In any creative business environment, opportunities abound — but not all of them may align with your company’s current direction and goals. Some of the ideas or opportunities that come your way may even be a bit risky.
That’s where a spinout can be helpful. Rather than splitting your focus, you can split a segment of your business away from the parent company and allow it to become its own corporation.
When can spinouts be a great idea?
If a small segment of your company is suddenly experiencing exponential growth, it could be hamstrung by the relatively staid pace of its parent company. A spinout makes it possible for the new company to take on debts, issue equity shares and obtain capital in its own name. This is particularly useful when the spinout is in a “hot” market and the parent company is not.
Spinouts also benefit the parent company in numerous ways. Sometimes spinouts get started as ancillary services that the company needs, but they don’t “fit” with the brand. A spinout helps protect the integrity of the parent company’s image within its industry — and the new company that emerges.
One prime example is Chipotle’s Mexican Grill, which was a spinout of McDonald’s. These two companies are sharply divided in their approach and appeal, even though both are in the fast food industry.
In addition, spinouts make it easier for the parent company to devote its resources to its own core operations — instead of trying to find ways to bridge the gaps that inevitably develop between the needs of different operations. Those gaps can make everything from operations management to marketing much more complex. A spinout can eliminate those problems.
Is it time for a spinout?
There are some drawbacks to spinouts, specifically where finances are concerned. Done at the wrong time, a spinout can leave the parent company without the revenue it needs from its more profitable offspring, while the spinout could suffer from problems attracting investors or raising capital. If you’re thinking of a spinout, it’s always best to understand the legalities involved and all of the potential consequences.