Since the days of the Lockheed SR-71 Blackbird project, the use of a separate organization to create new products and technologies within a larger entity has been effective in accelerating innovation. By creating a small task team that can operate outside of the confinements of a mature, large company, decision-making speed is increased, burdened costs are reduced, liabilities to the overall organization are segregated, and adaptation can occur quickly.
The risk in such a pioneering task team is not that it will fail, but rather that it will succeed. When a skunkworks proves the feasibility of a product or technology, and demand begins to grow, there will come a time when the separate entity will likely need to be integrated into the larger organization. Sometimes the startup can simply continue as an evolving business without that integration, but more often the spinout has to be spun back in. And many sanctioned benefit programs and employment laws can apply to a subsidiary, even if the spinout stays spun.
Anticipating what the issues will be when a reintegration is needed can help set up the conditions for a successful merger later on. The initial conditions designed into the startup will determine its future ability to continue within the overall company.
In the case of a skunkworks creating products consistent with the parent corporation’s strategies, it seems unlikely to grow a separate business that never gets merged back into the overall company. Leveraging capabilities that already exist, rather than recreating those resources for the new business’s products, makes good sense. The economies of overhead allocation across a larger revenue base would allow the cost of business for the new entity to be less than it would if all of those functions are recreated within it. Knowing that a reintegration is probable helps to prevent the issues that can fragment teams.
To the degree that the new entity will need support and involvement by some number of parent company employees, it won’t be long before the employees working only for the startup will become aware of the compensation and benefit plans of the parent. Sometimes, the envy works the other way, if the startup has equity opportunities that don’t exist in the parent, or if the lifestyle of the startup employee appears to be freer and more creative to those within the larger organization who are attracted to that kind of environment.
Even without “environmental envy,” shared teams can create a contest of methods and processes, where the startup employees feel like they are being held back by schedules and availability of people upon whom they depend in the parent company. Conversely, the parent company staff views the startup employees as renegades. The best chance for success in a skunkworks is to have minimal, if any, comingling of staff from the outset.
The trajectory of future intersection between the parent company and the new entity should be plotted. If future revenue and commercial success are hypotheses against which evidence will be applied in the months and years to come, then scenario planning could provide guidance. Here we arrive at the true challenge.
The qualities and characteristics of people who prefer to work in small, risky, chaotic, exciting new ventures are not those of the people who prefer to work in more structured, secure, predictable environments. Companies can make the mistake of staffing startups with highly skilled, successful professionals who have never lived through the embryogenesis of a startup, and who wouldn’t want to if they really understood what it would be like.
Making sure that the parent and subsidiary are sufficiently similar by the time they merge is akin to choosing your speed and positioning to get onto the freeway. As any highway patrol officer will tell you, it’s not absolute speed that causes the danger as much as it is relative speed.
Sewitch is an entrepreneur and business psychologist. He serves as the vice president of global organization development for WD-40 Company. Sewitch can be reached at sewitch1@cox.net.
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