Spin-Outs

by

Raj Echambadi, Babu John-Mariadoss

• LAST REVIEWED: 26 May 2023
• LAST MODIFIED: 26 May 2023
• DOI: 10.1093/obo/9780199846740-0216

Introduction

Spin-outs are brand new entrepreneurial ventures founded within the same industry by ex-employees of established firms. Spin-outs are widely considered to be significant diffusers of innovation within an industry. While extant literature has used the terms spin-out and spin-off interchangeably, spin-offs typically include different categories of start-up firms, including ventures that result from corporate restructuring (corporate spin-offs) and those originating from universities (academic spin-offs). Hence, we use spin-outs to refer only to ventures that result from employee entrepreneurship, and these spin-outs do not have any connection, financial or otherwise, to the incumbent parents. An example involving Shockley Semiconductor Laboratory, Fairchild, and Intel will help illustrate the concept of spin-outs. In 1957, eight researchers from Shockley Semiconductor Laboratory left to launch Fairchild Semiconductor, a spin-out. In 1968, two senior employees from Fairchild Semiconductor, Robert Noyce and Gordon Moore, founded Intel, considered a spin-out because it competed in the semiconductor industry.

Textbooks and Research Monographs

As the study of spin-outs is a relatively narrow field, there is not an accepted template for a traditional textbook for this topic, but there are a number of research monographs that provide an excellent coverage of the subject. Shimizu 2019 is a useful three-part research monograph that conducts a longitudinal examination of laser diodes in the United States and Japan from the 1950s to the 2000s. Christensen 2013 explains the mechanism underlying spin-out creation.

• Christensen, C. M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Cambridge, MA: Harvard Business Review Press, 2013.

  Although this book is not exclusively about spin-outs, the author offers significant examples of patterns of failures from incumbent companies that invest aggressively in technologies for their current customers but fail to commercialize technologies for the future, often a fount of opportunities for spin-out formation.

• Shimizu, H. General Purpose Technology, Spin-Out, and Innovation. Advances in Japanese Business and Economics 21. Singapore: Springer, 2019.

  DOI: 10.1007/978-981-13-3714-7_13

  A winner of the International Schumpeter Society’s 2020 Schumpeter Prize, this book uses a case study to explore the evolution of the laser diode industry in the United States and Japan and mechanisms by which spin-outs affected types and patterns of innovation at the industry level. High levels of labor mobility and size of submarkets positively affect formation of spin-outs. Interestingly, spin-outs adversely impact the existing R&D projects of the parent firms.