Spinning out a Star

Research-Technology Management, Nov-Dec, 2002

Michael D. Lord, Stanley W. Mandel, and Jeffrey D. Wager; Harvard Business Review, June 2002, pp. 115-121.

Most spinouts flop, the authors assert, because "They fall into one or more of four traps that doom them from the start." After describing these traps, they explain how tobacco giant R.J. Reynolds managed to avoid the traps when it successfully spun out the small pharmaceutical company Targacept. Reynolds recognized that it didn't know that much about the pharmaceutical business and could not merely try to spin out a small clone of itself. It had to treat the venture as if it were essentially starting from scratch, with a passionate entrepreneurial leader, a solid business plan, help from outside partners in the industry, and ultimately substantial venture backing. "Targacept shows why it can make great strategic and financial sense to spin out new ventures," they conclude, "but it also shows why executing a spinout is far from easy."