The who, why, and how of spinoffs

Studies have consistently found that entrepreneurs who enter industries in which they have prior experience as employees perform better. We nevertheless know little about what accounts for this effect. The presumed explanation has been that experienced entrepreneurs benefit from knowledge acquired in their former jobs. But they might also differ from entrepreneurs without industry experience on a variety of other dimensions: preferential access to resources or differing motivations, for example, may account for their decisions to enter known industries instead of new ones. Combining novel data from a representative survey of entrepreneurs with the matched employer–employee database of all residents in Denmark, we examined how entrepreneurs with prior industry experience differed from those without it, and the extent to which those differences could account for the performance premium associated with prior industry experience. We found that entrepreneurs with industry experience came from younger, smaller, and more profitable parent firms, and that they recruited more experienced employees, worked harder, and placed less value on having flexible hours. The recruitment of more experienced employees and the greater effort exerted appeared to account for at least some of the performance advantage associated with prior industry experience.