Your Guide to Starting a Spinoff Company

Your Guide to Starting a Spinoff Company

Starting a business is scary. Terrifying, in fact. But perhaps not as difficult as you’d think.

If you start a business on the back of an existing company, you’ll bypass two of the biggest hurdles facing new ventures.

To find out what they are, and ensure your spinoff is a success, let me hand you over to Mark Ford.

How to Knock Off Your Employer and Start Your Own Business

By Mark Ford

Two engineers, Fahri Diner and Xiang-Dong Cao, were the brains behind a billion-dollar deal.

They were sitting around after work having a few beers (I’m making up the details) and complaining about their employer, Siemens Information and Communication Networks in Boca Raton, Florida.

Cao was saying that their bosses did not properly appreciate them. Diner replied, ‘Hell, we should start our own business.’

‘You’re damn right,’ Cao replied.

Several months later, they said goodbye to their employer and moved into a dusty warehouse. They telephoned former colleagues until they found two willing to work for them for stock.

With this meagre core of four employees, they started their own fibre optics transmission company, doing essentially the same thing they were doing before but with a few of their own improvements.

In a few short months, they had gone from wage-earning employees to brave new entrepreneurs.

How I became an entrepreneur

My first real job was ‘backseat wiper man’ at the Rockville Centre Car Wash on Long Island. I was 14 and happy with the $1.25 hourly rate.

A couple years later, when I was working as a house painter’s assistant in swank Hewlett Harbor, a 20-minute drive from my home (a ramshackle house literally on the other side of the tracks), I became an entrepreneur.

Well…a chicken entrepreneur.

What happened was this: My friend Peter and I were scraping the shingles of a big yellow mansion — I can still remember the details — when the lady of the house, a Mrs Bernstein, came out asking for Armando, our boss. Armando’s routine was to drop us off at the work site at 7:00am and disappear until five or six in the evening.

We were left to do the work, with virtually no experience, and only Armando’s advice on watering down paint and ‘dry rolling’ the second coat to guide us.

(In case you’re about to get your house painted…dry rolling is when your painters pretend to be giving you a second coat when in fact the rollers are dry. This allows them to get the job done twice as fast and save a bundle on the cost of paint.)

Im on to your boss,’ Mrs Bernstein said. ‘How much does that cheap bastard pay you?’ We told her. She harrumphed and disappeared inside. When she came out half an hour later, she announced, ‘I just fired that good-for-nothing. And if you know whats good for you, youll be here Monday morning. Ill pay you an extra dollar an hour to finish this job properly.

Some other time, I’ll tell you what happened when Armando discovered our duplicity.

But the point of this little memoir is to illustrate how I accidentally started working for myself…and to highlight an important principle of wealth building.

Starting your own business is a scary process. You give up a steady income and go without any assurances for an unknown period of time. You risk embarrassment and failure. Most people — and I mean 99 out of 100 — don’t have the brass for it.

I didn’t. But I was lucky. Mrs Bernstein gave me the impetus I needed. Had it not been for her, I might be a university teacher today, earning a modest living and complaining about the administration.

New shoots from an old vine

I wonder how many new businesses start this way — as new shoots from an existing vine. Many, I’d guess. Even most.

The advantage of doing this is clear. Spinning off from an existing enterprise gets you past two of the biggest hurdles facing new ventures: knowledge and contacts.

Having the right contacts — vendors, marketers and consultants — is equally as important as having knowledge.

The great thing about starting a business you’re already in is that you can gain the knowledge and make the contacts while you’re still an employee.

Start by ‘promoting’ yourself. Do the job you want, not the job you have. Learn everything about it. Find out what makes your business grow, how your sales are made, and what, if anything, makes your product or service special.

Also very important:

  • Figure out what is less than perfect about the business you are in.
  • Get friendly with the key suppliers, bankers and consultants your business uses.

After doing these things, you are only one decision away from going off on your own.

This is basically what Diner and Cao did. Within days after jumping ship, they had an ongoing business competing with their former employer.

Two years later, their company, a developer of high-speed fibre optics transmission equipment, was acquired by Nortel for $3.25 billion.

Four steps to knocking off a business

No, you don’t have to be a self-starter to have your own business. You can start as a wage coolie, just as Diner and Cao did, and take advantage of what you have to create an opportunity for yourself later.

Interested? Here’s what you need to do:

  1. Learn everything you can about your business, especially how sales are made and what, if anything, is unique about the product or service you provide. Read about business. Take seminars. Educate yourself.
  2. Become known as a ‘can-do’ employee. You will attract good people; individuals you may want to team up with later.
  3. Figure out how to make your company’s products or services better. This will become the key to your eventual success. When you go out on your own, you want a ‘competitive advantage’; something you do better than your former employer can.
  4. Start saving. You are going to need a bank account to get you by, even if you find a venture capital partner. Try to stash at least 10% of your take-home pay. 20% would be better. If this is not possible, consider — seriously — a weekend or evening job.

*****

Thanks for those insights, Mark.

If you’re a first-time entrepreneur looking to start a business, a spinoff company could be the way to go.

Michelle Hammond,
For Markets & Money

Editor’s Note: Mark has spent more than three decades dispensing wisdom like this…and now he’s compiled it into the most comprehensive wealth-building program in existence…

It’s called the Wealth Builders Club. It includes everything from extra income blueprints (which have the potential to generate thousands of dollars per month) to investment strategies outside the stock market, plus several of Mark’s bestselling books. Click here to learn more.

Michelle Hammond

Michelle Hammond

Working alongside Wealth Builders Club founder and multimillionaire Mark Ford, Michelle was the Director of Wealth Builders Club Australia, which launched in 2014 and now has members nationwide.

Wealth Builders Club Australia has four main aims for its members: kill debt, cut spending and live rich, open up multiple streams of income, and invest ‘unconventionally’ to secure cash flow in retirement.

Prior to working with Mark, Michelle worked as a business journalist, focusing on Australian start-ups.

Leave a Reply

Be the First to Comment!

Notify of
avatar
wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au