|
Managing Innovation Separately through Spinouts |
by Vadim Kotelnikov, Founder, 1000ventures.com
"In the existing business, it is the existing that is the main obstacle to entrepreneurship... If an entrepreneurial business is placed inside an established management system, it is more than likely to fail" (Peter Drucker)
Bibliography:
|
The Need for Managing Innovation Separately A new product or service may be launched either from within an established management system or from a brand-new operation. In both cases, autonomy is a precondition of success however. Innovation needs to be managed separately as the established company would load insupportable burdens on the new venture: burdensome examples include highly structured reward schemes, return-on-investment targets, and lack of clear accountability for the venture. There is the fundamental difficulty in converting a large and/or non-flexible organization, which has built up policies, people, and practices along set lines, into the anarchic modes of the entrepreneur. To picture the problem, just imagine that you prompt your right leg to run while your left leg and the rest of your body keep walking. "The most important caveat is not to mix managerial units and entrepreneurial ones" in any way. Venture values are different from established corporate values. Technology spinouts are designed to provide independence and space for action and allow management to enhance market capitalization. Entrepreneurial management of the venture-building process is fundamentally different from corporate management that is focused on delivering the annual operating plan. Not only must "the entrepreneurial, the new" be organized completely separately from "the old and existing", but "there has to be a special locus for the new venture within the organization, and it has to be pretty high up". However small the new ventures may be in relation to its parent, "somebody in top management must have the specific assignment to work on tomorrow as an entrepreneur and innovator" and be responsible for developing and implementing corporate venture strategies. Managing Innovation through Spinouts By 2000, internal start-ups, a new form of creating and financing a high-tech company has become more popular. This novel approach has a number of advantages over a merger or acquisition and it plays an increasingly high role for high-tech companies. A spinout enterprise differs from a spin-off. Spinouts remain closely tied to the company that developed them. In most cases, the ties are both financial and operational. Financial ties can be enforced through interlocking of stock ownership and financial oversight by the parent company. Operational ties may include shared professional and administrative services as well as marketing and leadership support. New ventures established as independent companies can more readily fulfill their potential. In this case, the entrepreneurs do not have to argue with superiors or put up with interference. Managing Innovation through Internal Start-Ups In contrast, the in-company venture enjoys the benefits of the company's greater resources, brand name and corporate image. Getting autonomy for a new in-company venture may help it operate more like an independent. But, Peter Drucker warns, established business is also "the main obstacle to entrepreneurship". Mastering of the new business systems approach to managing projects aimed at development of innovative products and services will help corporations to move with speed to capitalize on emerging technology and market opportunities. Success Stories: Spinout Model by Thermo Electron Corporation (USA) Due to its spinout model, from 1983 through 1995, revenues of Thermo Electron Corporation grew from US$ 200 million to US$ 4 billion5. The company has created 23 spinouts and diversified from a single-product company to a multi-product corporation. It had made multimillionaires of forty executives and spinout managers... More |
