Coming from good stock: Career histories and new venture formation

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Citation: M. Diane Burton, Jesper B. Sørensen, Christine M. Beckman (2002) Coming from good stock: Career histories and new venture formation. Research in the sociology of organization (RSS)
Internet Archive Scholar (fulltext): Coming from good stock: Career histories and new venture formation
Tagged: Sociology (RSS) Organization Theory (RSS), Entrepreneurship (RSS)

Summary (Abstract)

Burton, Sorensen, and Beckman is based around the question of entrepreneurial spin-offs and examines how the social structure of existing organizations helps determine which entrepreneurs have access to the resources necessary to found a new firm. Their basic argument is that some firms are "entrepreneurially prominent" and that people in these firms will seem like less uncertain investments and will have an easier time gaining the resources necessary to found a start-up. Ultimately, they argue that the firms emerging from these prominent firms will be more innovative.

Theirs is a network-based story but it is the network of the organizations employing individuals that is considered. In other words, the authors key argument is that structural position of an organization employing a people determines which entrepreneurs will be able to gain funding innovative and less certain ventures. The authors define firms that "spawn" a large number of start-ups through employee departure as entrepreneurially prominent. Their core argument is these firms will be the source of innovative new ventures.

They frame their argument in terms of the literatures on new organizational forms, on geographic spillovers (e.g., Jaffe et al. (1993)), movement between organizations, and career histories. The paper argues that informational and reputation benefits come from being associated with prominent employees, looks at how social structure around organizations frames entrepreneurship, and tries to pained a more nuanced picture of entrepreneurship.

The authors offer two formal hypotheses:

  1. The prominence of prior employees will be positively related to whether a firm pursues an innovative strategy.
  2. The prominence of a founding team's prior employees will have a positive effect on the probability of a new venture obtaining external financing at the time of founding.

The paper is tested using the data from the Stanford Project on Emerging Companies (the same dataset used in Baron, Hanna and Burton's (1999) Building the iron cage: Determinants of managerial intensity in the early years of organizations and test two dependent variables associated with the two hypotheses. Prominence is measured as the number of spin-offs in the sample. The authors find support for both hypotheses.

Theoretical and Practical Relevance

Burton et al.'s article has been cited 185 times since it was published 8 years ago, almost entirely in the literature on entrepreneurship and, in particular, in the sociological literature on the topic.