What would be for you a reason to make a spin-off? Please share your thoughts and experiences.
This is one in Minutecoach’s LinkedIn Q&A Best Answers series, widened out and rewritten for those not on LinkedIn. If you’d like to read the original, you can use the link at the end of the article.
Risk reduction in starting a spin-off
Often a company will inherit or develop business that needs to be separated from established business. Not necessarily exercise of new technology, new product development or anything ‘physical’, it could simply be the landing of a large renewing contract that will not be ‘business as usual’.
A major reason for setting this up separately would be risk reduction. This can be because it will weaken perceived values of existing brands, or because operation of the new business will require techniques and agreements that cannot be accommodated within the existing framework without, shall we say, upsetting existing partners.
Internal restriction can also be an issue, where a development will require additional funds and in order to secure interest from external sources it simply _must_ be put at arm’s length from the primary company.
It can also be the case that a company will be working on product development and will want to hive off a promising new development in order to push it to market more quickly than it can internally. Seconding its own staff to a sort of ‘skunk works’, it can maintain the chosen ones’ very strong attention by offering an equity share in the new enterprise, whilst simultaneously releasing these new products from internal management.
So, if looking to lower the risks of brand dilution, counter a lack of adequate funding, secure first mover advantage, prevent partnership disruption, forestall talent dissipation and pipeline stagnation, or simply to manage an otherwise overbearing contract, ‘spinning off’ can provide advantage.
But spare a thought for the staff, these initiatives can take their toll on the human spirit. Disorientation and disappointment can develop in the spun and un-spun. You should factor that risk too…