Spinoffs: A review and synthesis

Incidence and Performance of Spinouts and Incumbent New Establishments: Role of Selection and Redeployability within Parent Firms

Research Summary

Using matched employer-employee data from 30 U.S. states covering a wide range of industries, we compare spinouts with new establishments formed by incumbents (INEs). We propose a selection-based framework comprising idea selection by parents to internally implement ideas as INEs, entrepreneurial selection by founders to form spinouts, and exit selection to close ventures. Consistent with parents choosing better ideas in the idea selection stage, we find that INEs perform relatively better than spinouts, and more so with larger parents. Regarding the entrepreneurial selection stage, we find evidence consistent with resource requirements being a greater entry barrier to spinouts. Parents' resource redeployment opportunities are associated with lower relative survival of INEs, consistent with their being subject to greater selection pressures in the exit selection stage.

Managerial Summary

Spinouts, or new ventures started by employees leaving a parent firm, have received special attention because spinouts tend to outperform other types of new firms. This superior performance is typically attributed to the better knowledge and higher-quality ideas developed by founders at the parent firms. However, parent firms can also select and implement such ideas internally, particularly if they are good quality ideas. We compare spinouts with new establishments formed within parent firms and find that consistent with such a process of selection, the latter outperform spinouts, more so in the case of larger parents. Interestingly, new establishments of parent firms tend to close at a greater rate than spinouts, consistent with parent firms being able to redeploy resources elsewhere within their firms.

Neither entrepreneurship nor intrapreneurship: a review of how to become an innovative split-off start-up

Splitting off departments from corporations in order to establish corporate start-ups has become of strategic importance for the performance and innovation of corporations. While the settlement process is widely practiced, there is a lack of knowledge of how entrepreneurship may exist in such split-offs. The main aim of this study was to explore how entrepreneurship in corporate start-ups can exist in order to contribute to corporate performance. Based on a systematic literature review from 2021 to 2023, which resulted in a total of 1,516 scientific, English-language articles in economic journals, a total of 150 articles were analyzed in-depth. Our research shows that it is of crucial importance that corporations position leaders with an appropriate mindset and behavior at all levels as early as starting the split-off process, which is, however, neither entrepreneurship nor intrapreneurship. The niche corporative start-up area shows that entrepreneurship is a continuum and requires a new definition of corporate start-up entrepreneurship (CSE). For corporate start-ups to be successful, we revealed that there needs to be (1) the appropriate legal form, which ensures ownership but also the risk of the leaders, (2) an explorative business rather than exploitation, (3) variable compensation rather than fixed and (4) corporate entrepreneurs rather than employees and managers. Implications of the findings for entrepreneurial leadership theory development and future research are discussed.

A Routine-Based Theory of Routine Replication

Organizational routines have been investigated by scholars from two opposite perspectives: the first is rooted in the evolutionary economics of Nelson and Winter; the second relies on the reconceptualization of routines proposed by Feldman and Pentland. The main reason that has kept the perspectives separated concerns the issue of routine replication, which found space in the former while it remained in the shadows in the latter. Studies that have dealt with this issue offer many clues on the one or other form that replication can take. What is lacking is a routine-based theory of routine replication capable of comparing their different forms. The paper pursues this goal in two stages. First, routines are reconceptualized as repetitive, recognizable patterns of interdependent actions, connected with the external environment, guided by specific knowledge and involving multiple, interacting actors and artifacts. Then, this reconceptualization leads to a discussion of the issue of routine replication and its forms. This way of conceiving routines leads to developing an original and unitary theoretical framework covering the different forms of routine replication. What lends intra-organizational replication a greater replicability than inter-organizational replication is the presence of a template and of actors specialized in planning the replication process. In its serial and routinized form, intra-organizational replication can potentially reach the highest level of replicability. The same results can be achieved by the routine replication that underlies franchise systems. In the two forms of inter-organizational replication—spin-offs and employee mobility—the template is replaced by a weaker knowledge repository consisting of the memory of individuals who leave one organization and try to replicate its routines at another. The disadvantage deriving from the lack of a template can be contained when specific factors are present that facilitate the work of replication actors.

Spinoffs’ alliance network growth beyond parental ties: performance diminishing, then performance enhancing

Spinoff firms are a common phenomenon in entrepreneurship where employees leave incumbent parent firms to found their own. Like other types of new firms, such new spinoffs face liabilities of newness and smallness. Previous research has emphasised the role of the initial endowments from their parent firm to overcome such liabilities. In this study, we argue and are the first to show, that, in addition to such endowments, growing an alliance network with firms other than their parents’ is also critical for spinoff performance. Specifically, we investigate the performance effect of alliance network growth in newly founded spinoffs using a longitudinal sample of 248 spinoffs and 3370 strategic alliances in the mining industry. Drawing on theory based on the resource adjustment costs of forming alliances, we posit and find a U-shaped relationship between the alliance network growth and spinoff performance, above and beyond the parent firm’s influence. We further hypothesise and find that performance effects become stronger with increased time lags between alliance network growth and spinoff performance, and when spinoffs delay growing their alliance networks. Implications for theory and practice are discussed.

Entrepreneurship and geography-some thoughts about a complex relationship

This review article sheds a light on the complex and hitherto under-researched relationship between geography and entrepreneurship. This relationship is considered to be interdependent. Both directions are discussed. The paper also describes the perspectives of both academic disciplines involved in regional entrepreneurship research, namely (geographically sensitive) economics and management studies on the one hand, and economic geography on the other. Based on a comprehensive overview of the theoretical and empirical literature on regional entrepreneurship, several research gaps are identified that could be helpful for designing future research. Some have strong relevance for government policy, which has recently paid much more attention to entrepreneurship than in the past (e.g. related to the entrepreneurial ecosystem approach), but which rather rarely has been considered in academic evaluations so far. This paper ends with a suggestion for an agenda for future regional entrepreneurship research. Digital transformation with its potential for a disruptive transformation of economies and societies will provide an excellent and, of course, a currently not well-understood research field for regional entrepreneurship research.

How Do Institutional Carriers Alleviate Normative and Cognitive Barriers to Regulatory Change?

How do we reconcile misalignments between a system’s existing normative and cognitive elements and novel regulatory change? Prior work either largely focuses only on regulatory change or analyzes normative and cognitive barriers in parallel to rather than in interaction with regulatory change. Moreover, the institutional entrepreneurship literature that focuses on reconciling such misalignments is predominantly centered on the tactics of entrepreneurs rather than the support provided by institutional carriers. We, therefore, use the case of the Chinese Academy of Sciences (CAS) Knowledge Innovation Program (KIP) to better understand these neglected facets of institutional change. Through a mixed methods approach, we posit and find support for two key mechanisms that support regulatory change. First, institutional carriers (e.g., CAS institutes) clarify the market relevance of technical knowledge, linking cognitive support to regulatory change. Second, institutional carriers (e.g., science parks) create shared standards that could not occur otherwise, linking normative support to regulatory change. Finally, these changes to institutions seem particularly associated with more nascent clusters. Our study contributes to studies at the nexus between institutional change and entrepreneurship by highlighting the role of linking cognitive and normative support to regulatory changes aimed at increasing entrepreneurship.

Variation, replication and selection in evolving industries

Purpose

Variation, replication and selection processes are acknowledged as key constructs in studies on how industries evolve, but no theoretical and empirical contributions have applied these key constructs to analyzing industries in specific stages of their history. This paper aims to fill this gap, taking for reference the firm and its strategic action in particular.

Design/methodology/approach

After delineating and discussing the three processes of interest – variation, replication and selection – this paper analyzes three very different evolutionary contexts: “red” industries, that reached maturity maintaining a polypolistic structure, and that continue to evolve in this phase; the oligopolistic transformation undergone by certain industries; and the emergence of new market spaces around new products developed by firms.

Findings

Variations are mainly reactions to the competitive environment in the evolution of red industries or environment-modifying in the case of industries evolving toward an oligopoly, and in the creation of new market spaces. Horizontal replication through employee mobility prevails in red industries, while in the other two contexts firms driving the evolution raise barriers to replication, inhibiting both horizontal and vertical replication. While selection does not come about in a new market space as long as the barriers erected by the first comer remain in place, it occurs in the form of subset selection in the other two settings.

Originality/value

This paper takes an entirely novel approach and proposes a pluralist framing of how industries evolve, interpreting the different evolutionary situations on the strength of the key variables of variation, replication and selection.

Employee Non-compete Agreements, Gender, and Entrepreneurship

I contribute to the literature on institutions, gender, and entrepreneurship by showing that macrolevel institutional policies that do not explicitly target women nonetheless discourage them from leveraging prior professional experience—their own and that of others—in founding new ventures. Most ventures fail, but chances of success are greater if founders can bring to bear their professional expertise. However, employee non-compete agreements enjoin workers from leaving their employer to found a rival business in the same industry. Thus, non-competes add legal risk to business risk. To the extent that women exhibit greater risk aversion, the threat of litigation from their ex-employer may act as a sharper brake on startup activity than for men. Examining all workers who were employed exclusively within 25 states and the District of Columbia from 1990 to 2014, I find that women subject to tighter non-compete policies were less likely to leave their employers and start rival businesses. Non-competes increase the risk of entrepreneurship by making it harder to hire talent with relevant experience, shifting women away from higher potential ventures. A review of thousands of filed lawsuits suggests that firms do not target women in non-compete cases. Rather, it appears that non-competes disproportionately discourage women from leveraging their professional networks in hiring the sort of talent necessary for high-growth startups to succeed.

Pre-Entry Experience, Postentry Adaptations, and Internationalization in the African Mobile Telecommunications Industry

We study the evolution of the African mobile telecommunications industry from its effective beginning and explore the sources of ownership advantages among indigenous firms, by assembling historical qualitative and quantitative firm-level data. Our historical qualitative findings suggest that a few start-ups gained industry-specific knowledge through their pre-entry experience, directed their postentry development of capabilities toward adaptations to challenging market and operational conditions, and leveraged their adaptive capabilities to enter and compete in other African countries. Using our quantitative panel data, we show that these firms successfully internationalized across the continent. In particular, compared with other start-ups, they had higher rates of foreign entry in African countries that had relatively weaker rule of law, and greater market reach in African countries that had relatively larger low-income consumer segments. These patterns corroborate that their capabilities for overcoming the industry’s challenging market and operational conditions were their key ownership advantages. Through our triangulated analysis, we show that inherited industry knowledge provides a foundation for postentry capability development, and entrepreneurial leadership guides this process to create ownership advantages for regional internationalization.

Is organizational evolution Darwinian and/or Lamarckian?

Purpose

Recently, some biologists have argued that the time has come to replace separation between Lamarckism and Darwinism with their connection. The aim of this paper is to understand whether this paradigm shift in the interpretation of biological evolution offers useful insights for dealing with the unresolved issue of how industries and their organizational populations evolve.

Design/methodology/approach

Lamarckism and Darwinism are two approaches that have contrasted or interwoven with each other in the study of biological evolution, just as they have in the study of organizational evolution. This paper provides a critical analysis of the long history of the debate through to the recent, revolutionary discoveries in evolutionary microbiology obtained in the wake of the genomic revolution.

Findings

From this new research frontier emerge three important findings: adaptive variations are no longer an anomaly that is peculiar to human organizations, but rather correspond to a widely observed phenomenon in the biological world; the same can be said for the process of horizontal replication; Lamarckism and Darwinism are not two mutually exclusive interpretations of evolution but two dimensions of evolution that coexist in various ways. Lamarckian dimension of evolution and the Darwinian one, handled in the light of these results, may help to understand the evolutionary logic that underpins specific stages of the history of industries.

Originality/value

The paper presents a new way of looking at industries and their firms from an evolutionary perspective.

Biological Children Versus Stepchildren: Interorganizational Learning Processes of Spinoff and Nonspinoff Suppliers

Interorganizational scholars have long thought about how firms learn through buyer relationships. However, it is not clear whether dyadic learning gains are susceptible to imitation or are only inherited and whether these gains decay over time or are of an enduring nature. In this paper, I import ideas from the organizational imprinting literature into the interorganizational literature and apply the knowledge-based and learning views of the firm to examine how suppliers with differing initial endowments learn to work together with a buyer. The findings from an inductive multiple case study of spinoff and nonspinoff suppliers of an automotive manufacturer parent in Turkey reveal the following three learning mechanisms: informal relationships and social capital, transfer of routines, and shared identity. Although nonspinoff suppliers also exhibit evidence of several learning processes to a certain extent, spinoff suppliers' deeper relationship, in particular their shared identity, with their parent based on their direct parental heritage tends to be more difficult for them to copy. No matter how hard nonspinoff suppliers try, they have "one hand tied behind their back," they remain stepchildren, and they never truly become a biological child. By providing a novel setting and a rich set of qualitative data on the learning behaviors of these two types of suppliers, this study teases apart the knowledge and resources that can be "learned from external sources" versus those that can "only be inherited."