Falling Not Far from the Tree: Entrepreneurs and Organizational Heritage

Abstract

Past research has shown that founders bring important capabilities and resources from their prior employment into their new firms and that these intergenerational transfers influence the performance of these ventures. However, we know little about whether organizational practices also transfer from parents to spawns, and if so, what types of practices are transferred? Using a combination of survey and registrar data and through a detailed identification strategy, we examine these two previously unaddressed questions. Our results provide strong evidence for organizational heritage in practices. About 70% of the comparisons of start-ups and other established organizations are less similar than the average similarity between a parent organization and its spawn and that the overlap in organizational practices is almost 10% greater between a spawn and its parents than between the spawn and other established firms. Our further investigation shows that not all practices seem to find their way into the new entrepreneurial firms. In particular, practices that are valuable for and fit with the requirements of a start-up organization, and at the same time are more clearly defined and casually less ambiguous, are more likely to be transferred by the founders from their previous employers. These results contribute to our understanding of how entrepreneurs assemble their organizations and practice innovation as well as the diffusion of practices and the origins of firm heterogeneity.