Why and when employees leave succesful companies like Google and Facebook

Often it can seem strange why people leave very successful technology companies and startups like Google or Facebook. Often they leave to start their own companies and this phenomenon called entrepreneurial spawning has been investigated closer in a big study of US firms which also has relevant implications for European policy makers who want to foster high-tech startups.

You can find the paper in its entirety here, however the paper looks at employees who leave public companies to start their own VC-backed companies and they use data from more than 5.000 firms and 15.000 founders, and I will focus more on their results and the implications.

  • Companies that were either based in Silicon Valley or Massachusetts and that were once VC backed them selves are most likely to spawn new firms (results control for firm size, patent portfolios and industry)
  • Diversified firms spawn less new firms. Employees in diversified firms are less entrepreneurial
  • Spawning is closely related to growth. There seems to be a natural size limit to how big VC-backed companies can get before employees leave to start their own companies. This is what is taking place with the employees leaving from Google to Facebook, and based on this, Facebook might have the same problem in a couple of years when their grow slows down or they go public and employees can cash in their stock options.

The implications of the findings are relevant for a country like Italy that is still a developing country in terms of high-tech entrepreneurship, because they clearly demonstrate that universities are not the only source of founders of innovative companies, but public companies who have themselves received VC might be a great source of new firms. So instead of trying to copy Stanford, Italy would do well to attract existing technology companies and have them setup offices particularly in either Milan or Rome. The study also finds that entrepreneurial activity in a particular area has increasing returns so instead of each region trying to attract innovative entrepreneurs, Italy has to focus on one or two regions which can realistically achieve critical mass of the know-how related to new high-tech firms. This is well-known however, a lot of regional politicians often get in the way of this even though it is completely unrealistic that Italy will have innovative high-tech clusters in Calabria, Sicily, Trieste etc.

So what should Milan do in concrete terms? A visionary plan for e.g. Milan would be to double the number of high-tech employees in Milan by 2015 and attract 3 large foreign technology companies to set up offices in Milan. In the long run, such initiatives might be very good incubators for future entrepreneurs.

PS. A very interesting observation related to entrepreneurial spawning, is that there seems to be consensus (on Quora at least) that no succesful startups have been founded by ex-googlers. For a concrete example of why companies like Facebook play an essential role in spawning new innovative startups take a look at this list of employees that have left the company within the last three years.

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Posted: november 2nd, 2010
Categories: academic papers applied to the real world, startups, VC
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