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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