For the purpose of simplicity, I would assume that existing organization in this case is a large hi-tech multinational that owns significant market share of its relevant industry. The company has several lines of business. The innovation is not only crucial, but also the main differentiation and competitive advantage. Thus, the company has to constantly innovate to enhance its business. The culture in such organization is supportive of new ideas. Often, there are several innovation idea groups that encourage generation of new thoughts to improve existing processes, ways of working, product features, or new service altogether.
Apparently, it would be much easier to propose new ideas and get company’s attention, right? Unfortunately, it is not the case always – or I must say, it is not that straight forward. Even if you have ideas, you need support from mentors within organization to refine it. But, if there are no mentors, or they are not mandated to support new ideas, nothing will move forward. Instead, if those ideas are being assessed and screened by people who didn’t innovate themselves or never been part of the product development/incubation cycle, the ideas will not only fail but also discourage the one who brought it forward.
However, if everything goes right and your idea gets funded, there are several challenges regarding pulling resources from existing engagements, duplication of work with other business units, not firm timeline of its delivery, no outsider view to challenge company’s direction, and the most importantly the lack of clarity in the leader’s vision about this initiative. All these – and few more – factors impact the pace during planning and execution phase. After several delays, and lot of reshuffling of resources, you might be able to develop a prototype or rudimentary service, but that might be too late for the market.
In short, starting a new venture within an existing organization might have lesser financial concerns – like raising capital – but there are several challenges during execution phase.
Spinning Out a Product into a Free-Standing Venture
The experience in this case is entirely different from the get-go. The founders must be on their toes even before pitching their idea to a potential investor. They should have a team assembled, prototype ready, business plan (tentative at least) in hand, focus on execution, resource requirements defined, and ability to convince investors of their ability to deliver in time. Raising capital in a spin off is the most challenging part. There is no known brand, or deep pockets from the existing company. The team must be ready to sell long before product is ready to be delivered in the hands of customers. They are already sensing the pulse of market and competition to understand if they are making correct judgement on the delivery timing and price point.
This is a sharp contrast to my previous experience of launching two new products/services within an existing organization.
In both scenarios, there are challenges. To suggest, develop, and launch a new product within existing organization capital may be raised easily, but the execution may pose multiple hurdles. While, using a spin off route gives founders big leverage to decide their way forward. But, it puts huge constraints on raising funds and generating value ad in real market conditions. In my experience, I found it more difficult to start a new venture within an existing organization.
Growing organically through offering a new product or service is very different from launching this new product or service through a new independent venture and entity.
The major challenges in bringing the product or service to market from within the company include:
- Resistance to change of stakeholders from other departments and support functions.
- Limitation of resources as they are allocated for the existing products, services, and teams.
- Fear of risk and being risk-averse.
- Fear of responsibility of current team in case of failure.
Some related success stories include:
- Apple AirPods
- Apple Music
- Apple Watch
- Apple TV
The major challenges in spinning out the product or service into a free-standing venture include:
- You are starting from scratch.
- You will need a lot of resources including financial resources.
- The odds are not in your favor statistically and the stakes are high.
- You will face many naysayers.
- You need to get many factors right including the team, the product, and the market.
Some related examples include Pixar.
I believe that bringing the product or service from within the company is more difficult because it’s not a clean state and there will be a high need to challenge the status quo which is often not an easy feat. Company’s usually spin out the product or service into a free-standing venture once it starts proving it’s a successful product or service. While devising a new product or service from within the company requires vision and a lot of determination and convincing.