Entrepreneurship: It’s Not Who You Know

It is a classic tale of entrepreneurship: a computer whiz spends a few years working at a large corporation in Silicon Valley, then leaves to launch a startup. But what happens if she locates her firm in Kansas City, 1,500-odd miles away? She will forfeit the perks of working in a high-tech zone, access to clients, inside knowledge, and a community rich in expertise. Should she have stayed in Santa Clara?

Working in an industry hub confers special benefits, known as agglomeration effects. These benefits typically involve sharing both of physical assets and of people. Just as shipping companies share materials and infrastructure in a port, banks in a financial center like New York or London “share” a rich supply of employees who have inside knowledge and industry expertise and can jump easily between firms. Although this phenomenon is well established, little is known about whether a former employee retains these benefits after leaving the industry hub. New research by Professor Evan Rawley, working with Rui J. P. de Figueiredo Jr. of University of California at Berkeley and Philipp Meyer-Doyle of INSEAD, examines how these benefits can be appropriated by an entrepreneur who leaves a firm to start a new venture, no matter where that venture is located, a phenomena they call inherited agglomeration effects.

via It’s Not Who You Know | Columbia Business School Ideas at Work.

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