July 2020 | Point of View

Want to innovate faster? Think like a start-up company.

Similar to a spin-in, custom-built companies are corporate-funded start-ups that allow large organizations to test new ideas with more flexibility and speed than possible internally

Want to innovate faster? Think like a start-up company.

In the early 2000s, Cisco developed a model for leveraging the start-up mentality within large organizations called spin-ins. A spin-in was a startup in which Cisco was the main investor. Cisco would send a team of employees to build an innovative product and, if it succeeded, it would buy that start-up for a predetermined and very generous price.

Like traditional startups, spin-ins were high risk, high reward. The entrepreneurs leading the companies would get large payouts, if successful, and nothing if they didn’t meet the strict goals set forth by the organization. But, with the risks came huge advantages like access to Cisco’s customer base, sales channel, manufacturing base, and support functions. These advantages mitigated a lot of the risks associated with a traditional startup. 

While there were challenges, the results were mostly positive for the organization. And the successful spin-ins were among Cisco’s most profitable acquisitions. Unfortunately for Cisco, internal barriers prevented the program from continuing. While this was the case for Cisco, other organizations can learn from the program’s strengths and work to counteract their challenges. 

This brings us to what we call custom-built companies. They operate on the same principles as spin-ins but differ in a few key ways. Let’s consider what they are and how they differ from the traditional way of building companies.

For organizations that want to achieve start-up level innovation

In a large organization, innovation is often hampered by bureaucracy and limited thinking. This isn’t because they are poorly run or designed, but merely a side effect of managing a company with so many moving parts. While this bureaucratic environment helps the organization function in many ways, things like approval processes, rules, and funding make it hard to nurture new ideas, especially in current conditions where time is key. 

Custom-built companies are designed to solve this. How do they compare to spin-ins?

similarities and differences between custom-built companies and spin-ins

Like spin-ins, custom-built companies are corporate-funded startups that allow large organizations to test new ideas with more flexibility and speed than is possible internally. From their outset, custom-built companies have access to some of the resources of a larger organization, not to mention funding. This enables teams to focus more attention on the product they’re building and less on the mechanics of the business.  

In a large organization, bureaucracy, politics, and tech debt can prevent your team from embracing innovative, yet controversial, ideas. To truly drive innovation, it’s not enough to create a separate department, you may need to create a completely separate business.

Custom-built equals less risk and more agility

small start-up team working collaboratively

Start-ups are risky, which makes large, risk-averse companies hesitant to invest in them. At the same time, these large organizations are trying to find ways to innovate and keep up with their lean and agile counterparts. That’s where custom-built companies come in. They’re a great, lower-risk way for large businesses to make change and create something new. Why is now the perfect time for custom-built companies?

The talent pool is overflowing. The current economic situation has put many talented people out of work. This has created a large talent pool of driven individuals who want to make a difference and possess the entrepreneurial drive. This is important since start-ups are risky and take a special mindset to embrace. 

Technology is accelerating like never before. Technology had been advancing at a steady pace, but recent events like COVID-19 have pushed this advance even harder. Organizations have had to learn how to work remotely, people have become more dependent on technology for socializing, and technology solutions are being worked on to help contain the pandemic. This new reality is changing the way we work, creating more opportunities and tools to do remote work effectively. When looking through the lens of custom-built companies, it can help start-ups drive down operating costs, source global talent, and keep working from wherever they may be.

Betting on the future. Custom-built companies let you place small bets on problems that you can’t solve internally without purchasing expensive pre-built solutions. Instead of building internally or purchasing a start-up outright, business leaders can look at the middle and ask the following questions: How can we achieve the same outcome as a start-up can? How do we do this while minimizing the cost of buying a start-up? But, the analysis doesn’t stop here.  

How do we prove the value of custom-built companies? What are the steps to getting started without cannibalizing the main business? How do custom-built companies help us prepare an organization for the future without changing the organization’s core business? Stay tuned for part two of this series on creating custom-built companies.

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