The right twist on a spinoff

Nation's Business, Nov, 1997 by Marcy Shoemaker

Taking the entrepreneurial leap and spinning off a business from a large company is a lot like leaving home.

On one hand, you're giving up the security of knowing that you're part of a larger organization with administrative and financial resources that a smaller, independent company may not command.

On the other hand, spinning off offers autonomy and the ability to make your own decisions and respond quickly to the changing needs of clients or your industry.

In March, I took the leap and purchased the stock in my marketing-communications company, Criterion Communications, held by Aetna U.S. Healthcare. This gave me full ownership of the company.

The enterprise was formed four years ago as a subsidiary of U.S. Healthcare which merged with Aetna in 1996) to handle that company's marketing-communications needs. But from the beginning, the operation wanted to reduce its dependency on its largest client.

While Aetna U.S. Healthcare remains our biggest customer, our base of 300 clients and projected 1997 revenues of $12 million suggested that it was the right time to go out on our own.

Indeed, that is one of the benefits of spinning off a business: You have been able to establish a vital and growing concern under the supportive wing of a larger organization. This nurturing environment gives a business, like a bird leaving the nest, the ability to fly on its own, but it doesn't make going solo any less scary.

Here is what you can do to make life easier when your business spins off:

Acknowledge that change can be difficult. Even though much of how we conduct business remains the same, both administratively and with regard to our clients, our spinoff entailed a big psychological change for the staff. It's important to recognize that going from a large company to a small one might make employees unusually concerned. The company has to prove itself. Paychecks must arrive on time, benefits similar to those provided by the larger company must be offered, and the business must continue to prosper.

Involve employees. The more knowledge that employees have about the changes that will take place, the more comfortable they will be with those changes. As we prepared to spin off, we formed an employee committee that met weekly and participated in our decision-making process.

Create an entrepreneurial culture. Breaking away from a larger company with many decision-making levels might allow you to create greater flexibility in your company's approach to a wide range of issues, from when work is accomplished to how it is done. Hire people you believe in, then let them do their jobs with a true entrepreneurial sense of commitment to their product and the company.

Make your move more than just a state of mind. A physical relocation is symbolic of your new freedom and how you want to do business. Use a relocation to re-energize your staff and to get them thinking about how to make your "new" company better.

Don't try to do it an. Rather than creating departments and adding employees, consider contracting with outside service providers to handle the administrative tasks that once were done by your parent company.

Stay true to yourself. Managing a spinoff is much like heading a start-up. Employees need to see a strong, dedicated, and confident leader, and clients need to receive consistent service.

Just as with leaving home, there will be days when you'll wish you had stayed and days when your be glad you didn't. If you stay the course, chances are good that the latter will outnumber the former.

Marcy Shoemaker is CEO of Criterion Communications in King of Prussia, Pa. She prepared this account with Contributing Editor Susan Biddle Jaffe. Readers with insights on starting or running a business are invited to contribute to this column. Write to: Entrepreneur's Notebook, Nation's Business, 1615 H Street, N.W., Washington, D.C 20062-2000.