How to know when to keep great ideas in-house or launch a startup

Keeping innovation down on the farm makes sense much of the time, but it pays to know when a startup is a better idea

At the height of the Internet bubble, the rationale for spinoffs was that Internet businesses needed to be independent and scrappy to succeed. Today, the pros and cons of spinoffs may be more linked to the specific circumstances of the business.

In some cases, such as Verizon’s new product ventures, the innovation is core to the business and best kept tightly integrated with the company’s offerings. “The power of innovation within the mother ship is that the output is going to be much bigger” argues Verizon CIO Shaygan Kheradpir. “You’re mobilizing thousands of people, and millions of transactions, to your site.”

In other cases, such as that of Security Benefit, the new product line may be separate from the core business. “The business has to be willing to be the VC for it, and be comfortable with the business risk,” says Forrester principal analyst Alex Cullen. “They have to know how to size it, assess it, mitigate it, and they have to be comfortable with the fact that the IT organization that supports them is also going to have something else on its plate.”

If those pieces are not in place, however, companies may find it more practical to spin off an IT innovation into the market where it can attract funding, focus, and build a bigger customer base.

“A lot of good ideas need an ecosystem around them,” explains BT director of research and venturing Mike Carr, who maintains that BT is getting better technology thanks to the new Vidus spinout. “We’re a massive services company, we need technology, and a way to get that economically produced is to get it to global scale — set it free, let it trade with the world using VC money.”