spinoff enterprises in Silicon Valley formed by top employees of incumbent semiconductor firms. Today, these Silicon Valley semiconductor spinoffs are legion, including such famous firms as Fairchild Semiconductor, National Semiconductor, Advanced Micro Devices (AMD), and Intel. Indeed, according to a well-known genealogy prepared by Semiconductor Equipment and Materials International (SEMI), over 100 semiconductor spinoffs arose in Silicon Valley through 1986. Nearly all of them were descended in one way or another from Fairchild, whose direct descendants are so numerous they have been dubbed the Fairchildren.
Data on Silicon Valley law firms over a 50-year period were used to study the genealogy of organizational populations and its consequences for organizational life chances when a member of an existing firm leaves to found a new firm. Hypotheses and subsequent analysis suggest that the transfer of resources and routines between a parent organization and its progeny decreases life chances for the parent firm and increases life chances for the progeny. The results are contingent on the founder's previous position in the parent firm and time since the parenting event. In addition, I find that progeny have lower life chances when the parent is a failing firm, when there are multiple parents, and when the founder is a former senior partner of a large law firm.
There is wide interest among sociologists in the study of change but little reflection of this interest in sociological research methods. In this paper we consider the advantages of and procedures of dynamic analysis of event-history data-data givin the number, timing, and sequence of changes in a categorical dependent variable. We argue for grounding this analysis in a continuous-time stochastic model. This permits the data to be fully utilized; it also allows a unified treatment of the various outcomes analyzed in the many approaches that use only part of the information contained in such data. We focus on the familiar continuos-time Markov model, summarize its properties, report its implications for various outcomes, describe extensions to deal with population heterogeneity and time dependence, and outline a maximum-likelihood procedure for estimating the extended model from event-history data. The discussion in illustrated with an empirical analysis of the effects of an income-maintenance experiment on change in marital status. We conclude by contrasting event-history analysis with cross-sectional analysis, event-count analysis, and panel analysis. We find that event-history analysis has substantial advantages over the other approaches.
In its early years, the disk drive industry was led by a group of large-scale, integrated firms of the sort that Alfred D. Chandler, Jr., observed in his studies of several of the world's largest industries. The purpose of this history is to explore why it was so difficult for the leading disk drive manufacturers to replicate their success when technology and the structure of markets changed. The most successful firms aggressively developed the new component technologies required to address their leading customers’ needs, but this attention caused leading drive makers to ignore a sequence of emerging market segments, where innovative disk drive technologies were deployed by new entrants. As the performance of these new-architecture products improved at a rapid pace, the new firms were eventually able to conquer established markets as well. As a consequence, most of the integrated firms that established the disk drive industry were driven from it, displaced by networks of tightly focused, less integrated independent companies.