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When companies announce layoffs, attention usually turns to the immediate fallout: morale, hiring freezes, and how quickly displaced employees will find new jobs.

What’s discussed far less is what happens when some of those workers don’t look for another employer at all.

Instead, they start businesses.

My recent research, published in the Strategic Management Journal (Perceptions of knowledge transferability, Strategic Management Journal, 6 August 2025) shows that firm-initiated turnover, layoffs, dismissals, and restructurings can quietly seed entrepreneurship, sometimes in ways that directly matter to the firms left behind.

And the driver isn’t just a necessity or risk tolerance. It’s how workers perceive the value of what they know, and how they react when long-held expectations about employment are suddenly broken.

A different kind of post-layoff decision

Most studies of employee entrepreneurship focus on people who leave voluntarily. These are the carefully planned exits: employees who save, spot opportunities, and choose entrepreneurship on their own terms.

But nearly half of all job separations are initiated by firms, not workers. And the psychological context is very different.

When people are laid off unexpectedly, especially after years of building what they believe to be firm-specific expertise, they face a stark question: If my knowledge doesn’t transfer easily, where does that leave me?

For a surprising number of workers, the answer is entrepreneurship.

What the evidence shows

Using longitudinal data from the Korean Labor Income Panel Study, I examined what workers did after losing their jobs and why. One pattern stood out clearly.

Workers who believed their knowledge was not transferable were far more likely to enter entrepreneurship after a layoff than after a voluntary exit. In fact, the likelihood increased more than fivefold.

The effect became even stronger when expectations were high. Among workers who expected to remain with their employer, perceived non-transferable knowledge sharply increased the probability of starting a business after termination.

This relationship persisted even after accounting for local labour market conditions and economic pressures. In other words, this was not simply about a lack of job options.

The role of broken expectations

To understand what’s happening, it helps to look beyond skills and into relationships.

When employees invest deeply in firm-specific knowledge, they are also forming expectations, often implicit, about stability and reciprocity. The unspoken deal sounds like this: I will specialise for you, and you will provide continuity in return.

Layoffs violate that psychological contract.

Research shows that such breaches can fundamentally reshape how people view employment. Trust declines. Long-term commitment feels risky. Traditional jobs start to look fragile.

In that context, entrepreneurship becomes less about ambition and more about control: a way to deploy knowledge that still feels valuable when the labour market appears unwilling to absorb it.

This pattern isn’t new

We’ve seen this dynamic before. During China’s state-owned enterprise reforms in the late 1990s, mass layoffs affected workers who had expected lifetime employment and developed highly specialised skills.

Entrepreneurship surged, not simply because jobs were scarce, but because expectations had collapsed. For many, starting a business felt safer than re-entering a labour market they no longer trusted.

What looked like “necessity entrepreneurship” was often a response to perceived immobility and broken promises.

Why perception matters as much as reality

A key insight from the research is that perceptions of knowledge transferability matter, even when they are imperfect.

Workers routinely overestimate how firm-specific their skills are. They anchor on internal systems, routines, and language. They underestimate how adaptable their expertise might be elsewhere.

Yet behaviour follows belief. Those who perceive their skills as non-transferable approach job search cautiously and see entrepreneurship as a more viable path, even when alternatives objectively exist.

Implications for founders and leaders

For founders, scale-up leaders, and executives, the implications are uncomfortable but important.

First, layoffs are not just cost decisions. They are acts of knowledge release. The employees you let go may carry insights, routines, and capabilities you assumed were safely contained inside the firm.

Second, there is a trade-off in how talent is developed. Firm-specific training can reduce voluntary turnover, but when layoffs occur, it can increase the likelihood that former employees channel that knowledge into new ventures.

Third, expectation management matters. Promising stability to employees whose skills are highly specialised may strengthen commitment in the short term, but it raises the stakes if circumstances change.

Finally, how exits are handled shapes what happens next. Transparent communication, transition support, and alumni relationships can influence whether former employees become competitors, collaborators, or future partners.

Rethinking “necessity” entrepreneurship

These findings also complicate how we think about entrepreneurship itself.

Some founders are not chasing opportunity in the classic sense. They are responding to a breakdown in trust, reassessing employment as a safe option and choosing to build something of their own instead.

Supporting these entrepreneurs may require more than capital or training. It may require recognising the emotional and cognitive aftermath of organisational exits.

The bigger lesson

Entrepreneurs are not always born. Sometimes they are made, by layoffs, by violated expectations, and by beliefs about where knowledge can still create value.

For leaders, the lesson isn’t to avoid difficult decisions. It’s to recognise that how employment relationships are built, and how they end, can shape the competitive landscape in ways that only become visible later.

The employee you let go of today may not be updating their CV. They may be building a company.

And whether that company becomes a threat or an ally depends, more than you might expect, on how the relationship ended.