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Why launch a spin-off?

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In their quest for innovation and optimization of internal processes, most large companies have developed technology and/or a new service that they keep under-exploited in their fold. These projects, real hidden treasures, often represent fertile ground for the creation of spin-offs. In this first article in a series devoted to the subject, we will focus on the good reasons to embark on this entrepreneurial adventure.

For Michael de Lagarde, the spin-off adventure starts at Delair, the drone manufacturer that he co-founded in 2010. This company, of which he was the CEO from 2010 to 2021, specialized in the construction of long-endurance drones for aerial observation with numerous opportunities in industry and in defense.

We quickly realized that our customers didn't have much to do with drones by themselves, Does he explain to 321. What they wanted was useful information on the basis of which to make the best possible decisions. We were therefore forced to create software tools to transform these masses of collected visual information to transform them into useful information..”

Very early on, however, Delair understood that the R&D carried out could deal with imagery in a broader sense than simply that carried out by drone. The software is rapidly diversifying to use satellite data but especially Lidar (a remote sensing technology that uses laser beams to measure precise distances and movements in real time). These sensors can be airborne, but also carried on a vehicle or by a human.

Delair is trying to make its drone sales activity and that of selling a software product coexist for a time.

This new activity was overshadowed by Delair's historic business. We made the very rational decision to separate the two..”

The spin-off was launched to give birth to Alteia.

Take out an asset to make it grow

This is perhaps the most common motivation for a spin-off: to give the opportunity for a company's new activity to unfold at 100% of its potential. In this way, the new business becomes a growth driver to generate new revenue.

Alteia thus generated 5 million euros in turnover during its first financial year, before approaching 10 million for the next.

It is also the case of Sunday, an application that simplifies payment in restaurants. Initially created only to be used in the establishments of the Big Mamma group, it was quickly decided to release this activity to allow it to attract the entire catering sector. This spin-off was an immediate success.

Numerous spin-offs also make it possible to get out of the inertia of a large group, in order to regain greater agility.

We did in four months what we would have done in three years ”, a director of innovation told us.

These are often internal initiatives that have already developed a bit., explains Patrick Amiel, founder and CEO of 321. The corpo realizes that there may be market potential, but is struggling to grasp its depth and the necessary financing needs. Moreover, the question is often financial: what is the expectation of gain versus the necessary investment.

The advantages of a successful spin-off are however multiple, since they will both significantly exceed expectations in terms of total return for shareholders, while increasing sales growth, EBITDA margins and reducing administrative and production costs (stream).

Release a project that is not (or no longer) core-business

The other side of the same coin is the need to part with a project that is not core-business. This is the example of a French industrial giant (who wishes to remain anonymous), which has set up an innovation lab to diversify its activities. Among the projects that emerge, some are very promising but are a bit too far from the scope of the company. Rather than making it a living or abandoning it, a spin-off is a perfect way to allow this new activity to be taken over by a team of entrepreneurs who can give it every chance.

This is also true when a company decides to refocus its activities and must separate itself from what is no longer at the core of the focus.

The Alphabet group (Google) has often distinguished itself in this field. After developing a galaxy of projects, more numerous than the letters of the alphabet, the Mountain View giant began to give them a second life in the form of spin-offs.

This is the case with Sandbox AQ, but also with Aalyria, a project in which Google keeps a minority stake. The company explained that it wanted to limit the number of internal projects and associated expenses, while hoping to revalue the assets of the Loon business (communication networks using stratospheric balloons) whose assets were transferred to Aalyria.


Giving opportunities to research products

This is a variation around the first two motivations, but many structures are not intended to create direct applications of their work and patents. This is for example the case of the Institut Curie, which was transformed into a real spin-off factory to transform its research work (its core-business) into an asset that generates a significant impact in the health sector, and which can raise funds independently (about ten million euros each year).

The institute has also set up a center dedicated to startups in its department of valorization and industrial partnerships. The cancer research center is therefore taking advantage of the work of its 3700 researchers and access to a treasure trove of data (we are talking about 80 million MRIs and 20 million mammograms for example).

An operation that will be similar to that of the very famous MIT (Massachusetts Institute of Technology), which has also multiplied spin-offs with numerous successes.

 

Launching a spin-off meets a multitude of strategic motivations, whether it is to promote under-exploited innovations, to focus resources on core business, or to boost growth by capitalizing on new opportunities. However, while the reasons for creating a spin-off are numerous and varied, the key to the success of these businesses undeniably lies in their execution. Careful planning, a deep understanding of the market, effective management of resources, and the ability to adapt quickly to changes are essential to transform the initial opportunity into lasting success. In short, although the decision to launch a spin-off is motivated by solid strategic factors, it is the excellence of its execution that will allow its full potential to be realized, generating added value both for the parent company and for the spin-off itself.

See you next month to get into the thick of this [HOW TO] spin-off: with the sharing of best practices for a successful spin-off!

And if you want to test the market's appetite for one of your services developed internally, our team of entrepreneurs can assist you.

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