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What is a good reason to make a spin-off?

09

Nov

2009

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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.

Start­ing a spin-off development

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…

Orig­i­nal Linkedin Question

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