User-Industry Spinouts: Downstream Industry Knowledge as a Source of New Firm Entry and Survival

Recent scholarship on entrepreneurship suggests that the pre-entry know-how of start-ups, embodied in their founders, affects not only entry, but also performance. Although prior work focuses on new entrants from the focal industry (i.e., employee spinouts) and academic organizations (i.e., university spinoffs), this study identifies and examines a hybrid category of start-ups from downstream user-industries, which we call “user-industry spinouts.” We draw from the literature on evolutionary theory, user innovation, and industrial dynamics to propose that, given the unique combination of knowledge inherited by these entrants, their choices at entry and their ability to survive in the focal industry will differ with respect to other start-ups. We do this by extending existing work on new firm creation to investigate entry and performance in different product markets. Our findings, based on a dataset of start-ups in the semiconductor industry over a 10-year period (1997–2007), show that user-industry spinouts are more likely both to enter and to survive in market-specific product categories. We suggest that the pre-entry knowledge resources of spinouts may support entry and survival across industry boundaries. However, the specific nature of these resources will influence which product markets they choose to enter. Our results have theoretical implications for the literatures on entrepreneurship, industrial dynamics, and strategy.

[1]  Ernest Braun,et al.  The Semiconductor Industry. (Book Reviews: Revolution in Miniature. The History and Impact of Semiconductor Electronics) , 1978 .

[2]  Mark J. Roberts,et al.  Patterns of Firm Entry and Exit in U.S. Manufacturing Industries , 1988 .

[3]  April M. Franco,et al.  Swift and Smart: The Moderating Effects of Technological Capabilities on the Market Pioneering-Firm Survival Relationship , 2009, Manag. Sci..

[4]  Franco Malerba,et al.  The magnitude of innovation by demand in a sectoral system: The role of industrial users in semiconductors , 2013 .

[5]  Steven Klepper,et al.  Disagreements, Spinoffs, and the Evolution of Detroit as the Capital of the U.S. Automobile Industry , 2007, Manag. Sci..

[6]  Paul C. Godfrey,et al.  Identity in organizations : building theory through conversations , 2000 .

[7]  Franco Malerba,et al.  Demand structure and technological change: The case of the European semiconductor industry , 1985 .

[8]  Katherine J. Strandburg,et al.  Governing Knowledge Commons , 2014 .

[9]  Rajshree Agarwal,et al.  Growing pains: Pre-entry experience and the challenge of transition to incumbency† , 2012 .

[10]  Ranjay Gulati,et al.  Getting Off to a Good Start: The Effects of Upper Echelon Affiliations on Underwriter Prestige , 2003, Organ. Sci..

[11]  AnnaLee Saxenian,et al.  Regional Networks and the Resurgence of Silicon Valley , 1990 .

[12]  Mike Wright,et al.  Resources, capabilities, risk capital and the creation of university spin-out companies , 2005 .

[13]  Paul A. Gompers,et al.  Performance persistence in entrepreneurship , 2010 .

[14]  William M. Riggs,et al.  Incentives to innovate and the sources of innovation: the case of scientific instruments☆ , 1994 .

[15]  Lori Rosenkopf,et al.  Startup size and the mechanisms of external learning: increasing opportunity and decreasing ability? , 2003 .

[16]  Lawrence M. Wein,et al.  Economics of Product Development by Users: the Impact of Sticky Local Information , 1998 .

[17]  M. Corsino,et al.  Product innovation and firm growth: evidence from the integrated circuit industry , 2011 .

[18]  G. Krogh,et al.  Under the radar: Industry entry by user entrepreneurs , 2010 .

[19]  S. Shane.  Prior Knowledge and the Discovery of Entrepreneurial Opportunities , 2000 .

[20]  Paul Israel,et al.  The Sources of Innovation , 1990 .

[21]  Mark Simon,et al.  Corporate versus independent new ventures: Resource, strategy, and performance differences , 1997 .

[22]  Guido Buenstorf,et al.  Evolution on the Shoulders of Giants: Entrepreneurship and Firm Survival in the German Laser Industry , 2007 .

[23]  Clayton M. Christensen.  The Rigid Disk Drive Industry: A History of Commercial and Technological Turbulence , 1993, Business History Review.

[24]  Ashish Arora,et al.  Cash-Out or Flameout! Opportunity Cost and Entrepreneurial Strategy: Theory, and Evidence from the Information Security Industry , 2011, Manag. Sci..

[25]  Steven Klepper,et al.  The capabilities of new firms and the evolution of the US automobile industry , 2002 .

[26]  B. Kogut,et al.  Technological Platforms and Diversification , 1996 .

[27]  David S. Evans.  The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries. , 1987 .

[28]  S. Klepper.  Employee Startups in High‐Tech Industries , 2001 .

[29]  Sonali K. Shah,et al.  The Accidental Entrepreneur: The Emergent and Collective Process of User Entrepreneurship , 2007 .

[30]  Christopher L. Tucci,et al.  Does the apple always fall close to the tree? The geographical proximity choice of spin‐outs , 2011 .

[31]  Simcha Jong,et al.  How organizational structures in science shape spin-off firms: the biochemistry departments of Berkeley, Stanford, and UCSF and the birth of the biotech industry , 2006 .

[32]  Pino G. Audia,et al.  The Social Structure of Entrepreneurial Activity: Geographic Concentration of Footwear Production in the United States, 1940–19891 , 2000, American Journal of Sociology.

[33]  April M. Franco,et al.  Knowledge Diffusion through Employee Mobility , 2000 .

[34]  Mike Wright,et al.  The Effectiveness of University Knowledge Spillovers: Performance Differences between University Spinoffs and Corporate Spinoffs , 2011 .

[35]  Glenn R. Carroll,et al.  Product Demography of De Novo and De Alio Firms in the Optical Disk Drive Industry, 1983-1999 , 2008, Organ. Sci..

[36]  Steven Klepper,et al.  Entry by Spinoffs , 2005, Manag. Sci..

[37]  Sonali K. Shah,et al.  Who are User Entrepreneurs? Findings on Innovation, Founder Characteristics, and Firm Characteristics (The Kauffman Firm Survey) , 2012 .

[38]  Sonali K. Shah.  From Innovation to Firm Formation in the Windsurfing, Skateboarding and Snowboarding Industries , 2005 .

[39]  Mary Tripsas,et al.  When Do User-Innovators Start Firms? Towards a Theory of User Entrepreneurship , 2004 .

[40]  Mary Tripsas.  Customer preference discontinuities: a trigger for radical technological change , 2008 .

[41]  April Franco,et al.  KNOWLEDGE TRANSFER THROUGH INHERITANCE: SPIN- OUT GENERATION, DEVELOPMENT, AND SURVIVAL , 2004 .

[42]  Constance E. Helfat,et al.  The birth of capabilities: market entry and the importance of pre-history , 2002 .

[43]  K. Schulman,et al.  Physician-industry cooperation in the medical device industry. , 2008, Health affairs.

[44]  David H. Hsu,et al.  Entrepreneurs from technology-based universities: Evidence from MIT , 2007 .

[45]  Ajay Bhaskarabhatla,et al.  Latent Submarket Dynamics and Industry Evolution: Lessons from the U.S. Laser Industry , 2013 .

[46]  Ron Adner.  Match your innovation strategy to your innovation ecosystem. , 2006, Harvard business review.

[47]  R. Fairlie,et al.  High‐Technology Entrepreneurship in Silicon Valley , 2013, SSRN Electronic Journal.

[48]  Allan Afuah,et al.  Users as Innovators: A Review, Critique, and Future Research Directions , 2009 .

[49]  Carolyn Y. Woo,et al.  Survival of the Fittest? Entrepreneurial Human Capital and the Persistence of Underperforming Firms , 1997 .

[50]  Lars Frederiksen,et al.  Why Do Users Contribute to Firm-Hosted User Communities? The Case of Computer-Controlled Music Instruments , 2006, Organ. Sci..

[51]  Iain M. Cockburn,et al.  Entry and Patenting in the Software Industry , 2006, Manag. Sci..

[52]  I. Nonaka.  A Dynamic Theory of Organizational Knowledge Creation , 1994 .

[53]  Kira Fabrizio,et al.  Using users: When does external knowledge enhance corporate product innovation? , 2014 .

[54]  David A. Hounshell,et al.  The nature, sources, and consequences of firm differences in the early history of the semiconductor industry , 2000 .

[55]  Steven Klepper,et al.  Spinoffs: A review and synthesis , 2009 .

[56]  Maryann Feldman,et al.  Special Issue on University Entrepreneurship and Technology Transfer: Equity and the Technology Transfer Strategies of American Research Universities , 2002, Manag. Sci..

[57]  David B. Audretsch,et al.  Does Entry Size Matter? The Impact of the Life Cycle and Technology on Firm Survival , 2001 .

[58]  B. Kirchhoff,et al.  Formation, growth and survival; Small firm dynamics in the U.S. Economy , 1989 .

[59]  Carliss Y. Baldwin,et al.  Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation , 2010, Organ. Sci..

[60]  Mike Wright,et al.  Entrepreneurial Origin, Technological Knowledge, and the Growth of Spin‐Off Companies , 2011 .

[61]  Marc Gruber,et al.  Darwinians, Communitarians and Missionaries: The Role of Founder Identity in Entrepreneurship , 2011 .

[62]  Rupert G. Miller,et al.  Survival Analysis , 2022, The SAGE Encyclopedia of Research Design.

[63]  Sheryl Winston Smith,et al.  Do innovative users generate more useful insights? An analysis of corporate venture capital investments in the medical device industry , 2013 .

[64]  Brian S. Silverman,et al.  Firm Survival and Industry Evolution in Vertically Related Populations , 2011, Manag. Sci..

[65]  Nathan Rosenberg,et al.  Inside the black box , 1983 .

[66]  M. Diane Burton,et al.  7. Coming from good stock: Career histories and new venture formation , 2002 .

[67]  J. Brüderl,et al.  Survival Chances of Newly Founded Business Organizations , 1992 .

[68]  Cornelius Herstatt,et al.  User-innovators and "local" information: The case of mountain biking , 2005 .

[69]  Cyrus C. M. Mody.  Corporations, Universities, and Instrumental Communities: Commercializing Probe Microscopy, 1981-1996 , 2006 .

[70]  Birger Wernerfelt,et al.  The link between resources and type of diversification: Theory and evidence , 1991 .

[71]  Russell M. Knight,et al.  Technological innovation in Canada: A comparison of independent entrepreneurs and corporate innovators , 1989 .

[72]  Glenn R. Carroll,et al.  The fates of De Novo and De Alio producers in the American Automobile Industry 1885–1981 , 2007 .

[73]  E. Hippel.  Sticky Information and the Locus of Problem Solving: Implications for Innovation , 1994 .

[74]  Aaron K. Chatterji,et al.  Spawned with a silver spoon? Entrepreneurial performance and innovation in the medical device industry , 2009 .

[75]  Damon J. Phillips.  A Genealogical Approach to Organizational Life Chances: The Parent-Progeny Transfer among Silicon Valley Law Firms, 1946–1996 , 2002 .

[76]  Scott Shane,et al.  Bringing individuals back in: the effects of career experience on new firm founding , 2003 .

[77]  Mike Wright,et al.  The creation of spin-off firms at public research institutions: Managerial and policy implications , 2005 .

[78]  Greg Linden,et al.  Chips and Change: How Crisis Reshapes the Semiconductor Industry , 2009 .

[79]  Rajshree Agarwal,et al.  Knowledge sources of entrepreneurship: Firm formation by academic, user and employee innovators☆ , 2014 .

[80]  Maryann Feldman,et al.  Academic Entrepreneurs: Organizational Change at the Individual Level , 2008, Organ. Sci..

[81]  J. Mata,et al.  The survival of new plants: Start-up conditions and post-entry evolution , 1995 .

[82]  Aaron K. Chatterji,et al.  How Do Product Users Influence Corporate Invention? , 2012, Organ. Sci..

[83]  S. Winter,et al.  An evolutionary theory of economic change , 1983 .

[84]  Kevin Davis,et al.  Building High-Tech Clusters: Learning the Silicon Valley Way , 2004 .

[85]  Barry L. Bayus,et al.  The Role of Pre-Entry Experience, Entry Timing and Product Technology Strategies in Explaining Firm Survival , 2007, Manag. Sci..

[86]  Steven Klepper,et al.  The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry , 2000, Journal of Political Economy.

[87]  Marc Gruber,et al.  Pre-Entry Knowledge, Learning, and the Survival of New Firms , 2009, Organ. Sci..

[88]  David H. Hsu,et al.  Resources as dual sources of advantage: Implications for valuing entrepreneurial‐firm patents , 2013 .

[89]  P. Geroski.  What do we know about entry , 1995 .

[90]  D. Teece.  Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy , 1993 .

[91]  G. Willard,et al.  Founding strategy and performance: A comparison of high and low growth high tech firms , 1990 .

[92]  Mike Wright,et al.  Critical junctures in the development of university high-tech spinout companies , 2004 .

[93]  Carliss Y. Baldwin,et al.  How User Innovations Become Commercial Products: A Theoretical Investigation and Case Study , 2006 .