Employee Entrepreneurship and the Fall of Incumbents

J. Daniel Kim, Management, The Wharton School

Abstract: A remarkable empirical regularity is the high rate of churn in industry leadership. For instance, among the top 15 public internet companies in 1995, only 1 remained on the list in 2015. What explains the fall of incumbent firms despite their superior advantage in resources and knowledge? In this project, I investigate employee entrepreneurship as a key source of the incumbent disadvantage. I theorize that ex-employees gain an advantage by strategically leveraging not only the technological knowledge of their former employers, but also the shortcomings and markets overlooked by these incumbent firms. In turn, employee entrepreneurship is predicted to negatively impact the parent firm’s long-term performance. I aim to empirically test these ideas using employee-employer matched data from the US Census, merged with publicly available patents data, to advance our understanding of the link between employee entrepreneurship and incumbent performance.