Employee startups in high-tech industries

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Citation: Steven Klepper (2001) Employee startups in high-tech industries. Industrial and Corporate Change (RSS)
DOI (original publisher): 10.1093/icc/10.3.639
Semantic Scholar (metadata): 10.1093/icc/10.3.639
Sci-Hub (fulltext): 10.1093/icc/10.3.639
Internet Archive Scholar (search for fulltext): Employee startups in high-tech industries
Tagged: Business (RSS) Entrepreneurship (RSS), Spinoffs (RSS)


Steven Klepper offers an attempt to intervene in an nascent literature on entrepreneurial spinoffs and to survey the empirical literature test several theories about what motivates spinoffs and to answer fundamental questions about where they come from.

Klepper's work follows a template common from some of his other work (e.g., Klepper and Simon 1997). He introduces the question, introduces three theories (the third is associated with him), surveys empirical work and extracts a set of broad generalizations, tests the theories in light of the synthesized findings of the empirics, and then concludes that his own theory does better than the alternatives.

The three theories of spinoffs are associated with (1) stories about agency costs and several agency theory descriptions of misaligned incentives that make it advantageous to employees to spinoff work into a new company (2) an explanation based on organizational limits that make it most likely that entrepreneurs will need to spinoff a company to pursue a radically new innovation and (3) an organizational learning perspective that emphasizes the way that employees learn from their employers to gather knowledge which they can use to compete with their employer as a spinoff. There is a final theory that treats spinoffs more like children.

Klepper categorizes his empirical review into two groups. The first is a set of three comprehensive looks at spinoffs within particular industries. The second is a broader and larger group of often qualitative looks at spinoffs from a variety of angles and perspectives. He considers how this work speaks to:

  • The nature of spinoffs
  • The nature of parents
  • The timing of spinoffs
  • Spinoff performance

Klepper then considers each of the theories in light of the empirical works predictions (sometimes mixed) in each of these areas. At the end, he concludes that, "a considerable amount of the evidence, though, supports the importance of employee learning in spinoffs." He explains that this literature seems to show that:

  • Spinoffs appear to draw on particular experiences of their parents and founders in devising an initial business strategy.
  • More innovative and successful firms with broader product lines spawn more spinoffs.

In closing, Klepper explores (and finds support for) an evolutionary explanation for spinoffs based Nelson and Winter's (1982) concept of evolution with routines as genes. Spinoffs, in this sense, can be seen organizational reproduction.

Klepper's work specifies very little in the form of mechanisms. While he shows that successful firms are associated with more spinoffs, he barely even probes questions of why this might be the case. There are other important questions that remain about how spinoffs evolve over time since the vast majority of the literature has been focused on the moment of spinning off.

Theoretical and Practical Relevance

Klepper's article has been cited more than 300 times in the 9 years since it's publication and is a well known and frequent citation in the literature on spinoffs in particular and entrepreneurship more generally.