Breaking Bad Business Habits: Common Mistakes That Spin-Off Companies Make

My involvement with spin-off companies is varied therefore I may address this situation from a number of perspectives. A spin-off is the release of particular company assets to the stockholders in the form of cash payout or stock in a new company created from these assets. An example would be Verizon Corporation spinning-off Idearc, which was comprised of their directory publishing operation. I have no direct connection to this particular situation but it is very likely that Verizon felt that a paper telephone directory publication was not going to be that profitable in the future with the advent of the internet and other changes in the industry.

A spin-off company can have many problems

The first problem that a spin-off company might have is that important physical and employee assets have been drained from the company in anticipation of the spin-off. The parent company has not been making normal capital expenditures in anticipation of the divestiture? Hiring has not included high salary leaders. The best management employees were promoted out some time ago. The company has not been drained necessarily but it has been short-changed to some degree. This creates an immediate critical need for a top-to-bottom realistic assessment of the situation. The new management must know exactly what the new company's abilities are and also know what critical needs must be addressed immediately. Failure to do this first can create some major problems in time.

Organization

The new spin-off company may require a complete restructuring because of the lack of certain capabilities provided by the former parent company (i.e., a human resources department). Failure to immediately address a need such as this can be very costly. I saw one case where the new spin-off company started asking craft or production type employees to temporarily fill positions that they were unqualified for and incapable of filling. These employees felt it was a race to see who was going to rise to the top the fastest. Their false assumptions about promotions created havoc and finally resulted in some major failures in large system conversions. The company finally stopped, reassessed and got things back under control. Most of the people involved were either gone from the company or back in their proper place after twelve months. The experience was very costly to the company and set them back at a critical time. The lesson was to not place employees in positions that they are knowingly unable to perform. If outside resources are needed, get them.

Rules

The absence of rules and employee policies can create a situation that is intolerable. The absence of a policy about employee travel can result in two employees going to a distant town for a meeting. They fly on the same plane. When they arrive, they both rent a car and drive the two cars to the same meeting. At the end of the day they drive the two cars back to the airport and return to their offices in the same town. I saw this happen and then saw some other situations regarding company credit card expenditures. I knew the new spin-off company had some real employee policy issues that needed to be addressed immediately. Companies must have rules to follow. This particular spin-off company was overly concerned about computer systems and not adequately concerned about employee conduct. The result was that employees took advantage of the situation.

I remember a WWII movie made in 1959 called "Operation Petticoat". I will never forget a line by Tony Curtis, the submarine's assigned scavenger, when he said during an air attack, "Let's go. During confusion there is profit." This is exactly the situation these spin-off company employees felt they were in.

Never forget the customer

There can easily be a tendency for the spin-off company to be simultaneously addressing so many issues that they forget the customer. The customer may not know about your situation and if they do know they most likely do not care. They just want service. Don't leave them "blowing in the breeze" while dealing with internals. If you do they will not be your customers for long.

Selling off the company

Financial need has caused many new spin-off companies to consider selling their most important assets. Their financial requirements are usually great and this is the quickest and easiest way to find a quick remedy. These decisions should not be made in haste and desperation. Selling off the primary revenue producers will more than likely destroy the company's profitability and likely cause even more severe financial problems. A long-range plan must be prepared so that planning is not a day-to-day event.

Is company planning changing and evolving?

Spin-off companies exist for a reason. I have seen it involve technology changes, over diversification, bad financial decisions and many other situations. The question should always be asked, "If something was wrong with the old way of doing business, what needs to happen so the spin-off company survives and grows in the future?" Some companies are able to rise to this challenge and some try to continue without making necessary changes. Regardless of your position in the spin-off company, you need to remain cognizant of the situation, recognizing the actions that indicate failure in the future, and be able to protect your best interest and your career.