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Faculty Insights

What Drives Employees to Start Their Own Businesses?

By Wisconsin School of Business

September 9, 2015

What causes employees to leave their jobs to pursue startups? Some take an entrepreneurial path when their ideas and technological knowledge is unappreciated by their companies. Others maintain that companies’ strategic decisions can lead to partial deployment of proposed innovations, which creates entrepreneurial opportunities for employees.

Martin Ganco
Martin Ganco, Associate Professor of Management and Human Resources at the Wisconsin School of Business

My colleagues Alfonso Gambardella of Bocconi University, Florence Honoré of the Iowa State University, and I sought to determine which of these scenarios is a stronger predictor of employee motivation to become an entrepreneur. We compared the assessed value of the technological knowledge by the employee who created it with the firm’s initial assessment of that knowledge, and then analyzing subsequent employee entrepreneurial activity.
We found that disagreement between the employee and the company as to the invention’s value can explain some instances of employee entrepreneurship. Employees are far more likely to pursue entrepreneurship when they agree with the company on the innovation’s value and the idea fails during implementation—if the reason that it fails is because the new product doesn’t fit the company’s overall strategy.
For example, an invention for the consumer market may not be a good fit for a company that focuses primarily on business-to-business products, in which case the company may license the idea or simply allow employees to develop it.
Many viable ideas created within companies go underutilized, but companies are getting better at making use of innovations by creating separate research-and-development units and providing corporate venture capital. Most companies still have a long way to go to take full advantage of this idle knowledge and should think creatively about ways to tap into it because, as this research shows, these ideas are driving employee entrepreneurship. Why shouldn’t the success that results from this knowledge stay with the company?
Research on the entrepreneurial mindset finds that entrepreneurs tend to be very optimistic, and this optimism is an important driver of entrepreneurship, but it also can lead to unrealistic expectations. Employee-entrepreneurs should pay close attention to company feedback, particularly when the company knows quite a bit about the technology. No amount of passion and enthusiasm can compensate for a bad idea—and if everybody is saying it’s a bad idea, it probably is.
For more on this topic, see our paper “Using What You Know: Patented Knowledge in Incumbent Firms and Employee Entrepreneurship” in Organization Science.
Martin Ganco is associate professor of management & human resources at the Wisconsin School of Business.