Abstract
Many entrepreneurs commercialize an idea they initially developed as employees of an incumbent firm. While some face retaliatory reactions from their (former) employer, others are left alone or even supported. It is not clear, however, why some employee spin-offs face parental hostility while others do not, and to what extent this parental hostility affects employee spin-offs’ performance. Integrating the resource-based view with insights on competition and retaliation, we propose that parental hostility increases with the (perceived) competitive threat posed by an employee spin-off. Specifically, we advance employee spin-offs’ initial strategic actions (offering substitute products, hiring employees of the parent, and attempting to first develop the idea inside the parent) as key drivers of parental hostility and consequent spin-off performance. Results from a pooled dataset of 1083 employee spin-offs in Germany confirm that these initial strategic actions trigger parental hostility, which in turn, and contrary to expectations, positively affects employee spin-offs’ innovation and economic performance. These results advance the literature on employee spin-offs in several ways and have important practical implications.
Highlights
Employee spin-offs, whose founders commercialize ideas they initially developed as employees of an incumbent company (Fryges et al 2014), have increasingly attracted academics’ and policy makers’ enthusiasm
The Intrapreneurial attempts by a spin-off’s founder to first implement the business idea within the parent company have a significant positive relationship with Parental hostility towards the spin-off’s foundation. These Intrapreneurial attempts on average increase the likelihood of Parental hostility by 9% (AME = 0.088, CI = [0.066; 0.111]), supporting Hypothesis 3. These findings strongly support the idea that initial strategic actions increasing the perceived competitive threat a spin-off poses to its parent serve as
When testing the effect size of the average mediation—how much of the effect of spin-offs’ initial strategic actions on spin-off performance is transmitted by the mediating variable of Parental hostility—we find that Parental hostility partially mediates the relationship between initial strategic actions and employee spin-offs’ innovation and economic performance, but these indirect effects are positive
Summary
Employee spin-offs, whose founders commercialize ideas they initially developed as employees of an incumbent company (Fryges et al 2014), have increasingly attracted academics’ and policy makers’ enthusiasm. The popular (e.g., TechChrunch) and academic literature (e.g., Dahlstrand 1997; Fryges and Wright 2014; Garvin 1983; Somaya et al 2008) feature several stories of employee spin-offs that are tolerated or even supported by their parent, we know that many parent organizations are hostile towards the establishment of employee spin-offs (Klepper and Sleeper 2005; McKendrick et al 2009; Walter et al 2014) They regard them as “parasites” (Klepper 2001, on Fairchild) or “mafia” (Garrett et al 2017, on PayPal) who steal their resources and ideas, and invoke non-compete clauses and intellectual property lawsuits to hinder their establishment (Thompson and Chen 2011)
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