Shut Down, Sell Off, or Spin Out?
The wonderful thing about startups is that they are constantly innovating. The team is hard wired to see new and better ways of doing just about everything. And that’s also the bad thing about startups. This propensity to build vs. buy – to invent, create, develop and engineer – often leads to a promising new product or business unit. More often than not, these new opportunities take the company off mission. The founder or board eventually wakes up and yells…. STOP!
This is a very common problem in startups. Big corporations would LOVE to have this problem. They suffer from a dearth of innovation and creativity. When it does come along, they have the capacity to commercialize it. Startups do not, they have to selectively pick their battles. They have to decide which innovations to focus precious resources on, and which ones should be shut down, sold off, or spun out. This one decision alone can burn time and energy, but it can also save a startup from itself. I know, I’ve lived it three times.
At Ask-Me Multimedia, we commercialized some of the first interactive computerized kiosks. We put them in hotel lobbies, malls and airports. People would touch the screen to browse things to do, places to go, print directions and coupons. Our CTO discovered that the software could easily be adapted for new applications – Computer Based Training and Multimedia Business Presentations (before PowerPoint). The margins were so much better in software than hardware. We sold off the kiosk business to a sign and directory manufacturing company, and focused all of our efforts on these new software applications. It was the ultimate “pivot” before that term became popular.
At CompuServe SPRYNET, we launched one of the first national Internet Service Providers. To attract customers to pay us $20 per month to connect to this new thing called the Internet, we built a content-rich “portal” to give them a place to start exploring the World Wide Web. Turned out, lots of companies wanted to “private label” our connection stack and portal. After doing a few of these deals, we decided to shut down this private label unit because it was distracting the company from improving and managing its own online services.
At Design Intelligence, we launched the first desktop publishing product that integrated content from any source and enabled auto-design and layout of a document or web page. After hearing big publishers express concern that our product enabled users to “co-opt” their copyrighted content, we pioneered a feature that would enable users to instantly obtain legal permission to use any content on the Internet. The applications for this capability turned out to be much bigger than just a “feature” in a desktop publishing product, so the board made the decision to spin out a separate company…which attracted venture-funding and became iCopyright.com.
As a startup founder, investor, advisor or board member, one of the most important decisions you need to make is what the company will do and what it will not do. If you are seduced by every promising idea or innovation the company is incubating, you will surely implode if you do not choose wisely. At some juncture, sooner rather than later, someone must stand up and yell STOP! Should we continue to invest in this idea, or should we shut it down, sell it off, or spin it out? If the decision is made to continue to invest in the idea, then something else has to go.