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:

• While 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.
• Several years ago, another CEO utilized the strategy just described. The important lessons were:
  • 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.
• A 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.
• There are four aspects to the challenge.
  • Product concept
  • Talent for execution
  • Financing
  • Distribution
  • 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.

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