High-performer mobility to entrepreneurship and parent-firm performance

Research Summary We investigate the effect of high-performer employee mobility to same-industry startups on parent-firm performance. High-performer mobility induces a loss of human assets but might also enable competition by transferring human and complementary assets from the parent firm to a competitor. Only when such transfer occurs is mobility to same-industry startups more harmful than other types of high-performer mobility. Human and complementary asset transfer is conditional on the departing high performer's ability to accumulate (and hence transfer) knowledge from the parent firm and the recipient firm's ability to absorb such knowledge. In support of this hypothesis, we show that the high performer's tenure and the startup's resources (size) moderate the performance effect of high-performer mobility on same-industry startups. Managerial Summary Industry experience is critical for new venture performance, and spinoff entrepreneurs (former employees from the same industry) perform better than other start-ups. However, studies have found that high performers' mobility to spinoffs harms the performance of their former employers. This paper asks when do spinoffs result in increasing competition and when is spinoff entrepreneurship more harmful compared to other types of high performer mobility? We show that additional detrimental performance effects on former employers depend on employee tenure and the spinoffs' start-up size. We argue that longer tenure increases competition because it allows the employee to form and strengthen personal relations, for example, to customers, and to accumulate more knowledge on products and processes. Start-up size is important for the recreation and appropriation of this knowledge.