#375 Why the Best Startups Don’t Start in Garages—Insights from André Laplume

[00:00:00]

Mehmet: Hello and welcome back to a new episode of the CTO Show with Mehmet. Today I'm very pleased, joining me from Canada, André Laplume. André, the way I like to do it is I keep it to my guests and introduce themselves and, you know, feel free to tell us a bit more [00:01:00] about your background, your journey, and what you're currently up to.

Mehmet: So the floor is yours.

Andre: Yeah, thank you for the invitation. Um, yes, I'm, I'm a, I'm a professor. I'm Andre Laplume. I'm a professor at the Toronto Metropolitan University and, um, there, I, I teach and, uh, and do research in entrepreneurship and in strategy and, uh, uh, entrepreneurship has actually been an area of, uh, of my primary interest, uh, recently, and I'm especially interested in the, the, the intersection between, um, startups or, or entrepreneurs and, uh, in established incumbent women.

Andre: Uh, organizations, right? Because they have, uh, all kinds of different types of interactions that go on. So a lot of my research has been on, on that interaction. Um, I also, as part of my job, uh, uh, as a professor, I, I train, uh, PhD students and master's students, and they do research as well on these topics.

Andre: And so the, the work that I'm talking about today is based up, uh, to some extent on my research personally, and the research of my coauthors and colleagues and students. [00:02:00] Um, so I'm, I'm happy to share, uh, with you guys today.

Mehmet: That's really cool. And, you know, entrepreneurship as the audience would know, it's something that I'm personally also passionate about.

Mehmet: Um, you know, the place where I want to start is, uh, you know, the book that you released recently, which is called spin out ventures. And, you know, so if, if someone doesn't know, like, this is a, a, um, it's, you know, something to say, okay, spin out and ventures. Like it's something like really Kind of contradictory because, you know, you see this kind of fusion things and so on.

Mehmet: So you decided to call it spin out ventures. Tell me a little bit more about what is the spin out here, uh, you know, in, in, and, you know, how did you come up with the results? Of course, I know what, what means, but just for the audience.

Andre: Yeah, sure. I mean, I, uh, we didn't coin the term, uh, spin out. Spin out's [00:03:00] been, it's been used for, for some time, um, to describe, uh, where when employees leave a company to start their, their own company.

Andre: Um, and I think there, you know, there's been some sort of confusion over time because there's also another term corporate spinoff, which refers to when the management of a, of an incumbent firm decides to take a business that they have and, and, uh, take it outside of the company as a, as a, uh, as an independent company.

Andre: Um, but that's quite different from when individuals and often very small teams, individuals or, or, uh, teams of, of two or three people who are employees at a company, um, and who decide, uh, together or individually to leave and to, to start a new venture. And so that's not a managerial decision. Usually that's a decision that's made by the, the individual, uh, employee entrepreneurs.

Andre: Um, and so that's what distinguishes them from, from things like, uh, corporate, uh, spinoffs. So we didn't, we didn't coin the term, but we do use it and, uh, and we think it's a helpful term. Uh, because there really, really isn't another, um, term [00:04:00] for it out there. Sometimes people say, well, startups founded by alumni of Microsoft or something like that.

Andre: Right. Um, but the spin out venture term we think is a good term to describe it. And it's been used quite a bit in the academic literature. Um, so we're trying to bring it into the mainstream literature or the mainstream world.

Mehmet: Cool. Good to know. Now, based of course, on. You know, the research that you've done, like, and you know, you, you had a point and you know, with, with your, your colleagues and of course, um, the fellow, uh, students that help you with the research.

Mehmet: So you, you, you busted the myth, which is, you know, known as like usually startup start in garages. Right. So everyone, you know, then when you tell startup, Oh yeah, they started the, in the garage, like they remember Apple, they remember like a couple of other startups over there. Uh, but you say that the majority of startup companies actually, you know, they started within You know, inside [00:05:00] established organizations.

Mehmet: So why do you think, you know, this is the case? And, you know, what are like some of the household names that began as spin out? So just to give an example, I

Andre: mean, you mentioned Apple. So that's one of the examples that we use because in a way that people think of them as the garage entrepreneurship example, but it's actually not a very good example of that.

Andre: Because if you look at the story a little more carefully, Okay. You see that Steve Wozniak, um, was working at Hewlett Packard at the time, um, and he was, he was working in, in all kinds of different, uh, roles, but he was also, um, having access to the different components needed to, to build the first PC there.

Andre: And so he had a prototype built, um, largely from the things that he learned from, from his work. Um, and he tried to pitch it, uh, several times to the management of HP before, uh, before eventually leaving to, to found Apple, uh, with Steve Jobs. Um, and so he, it's really an example of a, of a spin off venture because there wasn't really much going on in that garage.

Andre: Actually, a lot of the, [00:06:00] the prototyping work and all the work related to building the, the first, uh, PCs were done, uh, while at Hewlett Packard, right? So, I think it's a misnomer or kind of like a misconception that most of the work happens in a garage. Um, because in reality, uh, a lot of the different types of businesses, especially tech businesses that we want to launch today, you know, as entrepreneurs, uh, there's a lot to learn, right.

Andre: And, and, uh, often it makes sense to, to learn it somewhere first and then to, uh, to take those ideas and to create a new ventures from them.

Mehmet: Another example that came to my mind, Andre is, uh, Intel. You know, because the four engineers that they started Intel, they were working to another semiconductor chip company.

Mehmet: And, you know, they, they, they were not, uh, I'm not saying agreement with the management, but the management was like a little bit retrofit, you know, the old style didn't want to try something new and they get over there. So, you know, from your research, have you seen like usually these [00:07:00] Founders, they come from, let's say same background in a sense.

Mehmet: I mean, they have like same characteristics or is this, you know, each, each time it can be, you know, from, from different personality, it can be like from different type of, of employees within the company that they will go actually, uh, and start. So, so what I'm looking for, Andre is actually. If there's something within the personality of these founders or entrepreneurs, like, is it always the same?

Mehmet: Like, it's just the same thing that motivates them to leave. Is it because they face rejections? What is it?

Andre: Yeah. I mean, that's an interesting question. I think a lot of the, the, the, the early research in entrepreneurship focused a lot on the personality of the entrepreneur or what are the specific traits of the individuals.

Andre: But I think when you, when you look at the, the spin out founders, What they, what most of them have in common is that they've spent time, uh, uh, learning in a learning environment, which is, uh, an established organization and, uh, they've gotten to some point where they were triggered to, to, to form a spin [00:08:00] out.

Andre: And we've seen lots of different examples. You gave an example of a strategic disagreement, right? What often happens when, uh, employees are perhaps unhappy with the decisions of management and they want to, they want. Uh, to pursue a spin out because they want to pursue a different strategy or a different technology that the parent organization is not interested in.

Andre: Right? So that's, that's like the classic trigger. Um, but there is, there are many more and research more, you know, recent research shows that The triggers can be pretty mundane, like sometimes it's just interpersonal conflicts, you know, that occur within the parent organization that leads to to a spin out, right?

Andre: Um, or sometimes the, there's a, there can be ethical conflicts where the employees perhaps don't like the way that the company is being managed or they don't like the way the business is being conducted and they want to do it better. And so they leave to do a spin out that way. So often, you know, the, the.

Andre: The trigger, I would say it could be, it tends to be kind of a friction or a frustration, uh, uh, that leads to this motivation to, uh, to [00:09:00] pursue, uh, their own venture.

Mehmet: Now, I'm not sure if, you know, the research also included like how much, you know, such startups are more successful than the ones that they start, you know, the entrepreneur didn't work any other place.

Mehmet: So is there like any statistics that shows You know, their success ratio compared to to the traditional way off of how people think startups starts.

Andre: Yeah, I mean, there have been studies. There haven't been a ton of studies, but the ones that have been done show that the spin up ventures do tend to perform better.

Andre: It tends to survive longer. Um, and they tend to perform better in terms of growth. And one of the reasons for that is that. Uh, often spinouts will start with with some degree of scale, right? Because instead of being, uh, you know, a single entrepreneur or maybe a duo starting something from scratch, uh, often it's a team of people who have been working on something for some time and who are taking it out of the company.

Andre: And so, um, often a [00:10:00] spinout will start with a larger, uh, team and Zoom, for example, is a spin out, uh, from, uh, from Cisco's WebEx, uh, division. Um, and, uh, Eric one, the founder of Zoom, was able to, to attract about 40, uh, engineers from Cisco to join, uh, zoom. So you can, you can see that Zoom would be able to scale a lot faster that way by being able to bring those resources over rather than, uh, having to attract all those people, uh, completely independently, right?

Andre: So there are these kinds of advantages, uh, that spin ups have that allow them to perform better. But other than scale though, I mean, one of the key things is. Is the inheritance of knowledge. Um, I'm not necessarily talking about the proprietary knowledge of the parent organization. Sometimes it's just ideas that have been developed, uh, while working at a previous employer and, and previous, you know, companies can't often exploit all the ideas that they create, they often generate all kinds of ideas that, that ultimately they have to leave on the table or they just decide that, you know, this, this may be a great idea, but it's just a better idea for somebody else and not for us.

Andre: And they're. Maybe it doesn't meet our, our internal, uh, uh, margin threshold, right? [00:11:00] So it can be rejected by, by an organization, but it could be a great idea still for a startup. And so that's often how it happens. Um, you know, the, the, the, the founders of the startup, uh, within the, when they're still employees, they, they find out about these new ideas and they see how they're validated and how there's already customers interested in them.

Andre: Um, and, and that's what helps them to, to put together their business plan to leave and to start their own venture.

Mehmet: Got it. Now, one thing that usually, you know, we see it a lot and we hear a lot and we read about it a lot is when such event happens. So the former employer start to get a little bit You know, angry, frustrated.

Mehmet: Sometime, you know, there are like some, those suits over there and here, and you know, Oh, you stole this idea from us. And then, you know, all the things, you know, how do you think, you know, this, um, You think it's first in the first place, do they [00:12:00] really have the right? If they have been presented the ideas and rejected, do you think they have the right to challenge their, uh, former, uh, uh, employees and, you know, in, how do you think the founders or the entrepreneurs should handle such situations?

Andre: Yeah, it's interesting that what we see in, in the research is that the, the, the spinouts that, um, I guess get the most hostile reaction from the parent firms tend to be the ones that, um, that compete directly with the parent. Um, and those that take significant resources from the parent firm, including things like proprietary, uh, information.

Andre: Um, and that can often lead to a lawsuit or it can lead to a negotiation, right? Which, which leads to some kind of licensing agreement or, or, or some kind of deal. Um, Uh, where that reduces competition, um, but those tend to be the, the, the ones that, that have the most hostility. You probably noticed that, uh, it, a lot of jurisdictions now, the, the non competes have been, uh, being banned, um, in, in Ontario, here in Canada, they were banned recently.

Andre: And in the United States, uh, they were banned by the FTC at the [00:13:00] federal level, although it's being challenged in court, it's still a step forward. And so. Uh, we're seeing many jurisdictions that recognize the importance of spin out ventures and they actually want to encourage them. Right. And one way of doing that is by weakening some of these, uh, these, uh, you know, rules, rules around things like non competes, but there are other things like, uh, non disclosure agreements and non solicitation agreements or no, no poach agreements.

Andre: Um, and so I think spin out founders always have to be careful, uh, to look at what they've actually signed, um, and to make sure that they're not putting themselves, uh, in a, in a position to, to face, uh, litigation that they could lose. Right. Um, so, you know, it, it is, I think, uh, something that they need to be cautious about and, and I think that there, there's a lot of, um, work that's been done to, to look at different ways that spin out funders can try to reduce the hostility of their, their parent firms.

Andre: Right. And so that they can have actually more, more beneficial, uh, benefits. Relationships with the parent firms. And what we see is a lot of vertical spin outs that tend to use the parent firm as a supplier or as a customer. And so they're entering into business transactions, right? And [00:14:00] exchanges. And that, that tends to, to really sort of, um, improve the relationship, uh, between the spin out and the parent organization.

Andre: Now, the other thing I want to say is I think we're seeing a trend overall, though, toward, uh, parent, more parent firms or more incumbents are, uh, spin out friendly because, They, they recognize that actually helps their reputation because when they're friendly towards their spin outs, that means that they're a good incubator of innovation.

Andre: And then we've got a bunch of, uh, you know, potential employees that want to go and work there because everybody wants to go and work in a place where they can develop ideas into innovations. Right.

Mehmet: Yeah, absolutely. Now you mentioned something, you know, previously about, Let's say they, the founder, or let's say the spin out founders, they go out and they, you know, probably they will be joined by a couple of engineers or maybe some, you know, colleagues over there.

Mehmet: Do you think usually this is a good idea? Or maybe, you know, they should go and try to hire a completely new team. Uh, is there like also any benchmark, like seeing [00:15:00] what was the success of, you know, getting some old friends and colleagues from the old company, uh, versus Going and building a completely new team.

Andre: Well, I mean, I think that what we see is that, um, there's an advantage in being able to build a team fairly quickly by, um, by attracting some of the former colleagues. Right? Um, but, uh, If the startup founders are, are effective at attracting, uh, people from outside, uh, or from other organizations, then that can be, you know, if they can do it effectively and quickly, uh, recruiting people from outside, then that could be just as effective.

Andre: It's just that on, on average, you know, there's an advantage to having, to be able, being able to leverage your network from previous employment, uh, to be able to attract resources to your startup. Right. And that doesn't, you know, I'm not talking about necessarily solicitation or coaching here because oftentimes, oftentimes, uh, it's, You know, the employees, uh, of the parent organization find out about the spin out or hear about it or attracted to go and work there.

Andre: Um, you know, because they, [00:16:00] they hear, they hear about the innovation and they hear about it, uh, succeeding outside. And so it isn't really, uh, uh, necessarily something that leads to a lot of conflict. Especially when we're talking about often a pretty small trickle of employees, uh, compared to a very large organizations, like if you think about Cisco and the size of that company and the tens of thousands of employees that it has, right.

Andre: When we start talking about 40 people leaving to go to work. It's actually a tiny little number when you think about it. Um, and so it isn't necessarily something that's going to threaten the survival of, of Cisco in any way.

Mehmet: Now, one thing that also like just came to my mind, um, is there like any other challenges, you know, from, from these entrepreneurs, um, because again, probably they, they didn't as, uh, they didn't have any.

Mehmet: I would say startup experience in the sense that they didn't start a company themselves. So what potentially, you know, [00:17:00] can go wrong when, when they do this? Like what kind of risks they might face? And, you know, they're like some ways that, you know, they could follow. So they, they can navigate these challenges effectively.

Andre: Yeah, I mean, that I think that that's been out still, you know, they still, uh, face the same many of the same hazards, you know, that that all startups face. And so there's perhaps a reduction in risk and uncertainty for a spin out, but it doesn't shield them from that stuff at all or or doesn't shield them from that stuff entirely.

Andre: But what we see is that the employees that that have had experiences doing both the initiation of. Of new ideas at the, the employee organization and also the execution. So, for example, someone who gets a chance to, uh, to be a part of, of developing a new project or a new product or initiative for the parent company, um, and also who's had an experience in implementing it.

Andre: So, we [00:18:00] call that sort of exploration and exploitation, um, activities. And we find that the, uh, the employees that have access to, to, to that kind of work, right. So where they're able to, to stretch themselves while they're still employees and better understand how new things are developed and also how they're implemented.

Andre: Those are the ones that tend to be the most successful. So actually the, the key knowledge often that they're, they're bringing with them to the spinout isn't necessarily some, some specialized technical knowledge or, or very general business knowledge. What it is, is the, the, the knowledge around how to, how to create, uh, You know, how to create innovations and how to implement them.

Mehmet: So they, they, they brought with them tons of, uh, you know, experience and they have, you know, noticed, watched, you know, how in their parent company, those founders, how, how they did these things and, and they succeeded. Um, so when, when it comes to the process itself, I want to take a very healthy and, you know, uh, [00:19:00] not negatively, uh, spin out creation process.

Mehmet: I mean, in a sense, like, you know, okay, it was a mutual, you know, the founders, I mean, the entrepreneurs, they said, Hey, we're going to go. So, so what typically happens? Like do they have to prepare anything? Is there like a. Uh, some, you know, agreements that they have to sign maybe with the with the old company or like just they just go out, they submit their resignation and maybe after two weeks or three weeks, they say, Hey, we're now incorporated our new company.

Mehmet: And here we go. Like, how usually this happens? The process? Yeah,

Andre: I think I think there's a spectrum, right? Um, In the most extreme cases, you have what are, you know, the stealthy spin outs who, uh, they, they, they resign and then they go and they, um, they sort of disappear for a year and work on their, their, their spin out, um, uh, without releasing any, any information to the public.

Andre: Um, and often they're doing that because they're, they're waiting out their, [00:20:00] uh, they're waiting out their restrictive covenants, right? They may be waiting out their, their non solicitation, or they might be waiting out their non compete. Um, there are other reasons, right? And, and so in those cases, usually there isn't any kind of negotiation or discussion that happens.

Andre: Um, the spin out just basically, uh, forms and, and they go into business. And then, uh, if the parent firm notices in a, in a, in a short enough period of time, period of time, they might try to do something about it. Um, but usually, you know, these restrictive covenants have a pretty short lifespan. Um, on the other hand, um, there are spin outs that, that want to negotiate with the parent organization because they know that they're, they have, they need access to technology from the parent organization and need license.

Andre: And so they might do a licensing agreement on their way out, uh, or sometimes they, uh, they know that they want to have the parent organization as a supplier or as a customer. And so that, that those processes are, are, are quite a bit different and they look a lot more like a negotiation, uh, as opposed to a stealthy spin out that's leaving and just kind of, um, trying to do its thing [00:21:00] without being noticed.

Mehmet: Now, one thing, like, of course, some founders or entrepreneurs, they would, they would need to go and raise funds. Do you see Andre that, you know, raising funds for spin out companies or ventures, you know, do they have a, an advantage being employees in, in, in their old place? Or is it like probably. You know, do they need to take different approaches, uh, when it comes to, to, to finding funds and getting, you know, uh, some help, can they go actually to their old firm and ask for capital?

Mehmet: I

Andre: mean, that happens. I mean, if the, if the old firm is, is providing the capital, you know, for, for the venture, Um, you might actually think about it as a more like a corporate spinoff or something like that. But sometimes they'll, they'll do a small percentage, um, like AstraZeneca, for example, encourages some of its innovations to spin out, but they'll, they'll restrict their percentage to only 20 percent equity.

Andre: [00:22:00] Um, and so the, the spinout still remains a very independent company and, and, uh, isn't in any way stifled, uh, in its direction by that, uh, that 20 percent investment. But I think that the, the vast majority of the, uh, the spinouts don't seek investment, uh, from their parent organizations, although often what they end up getting, they ended up getting funding from previous, uh, contacts within the organization.

Andre: So we see a lot of examples, um, electronic arts, for example, was able to attract some of its early investors from Apple, which is the, you know, where the electronic arts is founder was working, right? So there are lots of examples where the. The previous employers who, who know the skills and abilities of the spin out founders, they, they, they'll tend to become angel investors in, in the new venture.

Andre: And in the most extreme examples, what we see, um, in some firms like Microsoft and Palantir and companies that have a fairly large network actually of alumni and a lot of, uh, of spin outs is that, uh, they, they tend to tap into each other, uh, for funding. And so what you see is, uh, people who, who used [00:23:00] to work for Cisco and who are doing their own thing, and we're now funding other, uh, spin outs.

Andre: former Cisco employees in their ventures. And so there's a sort of alumni network that forms uh, around the companies that are quite spin out friendly. Um, in terms of VCs and others, um, they're quite interested actually in, in funding spin outs because they, they perceive that the spin outs have access to special knowledge, right?

Andre: That they're taking with them from their parent organizations. And so if they're coming from, uh, especially if they're coming from successful tech companies or success, successful, uh, tech companies, Uh, incumbent organizations, they tend to be quite, uh, attractive. I think the only, the only case where it might be less so is if, if the, the parent organization is known to be particularly litigious or, or hostile towards spin outs, in which case it might, uh, scare off some of the more skittish, uh, VC, right?

Andre: But another, uh, remedy for that potentially is to make sure that the spin out is differentiating itself well enough from the parent organization's businesses.

Mehmet: Yeah. One one question. Also, I'm not sure if if there are any numbers or [00:24:00] any statistics regarding this. What is the possibility that after the spin out happens that that parent company they go back and they acquire, um, You know, the spin out venture.

Andre: Yeah. I mean, it, it, it does happen. And one of the reasons it, it happens readily is because often there's still a connection between the networks of the spin out founders and the parent organization. And, and there's also this idea that You know, spin outs often inherit a lot of different routines or ways of doing business or even language and the way that they talk about different things, right?

Andre: And so it really smooths the process of discussion for acquisition, and it also smooths the integration process if a parent organization decides to buy out the spin out later on. Um, and so we do, we do see that, uh, quite, quite a bit. And I think the, the, the parent organizations that understand that spin outs can be strategic for them, you know, they, they, they know that they might be able to acquire these spin outs, uh, later on.

Andre: And they have. Special knowledge about the value of the innovations of those spinouts. Cause a lot of them originated within the [00:25:00] parent organization. Right. Um, and so what they like to have sometimes is a, uh, a large number of spinouts that are kind of like, think about them almost like as R and D footholds that are out there for the parent organization that they can tap into to, to learn from them or to do an acquisition later on.

Andre: And so they, they, they often view it as a more kind of low cost approach to doing innovation. So rather than doing all of that internally and having all that investment having to come from internal. Uh, it happens, uh, more externally within, uh, for spinouts. And then it could, they still benefit from that later on.

Mehmet: And do you think Andre, just, you know, again, these questions are popping up in my head as we speak, do you think like this makes more sense for a public company more than a private company? Because. When they are public, they are public companies. So they more or less, they need to, to share, you know, I mean, of course not the secrets of the R and D's and what they are working on specifically, but I mean their initiatives.

Mehmet: So, so probably if, if they spin out, if a couple of people, they go and spin [00:26:00] out. So, so no, so they are working, you know, they are completely Separate entity, not related to the main business. So maybe it's a good way for them to, to encourage maybe spin outs versus maybe a private company still, maybe they are like.

Mehmet: I don't know, seven, eight years old and still, you know, they don't have the, all the eyes on them. So is there something relatable here? I'm not sure if, if I made sense here.

Andre: Well, you know, we, we, we see spin outs coming out of organizations at all the different stages. Even sometimes, uh, startups that, uh, are just a few years old have, have, you know, encounter spin out.

Andre: Sometimes it's a disagreement between the, the co-founders or, or other things that lead to. To spin outs, right? So, um, we do see them in, in, in large startups. We see them in, in, uh, in large tech firms that, you know, especially the ones that have big budgets for, for innovation. They're, they're constantly funding all types, all types of different projects.

Andre: And many of those projects just, just aren't going to fit with the, the company's, uh, uh, strategy at the end of the day. Right. So, [00:27:00] um, I, I, we even see them in declining businesses. I mean, one example is Nokia's, uh, handset business was, was declining, they had a rather large division that they needed to shut down.

Andre: Um, and they were facing the prospect actually of laying off, uh, uh, thousands of people. And so they actually created, they created, uh, the, uh, what they called the, uh, the bridge program. And what they did was they provided entrepreneurial education to all of the employees that were working in that division.

Andre: And they gave them the, the, the option to take an idea and it, and the IP for that idea and to take it into a spin out venture. And they even provided some bridge financing, uh, to help them do it. And so rather than, than seeing something as a total loss, right, laying off, uh, and shutting down a division, what they did was they, they, they took all of the great ideas that were in that division, they allowed them to flourish externally.

Andre: And what that did for the company too, if you think about Nokia, you know, in its, in its home country, uh, it, what it did is it, it created a robust. A pool of human resources still working on different tech companies [00:28:00] within, within their region. So later on, when they want to grow another division, well, they have a pool of resources to draw on and a bunch of different innovations that they might be able to pursue as well.

Andre: And so companies with a long term vision like that, and like Nokia, I think they can take advantage of spinouts even in their decline.

Mehmet: Absolutely. Now, one thing that also, I think we didn't discuss, um, how an employee you know, he or she, they know that, you know what, like it's now time to me to leave here.

Mehmet: I need to go and start this by myself. So what are like kind of the signals, let's say, um, that, that they, you know, they start to, they, they, they will take into consideration. So they know that, okay, now it's time for us to leave and start our own thing. And, you know, Yeah,

Andre: I mean, I don't know that there really is a, uh, a signal necessarily, but we do hear, you know, from the interviews that we've done with many of these, [00:29:00] uh, spin out founders, we do tend to hear a lot of the same things kind of coming up, uh, for instance, this dissatisfaction with, with the management or how things are managed, um, within the existing company and what that usually comes with is a, you know, is an idea of how to do it better, right?

Andre: So they've come to, they've, they've come to a point in their career where they know enough that they feel like they understand how the business works and they also think that maybe they could do it better. Right. And as soon as, as soon as they get into that mindset, then usually it's just like a matter of time before they're triggered into actually doing their spin out or leaving to, to, to go and work for another company or something like that.

Andre: Right. Um, and, and, and so that, that can take more or less time depending on the individual we've seen, we've seen, uh, people do a co op work term for a couple of, uh, semesters at a company. And that was enough for them to gain the idea and to leave and do their own, uh, spin out. Right. Uh, whereas other people stay and work for a company for 10, 15 years, uh, before they get to that point where they, they feel that they're, they're ready, [00:30:00] but you know, when, when they are ready, the, the, there are many different types of triggers.

Andre: And one, one of the triggers is a financial trigger, you know, that kind of think, you think about, we can call them liquidity events and things like that. You mentioned public companies. Well, a lot of, uh, employees in public companies, or especially as they're going public, they have shares in the companies and, uh, when companies go, go for an IPO, for example, what often happens is it creates a bunch of liquidity for a lot of the employees that were, that were working there and who had a bunch of shares in the company, uh, and now they can, they can sell those shares and have a bunch of money to start a, uh, a spin out venture.

Andre: Or any company of their own, right? And so we do see these events that happen, that, that can create almost like a whole, uh, a whole bunch of spin outs at the same time. Right? Uh, another example is when, when, uh, PayPal was acquired by eBay, right? eBay had a very different management style than PayPal did.

Andre: And when they tried to implement this very kind of rational management style, what it did was it created a clash and a lot of the more entrepreneurial employees at PayPal, you know, they, they didn't, [00:31:00] they couldn't stand for it and they ended up leaving. And most of those ended up starting their own companies.

Andre: Right. Um, and so sometimes they happen in waves. So it's interesting to see this phenomena both at the individual level and as a, as a wave, you know?

Mehmet: Yeah. And one thing, Andre, like with now, because you mentioned something like, of course, like more and more these liquidity events are happening. And I mean, and globally, I have a feeling that there is a more, um, you know, You know, if I, if you ask someone maybe, I don't know, 15, 20 years ago, are you going any, any time to be an entrepreneur or a mid to founder company?

Mehmet: Nah. Like, you know, I'm, I'm staying in the company to your point, like they used to stay long time. Are we, do you, do you expect to see more of these. Spin outs events in the future because now everyone, you know, they start to look around. I said, Hey, like if they were able to do it, I can do it. Um, you know, if they were able to, to be successful, I can be successful.

Mehmet: I can get funds. I can do this. I can do that. [00:32:00] So are we expecting to see more spin outs in, in, in the market?

Andre: Yeah, I do think so. I think the, the, it's increasingly difficult to do a de novo startup unless it's a, you know, a spin out coming out of university research or something like that. I mean, most of the, especially in the tech industry, um, there, there, there's knowledge that's needed to know how that's needed.

Andre: Not, not something that could just be acquired by, by a book. Right. And so I think increasingly what we're seeing is a, in a more complex world. Yeah. Uh, most of the startups, the successful startups that we're going to see are going to be spin outs because they need to take that, that some of that knowledge with them.

Andre: You gave the example of Intel earlier. And actually, if you look at Silicon Valley and you look at this process of, of, um, of creating, uh, creating chips, right. Um, you know, Shockley was the first one in their laboratory and then Fairchild came out of that and they, they were, uh, you know, They were producing them, and then Intel and a MD and it's all really a, it's like a lineage of companies.

Andre: And the reason for that is that the, the, the, the [00:33:00] know-how needed to be able to actually produce chips, you know, isn't something that someone on the street can just figure out. I mean, even, even in university laboratories is very difficult to figure it out. And it takes a lot of trial and error and process and, and ob observing and, and, and seeing what, what, what happens.

Andre: And so. That's why it's so important to have that experience within the company is actually doing it before trying to do it yourself. Um, and so I think that that technology, the way that it's developing, uh, I think it, you know, we're, we're, we're in an increasingly complex world and we're going to see a greater and greater percentage, I think, of, uh, of companies, which are startups, which are spin outs instead of being into noble.

Mehmet: Got you. So Andre, as we are almost coming to an end, like, you know, I asked this question for anyone whose specialization specialization is in entrepreneurship. So. If you want to leave us with your final advice for fellow entrepreneurs, what would it be?

Andre: Yeah, I think for those that are working in organizations right now, [00:34:00] um, I think a lot of them sometimes see a job as a, as a kind of trap or, or as a, maybe just as a way to produce income, um, rather than seeing it as a, as a learning environment or as an opportunity.

Andre: And so, um, I think that if we, if we can sort of change the way that we think about employment, instead of just being a place that we were doing our work or earning our income, we can see it as a learning environment where, uh, where innovations are happening and perhaps not being pursued and looking at looking at it from that lens and thinking about all the different stakeholders involved in an industry and what it is that they want.

Andre: And are they getting what they want? And I think if we, if we turn that entrepreneurial lens, on our employing organizations, then we can learn a heck of a lot, uh, about what our next startup might look like.

Mehmet: Fantastic. Finally, Andre, where people can find the book and how they can, uh, get connected with you.

Andre: Yeah. I mean, they can get connected with me through LinkedIn. I'm pretty easy to find, uh, just by my name. Um, so somewhat unique name, I suppose, [00:35:00] uh, the books available, uh, spread out ventures available on Amazon and all over the place, uh, and all the normal places that you'd, you'd find, uh, The books, and I hope that people who are interested in finding out more both on the managerial side.

Andre: So the book is written in a way that someone who's an employee who wants to do a spin out can learn a lot about what that's like, and what the process is like, and what the do's and don'ts are, but it's also written in a way that a manager working at an incumbent company. can read the book and better understand how to manage or how to deal with employees who want to leave and do spinouts and how to view it also as an opportunity rather than as a negative thing.

Mehmet: Great. I will make sure that I will put the links in the show notes or in the description. If you're watching this on YouTube, Andre, really I enjoyed the discussion with you. And you know, the reason, you know, I liked, especially your last. piece of advice about going, spending the time in, in organizations.

Mehmet: So to learn how you can do operations, how you do sales, how you do marketing, how you do the whole thing, and then go out and, you know, follow your passion as they say. And, you know, [00:36:00] all the insight that you gave us today. And I think, you know, the myth is busted. I would say majority of the time, you know, companies are spin outs.

Mehmet: So thank you very much for sharing, you know, uh, these valuable information with, uh, with us today. I really appreciate it. And this is how usually I end my episode. This is for the audience. If you just discovered this podcast by chance, thank you for passing by. If you like this episode, please do give us a thumb up and subscribe.

Mehmet: You are, we are available on all podcasting platforms. And of course, if you are one of the people who keeps Listening to us and sending me your feedbacks and, and, um, questions and, you know, clarifications keep doing. So I read all your suggestions and all your feedback. So please do keep doing that. Thank you very much for tuning in and we'll be again very soon.

Mehmet: Thank you. Bye bye.