Start-ups and spin-outs: competitive strategies and effects on former employees

Abstract

The authors present an empirical study of the positive and negative effects of start-ups and spin-outs, using a sample of 49 companies from a cross section of technology-based industries. These 49 start-ups are representative of venture capital backed companies in the 1970s and 1980s. The authors examine their circumstances at the times they were formed and their longer-term impact on their industries. Few cases in which the start-up might be judged as competing with a former employer (two out of 49) are found. In 16 cases the idea for the product had existed at a former employer, but it was pursued in only three of them. In almost 40% of the cases, both the start-ups and the former employer became leading firms in their industries. Overall, for this sample the benefits from start-ups and spin-outs are considerable, while the negative effects are minor. It is concluded that the new companies tend to move into new markets, not yet occupied by established companies, and even when they enter existing markets, they are seldom in the same market segment as the former employer.<>