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Spinnovation

Ironically, even as managers were urged to innovate internally far more aggressively, they were being advised by others that intrapreneurship was too limited an approach. Innovating outside the bounds of their existing organizations was an even quicker, more flexible, and richer innovation option. If there was a seeming contradiction in the concurrent popularity of these two ideas (internal venturing versus spinouts), it was lost in the excitement of the times. Spinouts became almost as hot a topic as corporate venturing.

As the Internet spawned proliferating dot-com startups in the late 1990s, for example, corporate executives were urgently advised that they could only hope to compete by taking radical action. They were advised to, literally, compete "outside the box," the "box" being their existing corporate structure. Established companies could spin out Internet versions of themselves and beat startups at their own game. The thinking was that the core established firms simply couldn't (or shouldn't) try to internalize the radically disruptive Internet. The old and new technologies, cultures, and business models were just too dissimilar. The entire hierarchy of the parent firm just didn't get it (whatever "it" was) and, therefore, was far too stodgy and slow to adapt.

Spin it out, however, and it was an entirely different ball game. This required setting up a new and separate organization, giving it a life and a label by attaching ".com" to the corporate moniker, and then (most importantly) spinning it out and setting it free. Only if it was loosed from the hierarchy and bureaucracy of its corporate parent, even as it leveraged the parent's brand and reputation, could a corporate dot-com be nimble enough to compete in the New Economy. The added bonus was that a spinout could tap into rich sources of new capital outside the corporate parent (including, perhaps, through a blockbuster IPO) to better fund expensive new ventures with less risk and yet greater upside.

With a spinout, the theory went, you could retain the advantages of corporate parenting even while giving the offspring increased freedom, focus, and funding of a truly independent entrepreneurial organization. Watch the spinout's value soar as its entrepreneurial energies are unleashed, and then capture your share of the value created through clever organizational, legal, and financial structuring. The list of corporate dot-com spinouts grew quickly as every old-line retailer pondered its future in the Internet age: Wal-Mart, Kmart, Toys R Us, Staples, and so on. Spinout excitement was not limited to cyberspace, either. In a variety of sectors, spinouts caught on quickly as a promising fast-track solution to innovation funding, organization, and commercialization.

Within a few years, however, the majority of technology boom spinouts clearly could not stand on their own terms. Many of them struggled to find their own workable business models and failed to gain traction in the marketplace. Most were spun back in or shut down, leaving a trail of less-than-stellar returns and legal and organizational messes in their wake. The problem was not just that they were dot-coms in a world where the Internet bubble had burst for everyone. Many of the non-Internet spinouts also met with disappointing fates. Again, exciting new innovation theory seemed to fizzle in practice.

The real explanation was more complex, of course. Spinouts can liberate and accelerate tremendous value creation from innovation. But they need to be done right, and for the right reasons. Spinouts are not the appropriate commercialization solution for every new patent, product, process, or channel. Choosing whether and when to spin out innovation, and mapping and executing exactly how, both require critical thinking.

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