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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