Stanford Study Claims That IPOs Stifle Startups' Innovation Chops

If your young, hip 'n' happening tech firm is Superman, then going public is its Kryptonite.

A study by a Stanford academic has concluded that a firm's IPO can put the lid on creativity and innovation. Shai Bernstein of the university's Graduate School of Business studied thousands of startups between 1985 and 2003 to write a paper (PDF file) on the subject, and these are some of his findings:

  • Going public causes an exodus of ideas as well as key creative staff.
  • Acquired patents after an IPO are almost always of a higher quality than those produced in-house.
  • A firm with the same CEO and chairman of the board—think Apple during those amazing Steve Jobs years, Mark Zuckerberg's dual role at Facebook—was more innovative than one with two separate people at the helm.

There is, of course, a middle path—going "prublic," the phablet, if you like, of a firm's status. But what do you think? Does going public signify the beginning of the end, or does it herald the start of something bigger and greater for a firm?

[Image by Flickr user heycreation]

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