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Sometimes called "employee spinouts", spinout ventures are a very common form of entrepreneurship in the private sector. As it turns out, the majority of founders have previous work experience to drawn on and many use ideas that they encountered while working for a former employer (Sørensen & Fassiotto, 2011[1]).
Spinouts are independent startups created by former employees of incumbent organizations. For example, Zoom is a spinout of Cisco because its founder and many early employees were formerly Cisco engineers. Many of them were part of Cisco's Webex division which also competes in the virtual meeting space.
Spinouts are expected to have advantages over other types of startups because of the valuable knowledge, networks, and routines they learn from their employing organizations (Agarwal et al., 2016[2]). But for these reasons, spinouts may also face hostility from their parent organizations (Walter, 2024[3]), which can take many forms including litigation for breach of non-compete and no poach agreements.
Nonetheless, parent organizations can benefit from spinouts in several ways. One way is by developing a reputation innovation that helps them to attract better human resources. Another is by increasing corporate coherence by removing unrelated businesses that distract from the company's strategy. Finally, parent organizations can learn from their spinouts through spillbacks of people and ideas, contributing to competitive advantage (Kim & Steensma, 2017[4]).
Spinouts are sometimes confused with "corporate spin-offs" where the leadership of an incumbent organization decides to hive off a division into a new corporation owned by the same investors who can choose to divest their shares. By contrast, employee spinouts do not compensate parent firm investors in this way, though they can have relations (e.g., licensing, customer/supplier) (Adams et al., 2016[5]).
Recent bans on non-competes (e.g., U.S. 2024[6] and Ontario 2022[7] bans) are expected to reduce barriers for spinout entrepreneurs who create new ventures that compete directly or indirectly with their parent organizations.
References
edit- ^ Sørensen, Jesper B.; Fassiotto, Magali A. (October 2011). "Organizations as Fonts of Entrepreneurship". Organization Science. 22 (5): 1322–1331. doi:10.1287/orsc.1100.0622. ISSN 1047-7039.
- ^ Agarwal, Rajshree; Campbell, Benjamin A.; Franco, April Mitchell; Ganco, Martin (June 2016). "What Do I Take With Me? The Mediating Effect of Spin-out Team Size and Tenure on the Founder–Firm Performance Relationship". Academy of Management Journal. 59 (3): 1060–1087. doi:10.5465/amj.2012.0853. ISSN 0001-4273.
- ^ Walter, Sascha G. (29 December 2023). "Spin-outs' knowledge legacies and parent hostility: a competitive dynamics view". Small Business Economics. doi:10.1007/s11187-023-00849-0. ISSN 1573-0913.
- ^ Kim, Ji Youn (Rose); Steensma, H. Kevin (August 2017). "Employee mobility, spin-outs, and knowledge spill-in: How incumbent firms can learn from new ventures". Strategic Management Journal. 38 (8): 1626–1645. doi:10.1002/smj.2625. ISSN 0143-2095.
- ^ Adams, Pamela; Fontana, Roberto; Malerba, Franco (January 2016). "User-Industry Spinouts: Downstream Industry Knowledge as a Source of New Firm Entry and Survival". Organization Science. 27 (1): 18–35. doi:10.1287/orsc.2015.1029. ISSN 1047-7039.
- ^ "FTC votes 3-2 to ban non-compete clauses for American workers". UPI. 23 April 2024 – via Yahoo Finance.
- ^ "Non-competes are becoming outlawed, but you might still be bound by one". The Globe and Mail. 3 June 2024.