User-industry spinouts: downstream industry knowledge as a source of new firm entry and survival

Recent scholarship on entrepreneurship suggests that the pre-entry know-how and experience of new entrants, embodied in their founders, affects not only their entry strategy, but also their long term performance and ability to survive. While prior work in this area focuses on entrants from the focal industry (i.e. employee spinouts) and from academic organizations (i.e. university spinoffs), this study extends existing research by examining a distinct category of new entrant from downstream industry contexts. We call this category ‘user spinouts’. We draw from a broad literature on evolutionary theory, user innovation and entrepreneurship to generate predictions concerning the entry strategies and survival rates of user spinouts with respect to other start-ups. We test our predictions within the context of a high-technology industry, semiconductors, over a ten-year period (1997-2007). We find support for our hypotheses that ‘user spinouts’ are more likely both to enter and to survive in application-specific product categories than other start-ups. We discuss the implications of our results for the theoretical and empirical literature on entry