Situation: A company is moving from sole focus on servicing a market to a split focus including developing and marketing their own products. This is a significant transition for the team. What is the best way to organize this effort? How do you manage a business transition?
Advice from the CEOs:
the company’s financials are great for their market, cashflow may be
insufficient to fully fund a development company.
- Internal development of new products can create conflicts if it creates competition for resources between internal and external projects.
- To avoid this, create an independent company or entity – in a separate location. Seek outside funding whether bank, angel or partner financing. The independent entity can then buy resources from the primary entity at competitive rates.
years ago, another CEO utilized the strategy just described. The important
- Assure that venture is properly resourced.
- Assure that there is a balance between proven structure and creative application development.
- Utilize best resources available at same rates that key customers pay.
- Offer free guidance but not free services – peer reviews are key.
third CEO had an opportunity to open a new business using the spin-off model.
- They allowed infrastructure sharing – with proper compensation and incentives (equity ownership).
- Ultimately both entities were successful.
- Lesson: Properly implemented, this model works.
are four aspects to the challenge.
- Product concept
- Talent for execution
- The business plan for the new venture must address all four.
- Building internally (vs. externally) creates natural conflict. Workers will tolerate change in direction from clients better than they do from insiders.