The 7 mistakes that explain the failure of a spin-off

After discussing Why launch a spin-off, then have List the best practices to do it in the best conditions, it is time to review the 7 mistakes that explain the failure of a spin-off. And number 2 shouldn't surprise you.

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You will now have understood it: at 321, we are convinced that creating a spin-off is an excellent strategy to allow a promising asset to stand on its own two feet and grow well beyond what would have been possible within the parent company. It is still necessary to avoid the few pitfalls that caused the premature end of many projects that were not prepared well enough. We go through it to help you be prepared as best as possible.

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Mistake 1: doing a spin-off with a dead branch of the company

Creating a spin-off is not comparable to the day of the bulky stuff. There is no question of putting on the sidewalk what you want to get rid of. On the contrary, you should see a spin-off as an opportunity to give a chance to a project in which you deeply believe.

It is indeed possible to get out of an ancillary activity considered to be too expensive, but only on the condition of being confident that leaving the company is the best solution to give it its chances of growing by itself.

We repeat: you should not do a spin-off with a dead branch of the company.

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Mistake 2: seeing the spin-off as the new Rolex you should have before you turn 50

Spin-offs are currently on the rise. However, this does not mean that it necessarily has to become a new check box on your todolist.

” We are careful not to fall into the spin-off at all costs., explains Cécile Campagne, director of valorization and industrial partnerships at Institut Curie. We saw that there was sometimes the feeling that if you are a researcher and you did not create your spin-off, you have missed your life! It is not possible! ”

Indeed, the mission of its management is not to multiply the number of spin-offs, but to make the most of each project. Only a very thorough market analysis will make it possible to identify whether a spin-off is the best way forward. Because it is a powerful device, it is not the magic bullet that fits all problems.

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Mistake 3: not explaining the start of the spin-off well enough

If the concept of a spin-off is clear to you, it is absolutely necessary to evangelize your teams so that they fully understand the implications of leaving this portion of the business.

” At first it was very complicated, says Hugo Falgarone, CEO of Skyreal (an Airbus spin-off). My former colleagues did not see me as a supplier at all. They wanted to get me on projects quickly without realizing that I would have to go through the need to contract the relationship, to make a proposal, an order. The discussions suddenly became less fluid. It was much easier for me to develop a commercial activity with Safran than with my former colleagues who acted as if I were still at home.”

It is therefore important to remember that a spin-off is not a subsidiary, and that this independence must be respected.

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Mistake 4: not maintaining good contacts with your parent company

To avoid the inconvenience mentioned in the previous point, some spin-off founders may be tempted to cut ties in a way that is a bit too theatrical, to insist on their independence by no longer speaking with their parent company. Extremes are never good solutions.

Delair separated from Alteia three years ago, but the CEO of the spin-off insists that” we have a line open all the time. We made the choice not to put in place coercive rules to make the separation work... but it is based on good understanding.”

It is therefore important to maintain good communication to ensure the smoothest functioning.

In addition, as we pointed out in our previous article, it is often valuable to be able to sign contracts with your parent company to ensure its turnover during this launch period.

This proximity is therefore valuable in many ways.

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Mistake 5: lack of transparency between the parent company and the founders of the spin-off

The anecdote will remain anonymous for obvious reasons: a team was created within a mobility company around a project that very quickly became a candidate to become a spin-off. For several years, the co-founders of the project worked hard to put it on the track for a successful takeoff. However, there was no contract signed beforehand on all the economic realities surrounding this operation. The discussion finally comes late and immediately becomes a major obstacle. The parent company sees itself as the owner of the project; the co-founders who made it possible don't understand that they don't have more control over it. Result: the project is at a complete standstill since there is a misalignment even before departure. In short, transparency is a key element in the success of a spin-off and you have to put black and white a screening as soon as possible.

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Mistake No. 6: keeping the majority parent company on track

Once again, the objective of a spin-off must be to give a promising asset a chance to grow at its best, outside of the company that saw it born. It is therefore advisable to remain a minority in its capitalization.

” The idea is not to kill the project before it has even started. ”, reacts Cécile Campagne from Institut Curie.

Michael de Lagarde, CEO of Alteia, also agrees:

” A big player that takes up a lot of space at the cap table will prevent new entrants who would feel too weak compared to the very large decision-making power of a single entity.”

Result: Alteia has chosen to be very independent from Delair with the main motivation being the need to maintain a healthy capital structure in order to facilitate possible future fundraising.

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Mistake No. 7: putting employees from the parent company at the head of the spin-off

Being an entrepreneur and being a product manager (or R&D director...) are two very different jobs. Some companies struggle to make a distinction and propel a handful of employees to the head of a spin-off, without any prior preparation. The ideal recipe to prepare for the failure of the spin-off.

The Institut Curie has therefore chosen an operation that makes it possible to find the best skills to support the project:

” Researchers who become co-founders of a spin-off are not going to give up their lab jobs for this creation. The PACTE law will allow them to devote time to this project... but above all, we will find the team that will be the permanent team of the spin-off. ”

This is also one of 321's great beliefs on the subject: we must find the entrepreneurs who will give the project the best chance of success.

“You can't improvise yourself as an entrepreneur,” underlines Patrick Amiel, founder of 321. We must therefore seek these skills from the people who can best support the success of a spin-off.”

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So the best is still contact our team of entrepreneurs to assess the market potential of your internally developed project.