Q & A

Keith from California asks “What are the pros and cons of incubating a new startup within a successful existing company?”

I have a well thought out idea for a new startup. The startup will be unrelated to my current small company that is doing quite well.

My basic options are to incubate the new startup within my existing company or launch the new startup completely separate from the existing business.

What are the pros and cons of each approach?

My Answer

It can be done, we have run 2 businesses here for 14+ years now, and it can work BUT you need to set it up so you fall into the pit of success (things I wish we had done earlier).

  • Keep separate records (like your books etc).
  • Account for time spent on each business, by each person separately. Even if you aren’t charging it directly it need to be kept as a guide of the “true investment” made.
  • Split expenses. Rent, power, servers, cleaning etc should be split as a % of use (like 1/4 for the new business)
  • Have a “deferred payment arrangement” setup between the two companies so there is a record of the new one owing the old one until it gets on its feet. Once it does you will need to track the owings both ways because one will do well when the other isn’t … this is both very good and problematic.
  • Have everyone agree what the effort split is going to be. Both businesses will need care and attention in order to succeed, which is going to get it and when.
  • Have an agreement on the sunset clause, if the new one gets bought who goes with it, who stays with the old business.

Questions to ask yourself first.

  • Can the current business withstand the cash investment in the new one?
  • Can the current business deal with you not giving your full attention to it?
  • Do the two business models work well together? Ours don’t, one is product sale with SLA and the other is basically Project/Time and materials. So there is conflict between the two models when it comes to who does what when and why.
  • Is there opportunity to share customers? This is a good start.
  • Is it better of done as a sub department or purely a brand name?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.