AS A CIO, you came up dry when looking for a sophisticated off-the-shelf B2B system for your company. So when your programming staff wrote a proposal to develop a state-of-the-art B2B system, you jumped at the chance. It’s a good thing you did too, because your programmers really did a great job. The system they created is years ahead of anything on the market, and enough of your suppliers are now online that you can report measurable results to your CEO. In short, the homegrown B2B system is the pride of the IS department.
You might be inclined to hold on to such an achievement because it’s the greatest feather in your cap. But that could be the wrong move. Instead, you should consider spinning it off.
Here’s why. If you don’t create a spinoff, you take several risks that might otherwise be avoided: investing a significant amount of money to upgrade features as the B2B system gains momentum; annually spending a significant amount of money on system maintenance; growing user dissatisfaction because of insufficient budget and resources needed to keep up with new feature requests and service extensions; and spending money to convert that system in a few years to an industry standard package that will save the ongoing maintenance and updating costs.
Suppose you did things differently this time and spun off the project as an independent company. Some of the benefits would include the creation of additional value to the shareholders; the avoidance of a significant amount of annual upkeep and new feature costs by sharing these costs with other customers; and finally escaping the eventual conversion costs if it succeeds at becoming an industry standard?which it should, since it is so far ahead of the competition. By setting the precedence of spinning off the most creative projects, you will find that you can attract a new category of talent as well.
However, achieving these benefits isn’t a given. You’ll have to take a systematic approach to the spinoff. Start by developing a business plan for the new venture that meets VC criteria for funding. Then decide, as part of the business plan, how to set up a contractual arrangement so that your company will get the uninterrupted services it requires from the spinoff. Next, establish a new company for the spinoff. Then follow up by transferring people, assets and intellectual property to the new company. Finally, work with a venture capitalist to get the spinoff placed into a VC fund as a payment-in-kind in return for a limited partner ownership stake by your company.
The results could be spectacular. You stand a chance of creating one of the next IT leaders. Your costs should go down, and your services and features should go up. Best of all, you will not have to convert to an industry standard in a few years. Your applications will have become one.