What Do I Take With Me? The Mediating Effect of Spin-out Team Size and Tenure on the Founder–Firm Performance Relationship

Abstract

Our study examines the mediating effect of spin-out team characteristics on the relationship between founder quality and parent and spin-out performance. Since the ability to transfer or recreate complementary assets is a critical determinant of performance, we theorize and show that founders with greater ability impact both parent firm and spin-out performance by assembling teams that represent strong complementary human capital. Using linked employee-employer US Census data from the legal services industry, we find founding team size and tenure mediate the founder quality effect. Our findings have theoretical and practical implications for human resource strategies for both existing and entrepreneurial firms: the factor most salient to performance is not founder quality per se, but the manner in which it impacts the transfer and spillover of complementary human capital. Jelcodes:L84,-1 WHAT DO I TAKE WITH ME?: THE MEDIATING EFFECT OF SPIN-OUT TEAM SIZE AND TENURE ON THE FOUNDER-FIRM PERFORMANCE RELATIONSHIP "Not everyone can be a founder. We talk about the founders of startups and companies. We focus on the founders. The founders get press coverage. Sometimes they get rich. But for every founder, there is an early employee that takes near equal risks in joining an early-stage company." David Crow, StartupNorth (2009) Extant work on spin-outs-start-ups founded by a former employee of an established firm within the same industry-underscores the role of founders as conduits of knowledge from the parent firm to the new venture (Agarwal, Echambadi, Franco, & Sarkar, 2004; Franco & Filson, 2006; Klepper & Sleeper, 2005; Phillips, 2002). Moreover, work on entrepreneurship has focused on understanding which employees are most likely to leave and start entrepreneurial ventures; both Klepper and Thompson (2010) and Campbell, Ganco, Franco and Agarwal (2012) theorize why the best employees are the most likely to spin out. Not surprisingly, founder characteristics are also critical for firm performance: the departure of higher quality founders create greater adverse effects for the parent firm, and higher beneficial effects for the spin-out firm (Campbell et al., 2012; Klepper & Thompson, 2010; Phillips, 2002). The scholarly attention on founder characteristics is mirrored by the attention they receive in the popular press. Further, founders rarely venture out on their own (Wasserman, 2012), often turning to their colleagues to assemble a team (Wezel, Cattani, & Pennings, 2006; Groysberg, Nanda & Prats, 2009). For example, when Johnson and Johnson spun out in 1886 from Seabury and Johnson, all three members of the founding team and many of its first 14 employees came from the parent firm (Kilmer House, 2012). Walt Disney recruited Mickey Mouse co-creator Ub Iwerks, a fellow employee at Pesman-Rubin Commercial Art Studio, when founding Disney (Gabler, 2006). Similar accounts abound in the semiconductor industry, as exemplified by Gordon Moore and Robert Noyce hiring away Andrew Grove when leaving Fairchild Semiconductor to ...

Bridging Strategic Human Capital and Employee Entrepreneurship Research: A Labor Market Frictions Approach

“…This constraint, however, may be less important when starting a de novo organization. First, employee entrepreneurs are typically higher performing employees (Campbell, Ganco et al, 2012;Klepper & Thompson, 2010) and are, thus, better able to rally teammates to move with them (Agarwal et al, 2016;Dahl & Sorenson, 2012) and take advantage of the collectively held knowledge of the team (Phillips, 2002;Wezel et al, 2006). Second, entrepreneurs start from a blank slate when Positive (Campbell, Ganco et al, 2012;Carnahan et al, 2012;Chatterji et al, 2016;Dahl & Sorenson, 2012;Elfenbein et al, 2010;Sorensen & Sharkey, 2014) Possibly divergent designing social structure and organizational culture (Burton, Sørensen, & Beckman, 2002), thus the risk of conflicting routines between the moving team and incumbent employees, which devalues the socially embedded knowledge, is mitigated (Campbell et al, 2014).…”

Jewels in the crown: Exploring the motivations and team building processes of employee entrepreneurs

“…Research on how spinout teams form is limited, and more generally, little research examines the endogenous processes through which individuals self-select into teams of any kind and in any context (Bell & Kozlowski, 2012). In the spinout literature, scholars, consistent with the agency and knowledge spillover models discussed above, tend to assume that new ventures are formed when team members working on a specific innovation project depart together (Agarwal, Campbell, Franco, & Ganco, 2016;Eisenhardt & Schoonhoven, 1990;Ganco, 2013). These assumptions are not backed by empirical evidence or consistent with anecdotal examples.…”

Leaving Employment to Entrepreneurship: The Value of Co‐worker Mobility in Pushed and Pulled‐Driven Start‐ups

“…Following earlier spin-off literature (e.g., Agarwal et al, 2004Agarwal et al, , 2016Dahl and Sorenson, 2014;Eriksson and Kuhn, 2006;Fackler et al, 2016;Muendler et al, 2012), our hypotheses pertain to firm survival, which captures more accurately the primary objective of new organizations. Yet, we acknowledge that a firm's long longevity does not necessarily imply a high performance.…”

“…Additionally, both seminal (Lucas, 1978) and more recent studies (Agarwal et al, 2016;Baptista et al, 2013;Dahl and Klepper, 2015) document that the most able entrepreneurs are likely to attract more and better (e.g., more skilled) employees, and to strategically assemble teams based on strong complementarities. Hence, the decision to hire former colleagues may be strongly correlated with unobservable traits of spin-offs and their founders, such as their quality.…”

“…Most new firms are spawned by existing firms (Campbell et al, 2012;Sørenson and Fassiotto, 2011). Moreover, new firm founders rarely venture out alone, and often rely on former co-workers to set up a team (Agarwal et al, 2016;Groysberg et al, 2008). That was the case of James Wood Johnson and Edward Mead Johnson, who left their job at Seabury & Johnson in 1886, together with fourteen employees recruited from their previous company, to found Johnson & Johnson (Agarwal et al, 2016).…”