Helping our existing technology companies create spin-out ventures promises to be a significant growth opportunity ... But it's not about risk, it's about uncertainty ...

I was just reading an article about the merits of start-ups versus “spin-outs” from existing companies. It notes that stable small or mid-sized companies have certain infrastructural and skill set maturities that, if focused on a new, innovative growth opportunity could give them significant advantages over pure start-ups attempting to address the same opportunites.That's applicable here in Hampton Roads because we have so many existing government contractors (many of them with valuable patents and related IP, often paid for by government funds) that have been in business long enough to have developed stable business processes, meaningful strategic partnerships, and functioning teams.

One likes to imagine a horde of innovative local military and NASA contractors realizing they have unmet opportunities, marshaling some internal funds, deploying teams of experienced managers/technologists/marketers, exercising long-standing manufacturing and marketing channel partnerships, attacking new markets, and growing revenues, jobs, taxes, etc. Sweet. 

But there's significant friction in that scenario that has mostly to do with the unfamiliarity of new markets, embedded corporate cultures that inhibit moves into new ways of doing business, complacency associated with stable business models and potential early-retirement, and so on. So maybe it's not a horde of innovative companies, maybe it's half of a horde? 10% of a horde?

Whatever. Even if it's 5% of a horde, the public policy implications are worth considering -- what can be done to nudge (yes, that's a loaded term) such companies into starting a spin-out venture that takes advantage of their relative maturity and cushions the risk of new markets and new business "ecosystems?" Well, here's the thing -- the problem lies not in risk but in uncertainty. It's an over-used metaphor but it's like standing on the edge of a cliff (I guess that's a simile, not a metaphor ...) without being able to see the bottom ... if you can see the bottom, you can at least make a reasonable calculation of the risk (risk = [probability of falling] X [the likely consequences of hitting the ground at high speed]). Some will be comfortable with high risk and high reward, others will prefer lower risk and lower reward, but neither will take the leap unless and until they know what to expect. It's not about risk, it's about uncertainty ...

So is it a matter of education (i.e., teaching our local government contractors how to create a spin-out venture and transition their technologies into new markets)? Yes. Is it a matter of mentoring (i.e., creating communities of practice that bring managers of prospective spin-outs into close and routine proximity with people who have been successful doing it)?  Yes. Is it a matter of seed money (i.e., small investments focused specifically on helping a spin-out venture achieve proof-of-concept and proof-of-relevance milestones in one or more new markets)? Yes.

I could go on but the point is: These are not the usual mom & pop service companies, restaurateurs, independent retailers, or sole-proprietor consultants who don't really want to grow -- these are real companies, with real processes in place, who want to grow within some reasonable boundaries. As much as I like to focus on start-ups, the biggest under-appreciated opportunity we have in Hampton Roads is the horde of existing technology-based government contractors, some percentage of which might be induced to use their existing IP, management sophistication, and process maturity advantages, along with a few new ways of thinking and acting, to go after new markets.

What can we do to make that a more viable, and more common, path to growth?